Judge tosses DOJ suit against social media influencers in alleged pump-and-dump scheme

Judge tosses DOJ suit against social media influencers in alleged pump-and-dump scheme
  • PublishedMarch 23, 2024

A federal judge has dismissed a criminal indictment against seven Twitter users and a podcaster accused of running a $100 million stock manipulation scheme over social media.

The Justice Department did not do enough to describe the influencers’ activities as a “scheme to defraud,” wrote District Judge Andrew Hanen of the US District Court for the Southern District of Texas, in an order dated Wednesday.

In the indictment, the DOJ had alleged a lucrative “pump and dump” scheme in which the social media influencers used the messaging app Discord to promote certain stocks to their followers before selling their positions after a run-up in the stocks’ prices. The result was an alleged conspiracy by defendants “to unlawfully enrich themselves by pumping and dumping securities … through false and misleading posts and material omissions on Twitter [and Discord].”

At least one of the defendants whose account CNN previously reviewed had tweeted about Gamestop and AMC, two so-called “meme stocks” that saw significant public interest and trading in 2021.

On Wednesday, however, Hanen wrote that while the defendants may well have intended to separate followers from their money, the evidence did not support a finding of actual securities fraud or conspiracy to commit fraud.

“The key question is whether one statement by one of the co-defendants that ‘we’re robbing … idiots of their money,’ which is alleged in the Indictment, is sufficient,” the judge wrote. “This statement sufficiently alleges ‘intent to defraud’ … but does not on its own sufficiently allege that Defendants executed, or conspired to execute, a ‘scheme to defraud’ investors of money or property” as defined by court precedent.

Unlike a traditional fraud case, Hanen added, the DOJ merely claimed investors were deprived of relevant market information — not that the influencers directly stole money from investors.

The indictment was dismissed without prejudice, meaning charges could potentially be amended and refiled.

The DOJ case is distinct from a civil suit brought by the Securities and Exchange Commission around the same time against those same defendants and that accused them of violating US securities law. The SEC’s case is currently on hold, after the Justice Department asked the court in January 2023 to stay that lawsuit while its own criminal case against the defendants unfolded.

The Justice Department didn’t immediately respond to a request for comment. The SEC declined to comment.


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