Current Event Research Paper
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Current Event Research Paper
The study focuses on an incident where Gallagher committed securities fraud by misleading his Twitter followers into purchasing penny stocks. The incident is unlawful because it contradicts particular legal directives enacted to forbid such online malpractices. The analysis reveals that the offender would be convicted should the matter be decided now that the litigation is ongoing and the offender has already agreed to the one count of securities fraud. Gallagher’s action is unethical because it goes against renowned ethical frameworks such as utilitarianism, virtue ethics, and deontological theory that determine what constitutes an ethical conduct. The story passes valuable information to security firms as well as investors who learn the significance of making necessary confirmations that they are dealing with a credible agent or institution before proceeding with any transaction. The news creates the urge to guide investors and inform them how to find credible agencies through online platforms without being victims of such frauds.
Factual Description
A trader was arrested in Ohio in October 2021 for allegedly receiving more than $1 million unlawfully by offering misleading information to the more than 70,000 followers he had in Twitter. He tricked them into purchasing stocks in what stock and security market officers refer to social media-infused change in the area of stock manipulation (Neumeister, 2021). The trade in penny stock, Steven Gallagher, was charged in a federal court in New York with various counts, including market manipulation, wire fraud, and securities fraud. The 50-year-old suspect was apprehended in Ohio. Damian Williams, a U.S.-based attorney, said in a press release that the fraudster used old-school techniques to the technological age, and owned a social media account responsible for a pump-and-dump trick that swindled ordinary and unsuspecting investors (Neumeister, 2021). According to the head of Homeland Security Investigations of the New York-based office, Ricky Patel, the fraudster had transformed lies into money (Neumeister, 2021). Patel further said that such Pump and dump stock initiatives cause mistrust and dishonesty in the market and have seen real culprits who usually invest considerable amount of money, only to have their aspirations shattered by a con’s greed.
The court papers presented in Manhattan showed that the culprit started defrauding his followers on Twitter in September 2019 using a name he crafted to refer to himself (Alex DeLarge). Gallagher’s alias is the same as a character in a novel by Anthony Burgess called A Clockwork Orange (Neumeister, 2021). Alex comes out as a gang leader who orchestrates and executes serious crimes. Legal authorities accused the culprit of secretly purchasing a significant number of shares in about six scantly traded securities called penny stocks because they usually do not go beyond $1 for each share (Neumeister, 2021). The authorities reported that he then reverted them to his followers by compelling them to buy the stocks and push their prices higher (Neumeister, 2021). Then, the suspect confidentially sold the securities while continuing with marketing them to his followers so he could get as much returns as possible from the sales, according to a complaints by one of those pushing for his conviction.
Gallagher used other techniques to appeal to more unsuspecting consumers. For instance, he constantly boasted of his competence and prowess of his account balance and achievements on his Twitter page to make his appeal and practices more credible and urge followers to do as he instructed. Trading in a firm the suspect marketed on his Twitter account, Spectra Science in Minnesota, was temporarily halted in February 2022 by the Securities and Exchange Commission (SEC), which reported that “particular social media accounts may be indulging in a systematic approach to artificially manipulate the share price” (Neumeister, 2021). An agent for Homeland Security, Kingston Moy, who appended his signature to the complaint, said that he spoke to various investors who lost large sums of money after following the fraudster’s advice. The officer reported that the investors who were attracted by the large number of followers and in the way he posted personal financial information on the social media platform (Neumeister, 2021). During Kingston’s interview with Gallagher, the suspect agreed that he run the Twitter account by the username, DeLarge, and also confirmed that he had posted a tweet in mid-2020 aimed at boosting the values of the stock firms he had been urging his followers to follow.
