Recently, she promoted her new cryptocurrency called $HAWK. Unfortunately, soon after the coin’s launch, its value plummeted to less than 5% of the original value. People online have claimed to have lost their life savings and their children’s college fund.

$HAWK has been deemed a memecoin because it originated from Welch’s “Hawk Tuah” catchphrase. Almost all memecoins fall flat and eventually become worthless. The DOGE coin is one notable exception.

Welch and her crypto partners have been accused of “rug pulling.” In rug pulling, investors hype a coin (or similar crypto product), causing its value to initially skyrocket. Soon after, a key group of investors (typically insiders who received the coins before the initial coin offering) sell their holdings at the inflated price, causing the value of the coin to plummet. The remaining investors are left holding the bag with a nearly worthless coin.

An investigation showed that 96% of the $HAWK coin was held by 10 addresses. There was also a significant selloff of the coins.

Welch claims that neither she nor anyone else on her team sold any of their $HAWK coins, implying that they did not profit from the hype. They blame “snipers” — bots that buy designated cryptocurrencies to take advantage of price discrepancies or arbitrage opportunities. But skeptics questioned the high fees and who took those fees.

Welch also claimed that she did not intend to defraud investors.

At first glance, she does not seem to be the type to know the intricacies of cryptocurrencies. She has attended several cryptocurrency conferences, but she claims to have done so to better connect with her fans.

Regardless of her knowledge, she has a team. She partnered up with people who appear to be crypto experts. She hired an attorney after becoming famous, although it is not clear whether she consistently followed her attorney’s advice.

Until someone issues refunds or gets a court judgment, what can investors do to minimize their losses?

Aggrieved investors can file a complaint with the government. Given the intense publicity, an investigation is likely, and the government could take action to help investors get their money back and deter similar conduct in the future. Investors can contact the Securities and Exchange Commission, the Commodities Future Trading Commission, and the FBI’s Internet Crime Complaint Center if they think criminal activity could be involved.

Private law firms could also help investors. One law firm, Burwick Law has posted on X, requesting $HAWK investors contact them to learn about their legal rights.

So, can investors write off the loss on their tax return? The position of the IRS is that cryptocurrency-related losses are treated like a capital loss. Capital losses can offset any capital gains. Unfortunately for taxpayers, capital losses can only offset $3,000 of ordinary income every year, with the remainder to be carried forward. This hard rule has been around for years without adjusting for inflation and will provide a meager tax benefit.

A taxpayer in the cryptocurrency trading business full time can claim the loss as an ordinary loss.

In 2023, the IRS publicly released its Office of Chief Counsel Memorandum stating its position on the deductibility of worthless and abandoned cryptocurrency. A taxpayer cannot claim a deduction for worthlessness if the cryptocurrency can be traded on the open market, even if there is a significant loss in value. To claim a worthlessness deduction, the taxpayer must relinquish dominion and control of the cryptocurrency and take affirmative steps to abandon the cryptocurrency during the tax year. However, the memorandum does not elaborate on how to abandon the cryptocurrency.

The memorandum points out that even if the cryptocurrency became worthless or abandoned, taxpayers still cannot claim the loss because it is considered a miscellaneous itemized deduction. The Tax Cuts and Jobs Act (TJCA) disallowed the miscellaneous itemized deduction from 2018 until 2025. Whether the TJCA provisions will be extended for 2026 and later is not yet clear.

The taxpayer may be eligible to claim a theft loss so long as the transaction was made with the expectation of a profit, such as an investment. This nonpersonal theft loss is not considered a miscellaneous itemized deduction.

Generally, to be eligible to claim a nonpersonal theft loss, several requirements must be met. First, the theft must be connected to a trade or business or as part of a transaction made with an expectation of a profit. Second, the theft must be illegal in the jurisdiction where the victim lives, although a theft conviction is not required. Third, the stolen funds must go directly to the scammer and not to an unconnected third party (the people who lost money on Enron stock learned this the hard way). Lastly, there must not be a reasonable prospect of recovery.

From my experience on matters like this, the IRS is likely to disallow a theft loss. They will argue that the since the taxpayers are still in possession of the $HAWK coins, no theft took place.

Also, since some of the parties on the other side of the transaction — namely Welch and others who created and promoted the $HAWK coin — are still present, there may be a reasonable prospect of recovery either through voluntary refunds or a legal judgment. Until that is established, the taxpayers cannot claim the theft loss.

Welch’s fame will shoot down just as quickly as it went up. Hopefully this will serve as a warning for people thinking about getting into questionable cryptocurrencies.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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Well, the joke’s on us and, more acutely, on Citron Research’s Andrew Left.

