“Twitter User Can’t Nix SEC Suit Over Penny Stock Ploy”

A recent ruling by a New York federal judge has allowed the U.S. Securities and Exchange Commission (SEC) to proceed with its lawsuit against Twitter user Steven M. Gallagher, who is accused of orchestrating a $3.4 million stock manipulation scheme using the social media platform. The SEC's allegations, filed in 2021, claim that Gallagher misled his followers by promoting certain penny stocks while failing to disclose his own sales of those shares, a practice known as "scalping." U.S. District Judge P. Kevin Castel rejected Gallagher's arguments for dismissal, emphasizing that once he chose to publicly recommend stocks, he had a duty to provide complete and truthful information.

Judge Castel stated that Gallagher's omissions regarding his intent to sell were material to investors, as a reasonable investor would find such information crucial when making purchasing decisions. Gallagher's defense also included claims that the SEC's scalping allegations could not support scheme liability and that he had not profited from the scheme, both of which the judge dismissed. Furthermore, Gallagher argued that his First Amendment rights protected his tweets, but the judge clarified that the First Amendment does not shield fraudulent activities.

In addition to the SEC's civil suit, Gallagher faced criminal charges and pled guilty to misrepresenting his financial interests in SpectraScience Inc. securities, leading to a sentence of six months of house arrest and three years of supervised release . The case, titled Securities and Exchange Commission v. Gallagher, is being heard in the U.S. District Court for the Southern District of New York. Gallagher is represented by Eric Rosen a partner in Dynamis LLP’s Boston office.