Can you commit financial fraud by Tweet?

What’s the SEC looking for this year?
March 10, 2021
Goldman Sachs fined $1.25M for compliance lapses
March 25, 2021

Yes, you can. The Securities and Exchange Commission (SEC) announced fraud charges, an asset freeze, and other emergency relief against an Irvine, California-based trader who used social media to spread false information about a defunct company while secretly profiting by selling his holdings of the company’s stock.

Are you tweeting for clients?

According to the SEC’s complaint filed under seal in federal court in the Central District of California, at the end of last year, Andrew Fassari used the Twitter handle @OCMillionaire to tweet false statements about Arcis Resources Corporation (ARCS), a defunct Nevada company with publicly traded securities. On Dec. 9, 2020, the complaint alleges that Fassari began purchasing over 41 million shares of ARCS stock shortly before tweeting false information about ARCS to his thousands of Twitter followers. He falsely claimed that ARCS was reviving its operations, expanding its business, and being backed by “huge” investors.

For nearly two weeks, Fassari tweeted 120 messages referencing “$ARCS.” Dozens of those tweets were false and misleading. These included tweets mentioning “$ARCS 380,000 indoor cultivation 1 Million+ sq ft processing. WEEEEEEEEE This CEO has big plans for us” and “a ton of news coming and backed by huge investors for its #cannabis operation[.]” In seeking an injunction, the SEC also alleges that Fassari has tweeted about other stocks as recently February 2021.

Can tweeting boost share price?

Apparently. As a result of Fassari’s efforts, the complaint alleges that ARCS’ share price skyrocketed over the next several days, ultimately increasing over 4,000%. In the meantime, Fassari is alleged to have made false statements about his own trading in ARCS. Between Dec. 10 and 16, 2020, Fassari allegedly sold all his ARCS shares for a profit of more than $929,000 while continuing to publish false and misleading information about ARCS and his trading in ARCS.

“We allege that Fassari profited by using social media to deceive investors,” said Melissa R. Hodgman, Acting Director of the SEC’s Division of Enforcement. “The SEC is…proactively monitoring suspicious trading activity tied to social media.”

Was @OCMillionaire Fassari’s only handle?

No. Fassari used similar usernames on other social media sites, such as www.investorshub.com (iHub) and Instagram. @OCMillionaire joined Twitter in July 2013, lists “13.1K” followers, includes a picture of a black Ferrari, and states, in part: “Master short squeeze artist. #Pennystock Wizard.”

Over nearly ten days (December 9-18, 2020), Fassari posted false and misleading statements on social media about the status and business prospects of the defunct company ARCS, including posting fictitious emails from the purported CEO of ARCS discussing ARCS alleged expansion into multiple states and a purported stock buyback. Just before his tweeting began (Dec. 9, 2020), Fassari began purchasing over 41,000,000 shares of ARCS. ARCS’ price skyrocketed, reaching a closing price of $0.054 on Dec. 14, 2020, increasing over 4,000 percent from its closing price of $0.0012 on Dec. 8, 2020.

He sold all his shares over three days (December 10, 14, and 16, 2020) violating Section 17(a) of the Securities Act of 1933 [15 USC § 77q(a)] (“Securities Act”), Section 10(b) of the Securities Exchange Act of 1934 [15 USC § 17j(b)] (“Exchange Act”), and Exchange Act Rule 10b-5 [17 CFR § 240.10b-5].

The SEC investigation is ongoing

And compliance? Likely retracing Fassari’s steps. But that’s not you or your company, right? Because compliance professionals like you and your team rely on the cloud-based compliance solutions Patrina delivers. For more than 25 years, Patrina has been helping compliance professionals like you stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, comprehensive, 8-module compliance solution, compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.

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