The Securities and Exchange Commission alleged Friday that Left used his firm, Citron, to generate about $20 million in profits from illegal trading involving almost two dozen companies. The Justice Department also announced a criminal case against Left, accusing him of securities fraud and allegedly lying to investigators about compensation from hedge funds.

The hedge fund allegedly paying that secret compensation? Why, none other than the aforementioned small Canadian hedge fund no one’s ever heard of.

That million bucks Left allegedly received from Anson Funds is just a small part of the $20 million he’s alleged to have illicitly earned. The rest, sayeth the Feds, was just pure pump-and-dump in reverse.

“Left knowingly exploited his ability to move stock prices by targeting stocks popular with retail investors and posting recommendations on social media to manipulate the market and make fast, easy money,” the Justice Department said in its statement…. Left, according to prosecutors, would also quickly close positions after releasing a research report or making comments. That would let him take advantage of short-term price movements….

The SEC alleges Left bragged to colleagues that some of his statements caused retail investors to trade the way he wanted them to and that it was like taking “candy from a baby.”

Of course, as Left knows only too well, it isn’t always like taking candy from a baby. But it was apparently too thrilling to stop, even after the meme-stock mania taught Left to know better, and even after some FBI agents borrowed Left’s computers for a while.

Also, Left—not for the first time—is not only convinced he’s done nothing wrong, but that everything the Feds say he’s done is actually god’s work.

“The DOJ and the SEC threaten the integrity of the securities markets and put the health of our financial system at risk by trying to silence a publisher of truthful information who also trades in the securities he writes about,” said [Left lawyer James] Spertus.

US Accuses Famed Short-Seller Andrew Left of Securities Fraud [Bloomberg]

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Of course, a fraud doesn’t need everyone to take the bait, or nearly everyone, or even a majority. A tiny handful will do. And, indeed, at least a tiny handful have been striking up conversations with these mysterious unknowns, only to learn that while they might be a bit ham-handed with a phone number or Twitter handle, they’re actually quite sophisticated investors with an in on certain newly-public Chinese small-caps, and perhaps you, total stranger they definitely only accidentally got in touch with, might like to place a few hundred or thousand or million dollars into this can’t-miss investment, in exchange for the trouble caused you by an errant message. Certainly, enough are taking this bait to have the Financial Industry Regulatory Authority concerned.

The regulatory notice published Thursday warned that certain small-cap issuers, typically those that raised less than $25 million, may be subjected to pump-and-dump-like schemes…. These schemes often begin with a seemingly misdirected online message leading to a relationship between victims and bad actors, sometimes romantic in nature. “After a relationship is established, the bad actor will make a recommendation to the victim to place limit orders in certain securities at a specific time and price,” Finra said….

Thursday’s warning follows the volatility seen in many new listings in recent months. Hong Kong-based fintech company AMTD Digital Inc. briefly jumped over 320-fold after its July listing, while Chinese garment maker Addentax Group Corp. rose more than 130-fold on its market debut in August. The two stocks have since lost more than 99% of their value.

All pretty standard stuff, and hardly worth the mention in these digital pages, but for one thing: the epithet applied to this particular flavor of pump-and-dump. They’re called, deliciously and also sort of disgustingly, “pig butchering.” While this term no doubt has something to do with the Chinese taste for porcine cuisine—many of the recently-IPOed companies in question are based in China, with shares marketed by or through Hong Kong broker-dealers—it more directly refers to fattening before the slaughter, larding the would-be victim up with praise, getting him to bulk up the company’s stock in turn, before running the knife across the throat and running away with the money made on the pumped-up price.

Oh, and if the victims of said fraud weren’t already feeling bad or ashamed enough about falling prey to these schemes, there’s another unique feature of “pig butchering” that will really help amp it up.

Today criminal syndicates target people around the world, often by forcing human trafficking victims in Southeast Asia to perpetrate the schemes against their will.

So maybe it’s not such a fun new addition to the universe of financial frauds.

Finra Warns of Pump-and-Dump Frauds on U.S. Exchanges [WSJ]

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There is now good reason not to believe many or all of those things, as they are all now the subject of a 22-count federal fraud indictment, Securities and Exchange Commission litigation and a further lawsuit from one of the aforementioned tax-liability-holding client. But arguably the most unbelievable bit of Costello’s tale may be that of his military history. Does this sound like the story of a man with extensive experience in blending into his environment on secretive missions?

