Special Note: Our most recent discussion with Grant Williams for This Week in Doom is available free for all listeners. In this episode, we cover the Ohio train derailment and Seymour Hersh’s take on the Nord Stream pipeline destruction. We hope you enjoy listening!
“Investors are sometimes too busy looking for profits to notice where the truth ends and the deception begins.” – Andrew Ross Sorkin
On December 14, 2022, the Securities and Exchange Commission (SEC) announced charges against eight social media influencers for running a sophisticated pump-and-dump scheme that ultimately netted the group more than $100 million. Well, it wasn’t that sophisticated. The group built significant followings on Twitter and YouTube, parlayed that effort into a Discord chat room with more than 150,000 members, and allegedly used those social media assets to execute their scheme. According to the SEC, after selecting a target stock, the group would surreptitiously accumulate large positions in their individual accounts, “pump” the stock to their legions of followers without disclosing their stakes, and finally “dump” their shares into the resulting liquidity frenzy.
Although the silhouette of the alleged fraud is as old as the stock market itself, the scale and brazen nature of the scheme make it notable. The use of social media is predictable, as anyone who has spent much time perusing Twitter, Reddit, or Discord can attest, but its continued effectiveness is fascinating. With so much blatant securities fraud occurring online and in the open, one wonders how the SEC will ever get to it all. They will get to it all, right?
The complaint identifies several stocks the group stands accused of manipulating, and one of them should be a familiar name to energy investors. For years, Torchlight Energy Resources was a FinTwit battleground stock, with skeptics accusing the company of vastly overstating the value of its assets. Although it didn’t take much poking around to get a sense of the true value of the company – see this excellent thread from 2019, for example – the stock was the subject of several head-scratching moves, roaring to valuations exceeding any connection to reality on several occasions.
Remembering these charges, our interest was piqued by a recent pattern of tweets showing up across FinTwit summoning the ghost of Torchlight. In perhaps the strangest episode of a short-squeeze-pump-and-dump of this market cycle, dubious paper in a related spin-off was changing hands at a valuation in the billions. Triggered by dubious tweets from current and former company executives, and what appears to be a purposeful deflection strategy used as covering fire for the entire operation, a horde of retail investors is nonetheless crying foul in the opposite direction, claiming they are actually the victims of a fraud perpetrated by the Financial Industry Regulatory Authority (FINRA). In short, this one is begging to have an investigative light shone on it.