Applicability of Laws and Regulations
Various regulations exist to counter the actions by Gallagher. Such laws exist because securities fraud, also known as investment or stock fraud, is a form of grave white-collar crime that can be executed through various approaches, but largely entails providing misrepresenting information to investors to sway their decision-making. In the U.S., the Securities Act (1933) and the Securities Exchange Act (1934), define how to deal with securities fraud (Palmiter, 2017). The regulations describe this kind of fraud as knowingly and deliberately taking part in deceptive actions aimed at inducing investors or manipulating financial markets to come up with wise financial investment decisions depending on false information and deception (Palmiter, 2017). In this case, the law refers to securities as any kind of investment, such as investment contracts, bonds, and stocks among others. Under the federal regulation, securities fraud could be termed as a Class C felony and carries a punishment of as much as twenty years being a correctional facility, three years of monitored release (Hornsby Law Firm, 2022). One could also be required to pay a fine of $5 million. In addition, an offender would have to return the profits he has gained from his malpractice (Hornsby Law Firm, 2022). Any property acquired from the proceeds of the frauds will be confiscated.
Nonetheless, it is imperative to acknowledge that Gallagher breach of existing structures is different from conspiracy to commit securities fraud that happens when at least two people collaborate to take part in the fraudulent inducing of investors to make misinformed financial decisions or interference with financial markets (Hornsby Law Firm, 2022). Furthermore, Gallagher cause does not amount to conspiracy to commit securities fraud that is often charged against those who indulge in minor cases of securities fraud. However, the penalty for securities fraud is the same as conspiracy to commit securities fraud as provided for in 18 U.S.C. 371 (Hornsby Law Firm, 2022). Thus, a legal framework exists that guides courts, investors, securities firms, and members of the public of what amounts to securities fraud.
Critical Analysis
It is apparent the fraudster’s case raises ethical concerns that require much attention from relevant stakeholders to avoid a repeat of a similar event in future. An evident explanation of how the practice violates ethical requirements is that the action only benefits one person or a few individuals while putting many others at considerable risk (Chonko, 2012). The action is contrary to the provisions of the utilitarian view, which stipulates that an action is good if it yields the best outcome for the majority of people as opposed to a few individuals. However, in this case, Gallagher is the only one reaping the gains of his unlawful practice. Maybe he used the revenue he generated from the online platform to provide for his family and loved ones, but this is only a speculation. Moreover, examining the case in the context of virtue ethics, which is also a key ethical theory, it is apparent that Gallagher’s action is unethical and one that could attract criticism. Virtue ethics terms an action or person as being ethical if their conduct match that of what constitutes a good person, or what improves their relations with others (Chonko, 2012). For example, a person or an action could be termed as being ethical if it evidently shows elements of honesty and the level of trustworthiness is evident. However, in this case, Gallagher is not honest with his followers, and it is difficult to trust his posts and directives on the social media platform. Another reason that confirms Gallagher’s action on Twitter is unethical is that it does not abide by the guidelines of deontological ethical theory. According to Immanuel Kant who invented the theory, ethical conduct is when one respects the rights and dignity of other people (Chonko, 2012). The chief argument in deontological theory is that there are objective duties or obligations that are needed of every individual (Chonko, 2012). However, Gallagher conduct on Twitter does not match what deontological ethics require. He disrespects his followers in the way he misleads them into purchasing the penny stocks that he sold at exorbitant prices than he acquired them.
Legal Breach
It is possible to term Gallagher’s actions on Twitter as being illegal because they contravene existing laws on securities stock identified earlier in this study. He uses false information to acquire and sell securities, and his actions defy existing legislations. Consequently, the matter would be handled as a legal issue.
Lessons to the Securities Industry
The securities industry gains valuable lessons that may help to avert similar incidences in future. Security firms learn the need to guide their customers as well as potential buyers how to identify credible agents who will not steal from them. They learn the need to guide their customers on how to engage in online transactions without being a victim of securities fraud. Thus, securities firms need to initiate a series of awareness programs that guide buyers and enlighten them on the importance of being keen all the time when transacting stocks and shares through online avenues (Palmiter, 2017). Operators in this sector become aware of the threats presented by technological advancement. They become aware that the advancement provides fraudsters the opportunity to defraud unsuspecting investors, a development that has both direct and indirect impact on their activities. The awareness may help to embrace more effective protective measures. More fundamentally, firms in this industry see the need to be ethical in their practice to avoid harming their reputation. It is certain that many investors will withdraw their shares and stocks from the company that Gallagher markets in his Twitter account. The firm is also likely to be summoned to provide legal information concerning its relationship with the swindler.