Costello, who previously lived in Bellevue, Washington, had agreed through his lawyer to surrender last Thursday to the FBI office in San Diego after being informed he had been indicted on criminal charges by a grand jury in federal court in Washington state a day earlier…. But Costello never showed up as promised at that FBI office that day, officials said…./On Tuesday night, Costello was arrested by an FBI SWAT team in El Cajon, California, in San Diego County….

Fugitive Justin Costello arrested in alleged $35 million fraud based on ‘mirage’ of being billionaire, Harvard MBA, Iraq veteran [CNBC]

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Cohen's trading patterns stink to high heaven…. Having successfully pumped the stock up 100% to 200% in a couple of days, Cohen is dumping/has dumped it on the unsuspecting retail investors who foolishly got caught up in the hype he generated.

What a total disgrace!

This morning I did something I've never done before: I reported Cohen's actions to the SEC using its website to "Report Suspected Securities Fraud or Wrongdoing" and checked the boxes for "manipulation of a security" and "pump and dump scheme." I hope the SEC investigates...

Well, Tilson oughtn’t hold his breath.

Many large investors don’t formulate written plans to buy or sell, to avoid triggering the requirement to update the ownership disclosure, said Adam Pritchard, a securities and corporate law professor at the University of Michigan. “If you are properly lawyered, you don’t have a plan until you decide you are going to sell,” Mr. Pritchard said…. “If his intent was to truly do nothing” on the morning of Aug. 16, “then that is a hard enforcement case,” [Columbia Law School Professor Joshua] Mitts said. “If I were the SEC, I would want really clear evidence that the trading decision had been made.”

Ryan Cohen’s Bed Bath & Beyond Stock Sales Highlight Gray Area in Disclosure [WSJ]

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Kim Kardashian, Floyd Mayweather Jr. , and Paul Pierce are among a number of celebrities being sued for allegedly leading investors into a cryptocurrency “pump and dump” scam…. The lawsuit alleges EthereumMax is a “speculative digital token created by a mysterious group of cryptocurrency developers.” It says the celebrities told their millions of social-media followers to buy the cryptocurrency, only to sell when the price was inflated.

This, on the other hand: This sounds promising. (We are obviously kidding. It sounds like more snake oil.)

Toucan lets users who own carbon credits link them to digital tokens. The tokens, called BCT—for Base Carbon Tonne—can then be traded on cryptocurrency exchanges. That wouldn’t change the nature of the underlying projects, but Toucan says it would create a forum for trading and improve transparency by providing real-time pricing data and a public record of trades to track who gets to take credit for funding climate-benefiting projects…. However, companies accounting for their carbon offsetting aren’t Toucan’s main users. Since BCT went live in October, trading has been driven by Klima, another crypto asset that was launched on the same day as Toucan. The two projects operate independently, but have a “friendly and symbiotic relationship,” Toucan’s website says…. KlimaDAO lets people use BCT tokens to buy Klima tokens. The BCT tokens are kept in what KlimaDAO calls its treasury, effectively removing them from circulation so they can’t be used to offset carbon emissions. Meanwhile, the Klima tokens are traded on cryptocurrency exchanges, allowing traders to speculate on a carbon-backed crypto asset.

Kim Kardashian, Floyd Mayweather Jr., Others Sued Over Cryptocurrency Promotion [WSJ]
Cryptocurrency Traders Move Into Carbon Markets [WSJ]

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Imagine our surprise and horror to learn, then, that a person has been abusing that safe space to take advantage of others for his own benefit! Who could possibly imagine a thing? I mean, if this were true, it’s almost as if someone could lie their way all the way to the White House using such technology! And worst of all, his name isn’t even Alex Delarge!

Steven Gallagher, 50, was taken into custody in Ohio Tuesday for running a pump-and-dump scheme that netted him more than $1 million through the Twitter handle, @AlexDelarge6553, according to a criminal complaint filed in federal court in Manhattan. Gallagher, who has touted at least 60 companies since the end of 2019, continued the manipulative conduct even after his brokerage firm closed his account, the Securities and Exchange Commission alleged in a parallel civil case…. In the SpectraScience trade, for example, Gallagher allegedly coordinated with other traders to buy shares in the defunct company, which hasn’t filed SEC financial statements since 2017. Gallagher acquired more than 20 million shares of the penny stock and touted it in a series of colorful tweets, showing purported screenshots of his brokerage orders, according to the criminal complaint filed by Manhattan federal prosecutors. He sold while continuing to promote the shares, writing: “Haven’t sold a share yet!”

