UPDATE 4/18/24: Charges dropped against all defendants listed in this article other than Daniel Knight, who pleaded guilty on March 27.
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For years, the party never seemed to end but last week, the music finally stopped.
Eight of social media’s most-followed faces of finance, four of them from the Houston area, were arrested. All are charged with felony securities fraud in what prosecutors say was a "pump-and-dump scheme" that made them more than $100 million.
If you’re not familiar with the online fin-twit community, you likely missed the lavish lives lived by the men some call the ‘stock bros.’ It was inside some of Houston’s palaces in the sky where prosecutors said the men plotted, partied, pumped and dumped.
Likely the most recognizable face of the group is 38-year-old Edward Constantin. He’s better known by his online alias, Mr. Zack Morris, the name of the main character from millennial childhood favorite “Saved by the Bell.” In two years, he managed to accumulate more than half a million followers on his Twitter account alone.
Fans came for tips on the penny stocks soon to make a run. Some claim the tips from @mrzackmorris made them a lot of money. Prosecutors said the picks made Constantin and his buddies millionaires.
Here’s how the SEC says the group’s pump-and-dumps played out:
- One or a few of the eight would identify inexpensive stocks that could rise exponentially higher if a sudden surge of buyers appeared.
- Prosecutors said the message would spread to the rest of the group and members would start buying large quantities of the stock. This is also called “front-loading”.
- Court documents state the men would then promote the stock to their social media followers.
- While their followers began buying the stock, and the share price exploded, prosecutors say the men would secretly begin to sell their shares.
Inevitably the stock price would fall back to earth. Prosecutors said the buyers who held on until the end were left with huge losses but those who sold early made a killing.
Many of the men who have been accused made online posts in the past, telling their followers they would never dump their shares on them. They were proud of their gains.
Mixed among the stock tips and politically incorrect jokes, they posted on Twitter images of their new-found wealth.
Page 11 from the SEC complaint has a screenshot of a tweet made by P.J. Matlock from The Woodlands. It was a photo of a new McLaren.
Two years ago, Matlock tweeted, “few K to MILLIONS.”
Last December, court documents state Constantin tweeted this picture of himself with fellow fin-twit influencer and podcaster Daniel Knight in front of a Ferrari at a Houston car dealership. Prosecutors said the images were used to convince retail traders that they too could be rich if they followed their tips.
Prosecutors said the defendants knew what they were doing was manipulation. In a secretly taped phone call, prosecutors say Knight, known as the “Deity of Dips” by followers, admitted he understood what they were doing was wrong.
“I’m playing this extremely smart for the very long term,” he allegedly told others on the call. “If you don’t think all these f****** go to jail, or at least get sued, you are crazy…playing stupid does not work in court…it’s market manipulation…I mean, you look up the definition of market manipulation.”
In another recorded conversation prosecutors said Knight questioned another group member concerned with getting caught.
“Get caught?” Knight allegedly asks. “We’re robbing f****** idiots of their money…”
Knight did not respond to our request for an interview and we are still waiting to hear back from his attorney.
After years of pumps and dumps, prosecutors say the eight men collectively made $114 million. They said the map left behind on social media shows where some of their treasure was spent. Their posts show that when they weren’t partying in Houston’s bars and clubs, they were on private jets taking “business trips”. It also appears there was no shortage of shopping.
The men proudly shared pics of their latest luxury watches or proof of their purchases from designer clothing stores in the Galleria.
Federal prosecutors are requesting Constantin forfeit his Rolls Royce, Lamborghini and Mercedes, as well as the real estate the feds say he purchased with money made from trading.
The government wants all of the real estate owned by the men, much of it located in and around The Woodlands, valued in the millions.
PJ Matlock did not respond to our request for an interview.
The attorney for John Rybarczyk said his client has entered a plea of not guilty and he intends to vigorously defend him.
KHOU 11’s Matt Dougherty has spoken with Constantin who has declined to speak about the case on the record. In a previous call before the arrests, Constantin shared that he was living the life of his dreams after turning $800 into a fortune in less than a year, but now he’s wearing an ankle monitor. He has surrendered his passport and a judge has forbidden him to post about stocks on social media. The charges he’s facing would total a maximum of 110 years in prison if convicted.
The other seven men would face a maximum of 25 years in prison for each of their multiple counts if they are convicted.