The firms that are likely to be attracted to the news, and which may take action as a result of the unfolding event are those that operate in the securities sector. Some of the national securities exchanges that will take the news seriously and possibly take action to guide their customers, include Cboe BZX Exchange, BOX Exchange LLC, and Investors Exchange (Securities and Exchange Commission, 2021). However, those who engage in private practice are also likely to be impacted by the story and see the need to be transparent and honest in their dealings, especially when transacting through online avenues. Otherwise, failing to borrow from this incident could lead some firms to such violations and more investors will become victims of the circumstance.
Gallagher’s case is ongoing and is being steered by the Commodities Fraud Task Force and the Office’s Securities. Other notable state officers such as Allison Nichols and Richard Cooper who serve as Assistant U.S. Attorneys are also working on the case (United States Department of Justice, 2022). Information by the U.S. Attorney for the Southern District of New York, Damian Williams, showed that Gallagher pled guilty to a single count of securities fraud (United States Department of Justice, 2022). The case could attract a maximum sentence of twenty years behind bars as prescribed by Congress, but the pronouncement in this particular case would depend entirely on evidence presented before the court and any other arising arguments (United States Department of Justice, 2022). Nonetheless, it is highly likely the defendant would be sent to jail now that he has accepted the charge.
Conclusion
The study examines the case of Gallagher who was arrested for engaging in stock fraud over an online platform. Gallagher tricked unsuspecting followers on his Twitter account into purchasing stocks that he purchased at lower prices and resold at considerably higher prices. The study identifies the various regulations that counter securities fraud, and which identify the practice as unlawful and one that warrants punishment. The identified legislations include the Securities Act (1933) and the Securities Exchange Act (1934). The act by Gallagher evidently counters ethical and legal frameworks, which makes the issue one that deserves attention to avert similar incidences in future. The practice is unethical because it contradicts some of the theories that determine ethical behavior. Specifically, Gallagher’s conduct defy utilitarianism, virtue ethics, and deontological theory that define what amounts to ethical behavior. Moreover, Gallagher’s practice on Twitter is unlawful because it contradicts what particular legislations require. Hence, the offender is liable for jail term that may be as long as two decades. The incident is essential to the securities sector because it highlights the significance of sensitizing stock buyers on the need to make their purchases from credible consumers. The investment community also learn the importance of validating where they purchase stocks without giving in to online sellers who use deceit to fraud unsuspecting buyers. The companies that are likely to be attracted by this story and will care about this news are those that sell stocks, shares, including primary and secondary securities markets. Such firms are likely to encourage their consumers to be more cautious when making online purchases to avoid being victims of securities fraud. It is likely that Gallagher will lose the case now that litigation has started and the offender has responded to the one count of securities fraud.
References
Chonko, L. (2012). Ethical theories. Retrieved March 16, 2022, from https://www.dsef.org/wp-content/uploads/2012/07/EthicalTheories.pdf
Hornsby Law Firm. (2022). Federal securities fraud. Retrieved March 16, 2022, from https://www.richardhornsby.com/federal/crimes/securities-fraud.html#:~:text=Under%20federal%20law%2C%20the%20crime,the%20offense%20can%20be%20confiscated.
Neumeister, L. (2021). Feds: Ohio stock trader fleeced Twitter users in pump-&-dump. Retrieved March 16, 2022, from https://apnews.com/article/business-media-new-york-ohio-arrests-28143afc0e3f7712ede317cf17eee6be
Palmiter, A. (2017). Securities regulation. Frederick, MD: Wolters Kluwer. ISBN 9781454881308
Securities and Exchange Commission. (2021). Staff report on equity and options market structure conditions in early 2021. Retrieved March 16, 2022, from https://www.sec.gov/files/staff-report-equity-options-market-struction-conditions-early-2021.pdf
United States Department of Justice. (2022). Ohio-Based stock trader pleads guilty to securities fraud. Retrieved March 16, 2022, from https://www.justice.gov/usao-sdny/pr/ohio-based-stock-trader-pleads-guilty-securities-fraud