Unbelievable. But it gets worse. For instance, would you believe that a New Jersey man promising 60% returns to clients might not be on the up-and-up? We couldn’t, and neither could those clients, apparently, but it’s (allegedly) true!

Swapnil Rege started a new company and raised $10 million from investors after he was fired from Marinus in 2017 and even after he agreed to an industry ban to resolve 2019 charges that he artificially inflated his positions on derivatives to earn himself a higher bonus at the fund…. The Securities and Exchange Commission said Rege, 46, promised investors in his company, SwapStar Capital LLC, returns of up to 60% but used most of the money to pay back other clients and for personal expenses, including the legal fees he incurred during the earlier government probe…./ In its suit Tuesday, the SEC said several clients had said they had no idea Rege had been barred from the industry and wouldn’t have invested with him if they knew.

Twitter User ‘Alexander Delarge’ Charged for Hyping Penny Stocks [Bloomberg]
Ex-Hedge Fund Trader Swindled Millions After 2019 Industry Ban, SEC Says [Bloomberg]

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The news release went out at 9:30 a.m. Monday, just as the U.S. stock market opened. It claimed to be from Walmart and had some big news for the cryptocurrency industry: The nation’s largest retailer would soon begin accepting payment in Litecoin, a digital currency.

The announcement appeared real enough that several media outlets wrote it up. Even the Twitter account for the Litecoin Foundation, which promotes the use of the currency, touted the release in a post. The value of Litecoin jumped more than 30 percent before Walmart put out a statement saying the news was false…. The newest thing in finance had apparently fallen prey to one of the oldest investor hoaxes around — a classic pump-and-dump scheme.

That, of course, means that Gary Gensler and the SEC will be all over it. Speaking of cryptocurrent things Gary & co. are all over….

Coinbase Global Inc. is seeking to raise $1.5 billion in its first junk-bond offering, a deal that provides another stamp of approval for cryptocurrency and a sign that the nine-year-old firm is gaining mainstream acceptance even as regulators ramp up scrutiny…. The bonds earned a BB+ rating from S&P Global Ratings and a Ba1 from Moody’s Investors Service, just one notch below investment grade…. Coinbase had received at least $2.4 billion of demand from investors for the notes by early afternoon….

Extra cash could also help Coinbase expand internationally and increase the slate of services it offers. The company got a setback recently after the U.S. Securities and Exchange Commission said it would sue if Coinbase launches its new interest-bearing account called Lend.

And speaking of hedge fund guys going crypto, former skeptic Steve Cohen really is all in.

The hedge-fund manager and owner of the New York Mets agreed to make an initial investment in Radkl, a quantitative-trading firm specializing in digital assets…. Radkl, pronounced “radical,” launched Tuesday…. Mr. Cohen is investing in Radkl in his personal capacity, not via his hedge-fund firm, Point72 Asset Management LP….

And speaking of things designed to get the credulous to reach for their actual wallets…

Ark Invest CEO Cathie Wood expects bitcoin to soar to $500,000 in five years, and her firm's conviction in ether has strengthened tremendously, the star stock picker said in an interview with the CNBC anchor Andrew Ross Sorkin at the SALT Conference on Monday.

Although in this case, it’s not a matter of God working in mysterious ways.

Her price prediction depends on whether companies continue to diversify their balance sheets into bitcoin, the biggest cryptocurrency by market value, and whether institutional investors begin to allocate 5% of their funds to it.

Phony Walmart News Release Signals a Crypto Pump-and-Dump Scheme [NYT]
Steven Cohen to Invest in Crypto Quant Trading Firm [WSJ]
Coinbase to Raise $1.5 Billion in Bond Sale [Bloomberg via Yahoo! Finance]
Cathie Wood predicts bitcoin will surge to $500,000 in 5 years - and says Ark Invest's confidence in ether has shot up dramatically [BI]

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Oh, about that:

Antivirus software entrepreneur John McAfee was indicted on fraud and money laundering conspiracy charges alleging that he and cohorts made over $13 million by fooling investors zealous over the emerging cryptocurrency market, authorities said Friday.

McAfee, 75, was charged in a newly unsealed indictment in Manhattan federal court along with Jimmy Gale Watson Jr., who served as an executive adviser on what prosecutors described as McAfee’s “so-called cryptocurrency team.”

That’s one description of Watson. Here’s another:

Authorities accused McAfee and his bodyguard, Jimmy Gale Watson Jr., of exploiting McAfee’s large Twitter following to artificially inflate prices of “altcoins” through a so-called pump-and-dump scheme, and concealing payments McAfee received from startup businesses to promote initial coin offerings….

The Commodity Futures Trading Commission filed related civil charges concerning the alleged pump-and-dump scheme…. Both also face civil charges by the U.S. Securities and Exchange Commission, which in October accused McAfee of concealing more than $23.1 million he made from boosting seven cryptocurrency offerings on Twitter.

In the cryptocurrency cases, authorities said McAfee touted assets including Verge, Reddcoin and Dogecoin as part of a “Coin of the Day” or “Coin of the Week” tweet from around December 2017 through February 2018.

Antivirus software creator charged with cheating investors [AP]
Antivirus software pioneer McAfee charged by U.S. with cryptocurrency fraud [Reuters]
Earlier: Steven Seagal Is Out Of The CryptoPromotion Business

It’s like a modified pump and dump, because at the end of the day it will most certainly go back down.

This guy thinks so, too.

“If they are all egging each other on using a social-media platform, they are effectively engaged in a crowdsourced pump-and-dump scheme,” said Daniel Hawke, a partner at Arnold & Porter Kaye Scholer LLP.

The traders “are making no effort to conceal their apparent intent to manipulate the price of the stock,” added Mr. Hawke, a former chief of the Securities and Exchange Commission’s market abuse unit.

As Belfort’s nearly two years in prison will tell you, pump-and-dumps are illegal. So are 4.4 million Redditors about to go to jail? Uh, probably not.

“Our team is of course -- our economic team including Secretary Yellen and others -- are monitoring the situation,” [White House Press Secretary Jen] Psaki told reporters at the White House on Wednesday.

The SEC said late Wednesday that it is monitoring the “volatility in the options and equities markets” and “working with our fellow regulators to assess the situation….” Suing hundreds of defendants who likely traded in small increments probably isn’t practical for the agency, according to securities lawyers, while a case that alleged a few key individuals instigated any problematic trading could be feasible….

Some investors, though, said the trading talked about in Reddit’s WallStreetBets forum isn’t manipulative and reflects an earnest effort by individual investors to seize on opportunities that have always been available to establishment players…. “This is the ultimate triumph of the newbies over the old pros,” said Steve Sosnick, chief strategist at Interactive Brokers. “But what’s frustrating to the old pros is that they can’t engage in the sort of behavior that the newbies can do.”

Pity, because it doesn’t look like they’ll be getting any help from Congress.

“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” [Sen. Elizabeth] Warren said.

“Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino,” [Rep. Alexandria Ocasio-Cortez] tweeted…. “AOC got our backs,” read a post on the forum, along with a screenshot of Ocasio-Cortez’s Twitter thread.

[Tucker] Carlson then slammed the Wall Street establishment for crying foul on a game insiders are usually the ones playing. "That's a crime only people who work for hedge funds are allowed to manipulate the market often with the help of CNBC. Normal people are not allowed to do that already. The people in charge of our system are outraged that anyone without an official position at a hedge fund would dare manipulate the market to their benefit."

Well, those are some delightfully strange bedfellows, but if the powers that be aren’t going to do what the hedge funds pay them to do, someone else will, it seems.

TD Ameritrade said it placed restrictions on certain types of trading activity on the companies “in the interest of mitigating risk for our company and clients….” Charles Schwab said shares of GameStop could no longer be traded on margin, meaning trades cannot be placed with money borrowed from the company. And Robinhood, the trading app that has made it easier for inexperienced traders to enter the market, said it wouldn’t allow margin trading of shares of both GameStop and AMC.

GameStop Stock Surge Tests Scope of SEC’s Manipulation Rules [WSJ]
SEC ‘Monitoring’ GameStop Frenzy as Warren Pressures Regulators [Bloomberg]
Trading platforms are limiting trades of GameStop and other companies. [NYT]
AOC mocks Wall Street outrage over GameStop surge [N.Y. Post]
Progressives Slam Hedge Funds Irked By GameStop Stock Boom As SEC Says It’s Monitoring The Situation [Forbes]
Tucker slams hedge funds as he explains GameStop stock market saga [The Post Millennial]
Jordan Belfort: GameStop frenzy is a ‘modified pump and dump’ [CNN]

And thanks to the WSJ, we now know how right we were: 

The original tipster who led federal authorities to the biggest college-admissions scam they’ve ever prosecuted was Morrie Tobin, a Los Angeles resident who was being investigated in a securities fraud case, according to a person familiar with the investigation.

Mr. Tobin was being questioned in an alleged pump-and-dump investment scheme—in which people conspire to inflate the price of a stock so they can sell it at a profit—when he offered a tip to federal authorities in an effort to obtain leniency, according to people familiar with the matter.

Looking at the SEC paperwork about Tobin, it gets even more predictable sad and dumb:

And now we also know how a Newport Beach-centric fraud came to be in the hands of Boston feds. We never bought the whole "Because we can handle it," routine [it was way too Boston] so it's comforting to know that a dumb criminal not nabbed over his head and in a panic blurted out "I bribed my dumb daughter into Yale!" when pressured if he had anything to trade.

This is all so perfect and terrible at once. Hooray!

The Yale Dad Who Set Off the College-Admissions Scandal [WSJ]

So, enjoy, everyone who doesn't work at Wedbush Securities:

The Securities and Exchange Commission announced today that Wedbush Securities Inc. will pay a $250,000 penalty and has agreed to be censured to settle its failure to supervise charge in a pending administrative proceeding. 

According to the SEC’s March 2018 order instituting proceedings, Wedbush ignored numerous red flags indicating that one of its registered representatives was involved in a long-running pump-and-dump scheme targeting retail investors. Wedbush conducted two flawed and insufficient investigations into the registered representative’s conduct, and failed to take appropriate action.

Umm what? Well, apparently this all revolves around the actions of a broker named Timary Delorme, and we'll let the SEC take it from here:

But Delorme and Engelbrecht were so good at crimes that they talked about doing crimes in emails...that Delorme's bosses at Wedbush apparently read:

And punished her thusly:

Wow. Trying to contain the damage of a rogue broker by gambling that she can't get too much crime done in just one hour a day? That's tip-top management.

It makes us miss Thad. Poor, dead Thad.

On June 8, 2010, one Howard M. Appel of Wayne, Pa., walked out of a federal prison in Nowheresville, same state, and became a free man. Well, sort of: After just about two years enjoying the hospitality of the Bureau of Prisons on account of his securities fraud and money-laundering convictions, Appel wasn’t free to get right back into the stock game, on account of having been banned by FINRA—well, actually, FINRA predecessor NASD, in 1991, for another fraudulent scheme. Indeed, Appel has quite the biography, as our friends at Seeking Alpha noted three years ago.

Appel also wasn’t exactly totally free in the personal liberty sense, either: His sentence included three years of supervised release. For all intents and purposes, however, on this count, he was free, because the supervision does not appear to have been particularly searching.

The Securities and Exchange Commission today charged Howard M. Appel with manipulating the stocks of three microcap companies while on supervised release following his criminal conviction for a prior securities fraud.

The information alleges that Appel—a former licensed stockbroker with two prior securities-fraud related convictions—secretly acquired large blocks of stock in publicly traded companies, including Virtual Piggy, Inc. (ticker symbol “VPIG”), and Red Mountain Resources, Inc. (ticker symbol “RDMP”), to manipulate the market in those stocks. As alleged, Appel acquired title to the shares in the names of nominees in order to hide his ownership block from investors and made between $3,000,000 and $4,000,000 from his scheme.

The above are from the SEC and Justice Department press releases, although it looks like the Manhattan D.A.’s office, some alleged pump-and-dump victims and Seeking Alpha were on the case before the FBI got wind of things, and certainly before Appel's parole officer, who probably still has no idea. Not to worry, though: If he’s convicted this time, the DoJ is seeking… three years of supervised release.

Recidivist Securities Fraudster Charged with Multi-million Dollar Stock Manipulation Scheme [DoJ]
SEC Charges Recidivist in Stock Manipulation Scheme [SEC]
Apparent Connections To A Convicted Stock Promoter: Another Chapter In The Organovo Saga [Seeking Alpha]

A few years ago, Wedbush Securities found itself on the wrong side of its regulators for allegedly throwing open the doors to the markets to whoever (allegedly) wanted to quietly and anonymously manipulate markets, short naked, that kind of thing. This was (allegedly) in no small part Wedbush’s fault, since, according to the SEC and FINRA, its compliance program consisted mainly of having customers tell on themselves, while its compliance officers were essentially paid on commission based on how many trades their customers made. But it was also, as old friend Matt Levine noted, kind of the SEC’s fault, because all of the above would have been fine if, in fact, Wedbush’s customers had told the firm about all of the allegedly illicit shit they were doing.

This time, however, the SEC has found fault with Wedbush that it cannot be said to share. For Wedbush still allegedly sucks at keeping tabs on what is going on, only this time, the allegedly nefarious goings-on were the work of one of its own.

The regulator alleged that Wedbush ignored numerous red flags raised against the conduct of employee Timary Delorme, including a customer email tip. Wedbush also conducted “two flawed and insufficient investigations” into Ms. Delorme, according to the SEC….

According to the SEC, Ms. Delorme engaged in specific trades aimed at manipulating the price and volume of stocks. In return, she received undisclosed benefits from a third party. She allegedly worked with that third party, who initially originated the plot, from July 2008 to early 2014.

SEC Charges Wedbush in ‘Pump-and-Dump’ Scheme [WSJ]

How can you cut through the noise and fake news and determine whether to believe the probably-paid-for hype or the sour grapes left by unsatisfied customers? Jose Canseco can help. In his new video pumping JasonBondPicks.com, Canseco says the word “landmines” a lot and reminisces about his 40 homerun, 40 stolen base season and a crush on “Maria Bartiroma” [sic] that led him to spend as much time as possible on CNBC during his six months running Canseco Financial back in 1999.

You see, friends, on his road to the Federal Reserve chairmanship, Canseco made a lot of mistakes. Some of these, you know about: his predictions of immediate collapse for the British economy after the Brexit vote, his overly bullish gold call, his pioneering use of anabolic steroids. The problem was, he didn’t have a mentor. Not that it was his fault, you see: He was “kind of like a new breed-type baseball player, with power and speed and all that,” and therefore there was no one around to teach him. Luckily, when it comes to trading, he can learn, and he’s ready to learn from Jason Bond.

The biggest thing is he’s experienced. I think he can, uh, show you again, just like baseball, the do’s and don’t, the landmines, what could happen if you make this decision, what could happen if you make that decision. Give you a little bit of insight on the things he’s been through, the history he’s been through, what he’s confronted, whether it be—you know, you know—stock markets profiting or stock markets diminishing, falling. I think to make more or a educated, not, not guess, but I think to make, and develop more, of an educated strategy. Is he doing all the right things? Absolutely. I think you want to try to mimic that. I think you want to try to structure your game plan that way. I mean, 400% is incredible. You don’t see that every day. So, he’s got to be doing something right.

There’s much more about that 400%, too, almost as much as there is about landmines and downfalls. There are no mentions of “past returns are no guarantee of future outcomes.” (Although there is one of the former Canseco Financial partner who cannot be named “for legal reasons.”) But any, please, Jose, tell us more about the importance of a good mentor.

You know, there are a lot of books being written, a lot of people telling you I can teach you the right way and show you the right route. But there’s rarely the individual that says, “OK, I’m gonna show you were all the landmines are, because I’ve done it wrong, I’ve stepped on all these landmines, and I don’t want you to go that route.” So I think a mentor can do two things: Yes, he could show you the proper way and educate you and give you his experience, but on the other side, he can also show you where, if you take this route, it’s gonna be the wrong way. I’m gonna show you where the landmines are. I’m gonna show you where all the downfalls are, and try to prevent that new broker to go down that actually route.

Of course. And how do you, new member of Bond’s Millionaire Roadmap, know you’ve found just that mentor? Someone who can help you “crush the markets” the way you used to crush “a baseball father than anyone else”?

Um, I would probably try to get every information possible from him, in every possible scenario, and try to educate myself more and more and more and more.

All the information about all possible scenarios. Got it. Should be as easy as slamming 462 home runs without chemical enhancement. And since you’ve obviously vetted Bond thusly, surely you can give us a glimpse of what you’ve learned.

I think the most important thing is, don’t buy or trade a stock just on a whim. Just on, you know, second or third-hand information, do your homework, do you due diligence, find out what’s happening with the actual company….

Jason Bond’s definitely worth looking into. A 400% increase is just miraculous. And hopefully he can keep it up there; it looks like he knows what he’s doing. So I would definitely give him a chance. Look him up. See how he can help you out.

Time was, your average retail investor could log onto SeekingAlpha.com and peruse penny stock tips with the assurance that everything was completely legit and above-board. Those days are over. On Monday the SEC unveiled charges against 27 people over stock-promotion scams that targeted SeekingAlpha and other sites for paid ads masquerading as honest stock analysis.

Central to one of the largest schemes, the SEC alleges, was a woman named Kamilla Bjorlin – stage name Milla Bjorn, 46 – whose career transition from B-movie actress to investment professional would have made for a great SeekingAlpha testimonial if not for the dozen-odd securities fraud charges currently pending against her.

Bjorlin has had a diverse career. Her creditsinclude playing Countess Elan in The Princess Diaries 2: Royal Engagement, Svetlana, a “badass babe” aboard an American research vessel who ends up mutating into a Thing-like monstrosity in the 2015 straight-to-video alien flick Harbinger Down, and now, defendant #2 in Securities and Exchange Commission v. Lidingo Holdings et al.

The scheme, as the SEC complaint alleges, resembled classic pump-and-dump stock promotion. Bjorlin, through her company Lidingo Holdings LLC (evidently named for the Swedish town from which she hails), hired writers between 2011 and 2014 to pen glowing testimonials for microcap companies that had paid to be hyped. The writers published their manifestos on SeekingAlpha, Benzinga, TheStreet, and basically anywhere else where the sole qualification for publication was the ability to click the box next to “I agree.”

The qualifications for Lidingo writers were slightly steeper. As Bjorlin put it (allegedly) in an email: “No disclosures allowed.” When publishing on SeekingAlpha, Lidingo's hired hands had to click a box stating they received no compensation from the sale, which is effective both for getting rubes to listen and for committing securities fraud. “The idiot we used in the beginning, he will NOT post a disclosure again,” Bjorlin allegedly emailed a colleague after an early stumble. To avoid suspicion from the SeekingAlpha readership, the writers published under totally innocuous names like Henry Kawabe, The Swiss Trader and Teresa Dawn. 

If the SEC complaint is to be believed, Bjorlin drove a hard bargain. After taking credit for helping the juke the stock of Galena Biopharma (GALE) to a towering $2 a share – referred to by her and the company's CEO as “$2 buck chuck” – at which point she demanded a higher cut:

In April 2012, Bjorlin learned that GALE had completed a financing and again asked GALE’s CEO for bonuses and also for stock options for Lidingo. The basis for her request was that GALE’s stock had performed well due to Lidingo’s “very successful campaign” and Lidingo should be “appropriately compensated for the hard work and risks, as well as performance.” GALE paid a bonus to Lidingo in April 2012. However, GALE’s CEO responded that he needed board approval before giving Lidingo any equity and said that he would raise the issue in a few months. Upon receiving the CEO’s response, Bjorlin suggested to Singh that they let GALE’s stock price drop if they did not receive stock options immediately. Over the succeeding months, Bjorlin continued to ask for options and/or shares for Lidingo.

Here's an example of the fine work that justified the bonus, in which “Glen S. Woods” suggests that a rival Galena commentator might be compromised. Hundreds of these Lidingo posts still proliferate across the internet.

The whole case is a bummer for SeekingAlpha, which has since taken steps to stymie scammers (see their statement here). But the real tragedy is that of Kamilla Bjorlin's business career, cut down in its prime just as she began to show her true potential.

SEC v. Lidingo Holdings et al

Yesterday, we discussed the uncomfortable situation going down in the Stewart family, wherein ex-Perella Weinberg employee Sean Stewart might go to jail because of a recording of his father, Bob Stewart, talking to a government witness about his son giving him inside information obtained at work.* Today, there's awkward state of affairs of the Galanis clan, whose father John, and three sons Jason, Jared and Derek, have been accused of running a pump and dump scheme. It's unclear what Jared did to become dad's favorite but now this is happening:

[John] Galanis pleaded guilty Wednesday before U.S. Magistrate Judge Sarah Netburn in New York to one count of securities fraud and one of conspiracy to commit securities fraud, in exchange for a sentence of as much as 10 years in prison and a fine of $30,000 to $5 million. He also agreed to forfeit more than $19 million. His lawyer, David Touger, said after the hearing that his client pleaded guilty to avoid implicating his son Jared, without mentioning the other children named in the indictment. 

That's going to take some therapy to get over! In related news, for those of you wondering, yes, 50% of Team Galanis is battling securities fraud charges on multiple fronts:

Jason and John Galanis face additional charges, in an unrelated case, that they stole the proceeds of a $68 million bond issue in the name of a South Dakota American Indian tribe. They used the proceeds to pay legal bills and taxes, buy luxury goods and make $3 million in improvements to Jason Galanis’s Bel Air, California, home, prosecutor charged.

Patriarch in Alleged Pump-and-Dump Scheme Pleads Guilty [Bloomberg]

Related: In Retrospect, L.I. Father Probably Would *Not* Have Recounted Story About Son Chiding Him For Failing To Trade On Inside Tip, In Presence Of Guy Wearing A Wire

*Stewart the Younger's lawyers claim that Daddy Stewart obtained and traded on information unbeknownst to his son; prosecutors say otherwise.