The Meme Asset Frenzy
An unprofitable brick and mortar video game retailer valued at ~$20 billion. A frenetic trade in digital images of apes. Heated competition between corporate server farms ‘mining’ digital tokens. A fevered trade in penny stocks. Delirium about marijuana stocks. A $2.4 million sale of virtual land in the metaverse. Hype about the imminent profitability of green energy companies. Billions funnelled into blank check companies. And rampant financial fraud. All amplified by social media memes. This was the meme asset frenzy.
By Aiden Singh
This article is being published serially. Publication began on April 3, 2023.
Aiden Singh is the Founder & Publisher of the Social Science Encyclopedia.
Table of Contents
Arcis Resources Corporation
Price chart depicting an over 4,000% jump in shares of penny stock ARCS between Dec.9 & Dec 14, 2020 and subsequent fall.
Range Bound
From January 2, 2020 to December 4, 2020, penny stock Arcis Resources Corporation (ticker symbol ARCS) traded over-the-counter in a price range between $0.0002 and $0.0007.
Sudden Surge & Fall
Then, on no news related to the underlying company, shares in the penny stock began to surge. On December 9, 2020, ARCS jumped to $0.0160. On December 11, ARCS closed at $0.0199. And on December 14, 2020 ARCS surged to $0.0540. This marked a more than 4,000% increase in the share price in less than a week, on no news.
Subsequently, again on no news, ARCS plummeted over the next four trading days, falling to $0.0035 on December 18, 2020.
The stock remained volatile over the course of early 2021 and into the first few days of March, trading well above its January - early Dec. 2020 price range, though far below its Dec. 14 peak. On March 1, 2021, shares in ARCS exchanged hands at $0.0025.
An Alleged Pump & Dump Scheme
On Mar 2, 2021 the Securities and Exchange Commission (SEC) announced that it was suspending trading in ARCS from March 3 through March 16, citing the possibility that some social media accounts were manipulating the price.
The SEC’s order of suspension for trading in ARCS stated:
[I]n at least December 2020, certain social media accounts may have engaged in an attempt to influence ARCS’s share price by posting potentially misleading information[.]
Two weeks later, on Mar 15, 2021, the SEC announced it had charged California based Andrew L. Fassari for alleged fraud related to the stock.
The Commission’s complaint alleged that Fassari began purchasing over 41,000,000 shares of the penny stock on December 9, posted false information about the company’s prospects on social media, and then sold his shares after a jump in the stock price, pocketing $929,000 in gains:
During December 2020, Fassari published numerous false and misleading posts on social media platforms about Arcis Resources Corporation (“ARCS”), a publicly traded company that has been defunct since at least 2016, while secretly trading the securities of ARCS in violation of the federal securities laws. Fassari purchased tens of millions of shares of ARCS, then deceptively spread false information about the company’s purportedly revived operations and imminent positive announcements on Twitter, among other social media platforms. After the share price rose, Fassari secretly sold all of his shares, obtaining ill-gotten gains of over $929,000.
Fassari uses the Twitter “handle” @OCMillionaire. He uses similar usernames on other social media sites, such as the website www.investorshub.com (“iHub”) and Instagram. The @OCMillionaire profile joined Twitter in July 2013, lists “13.1K” followers, includes a picture of a black Ferrari, and states, in part: “Master short squeeze artist. #Pennystock Wizard.”
Starting on or about December 9, 2020, and continuing through approximately December 18, 2020, Fassari posted false and misleading statements on social media about the status and business prospects of the defunct company ARCS, including posting fictitious emails from the purported CEO of ARCS about ARCS’s alleged expansion into multiple states and a purported stock buyback.
On December 9, Fassari began purchasing over 41,000,000 shares of ARCS shortly before he began posting information about ARCS on Twitter. Beginning December 9, 2020, ARCS’s price skyrocketed, reaching a closing price of $0.054 on December 14, 2020, an increase of over 4,000 percent from its closing price of $0.0012 on December 8, 2020.
On December 10, 14, and 16, 2020, Fassari sold all of his shares in ARCS for profits over $929,000, all while continuing to publish false and misleading information about ARCS and about his trading in ARCS.
ARCS resumed trading on March 18, 2021 at $0.0006. It would continue to trade between $0.0006 and $0.0001 - near the same price range as it had traded at before Fassari’s alleged pump and dump scheme - for the remainder of the 2021.
On August 27, 2021, the SEC obtained a judgment against Fassari.
The judgment …. orders [Fassari] to pay disgorgement of $457,110 with prejudgment interest of $8,007, as well as a civil penalty in the amount of $195,047. Fassari also agreed to entry of a penny stock bar with the terms to be determined by the court at a later date.
To see how this event ties into a broader speculative bubble, it is important to keep in mind the wider context in which this alleged penny stock pump and dump took place. The purported purchases and sales by Fassari took place between December 9 and December 16 of 2020 and ARCS remained above its previous price range until after the SEC suspended trading in the stock in March of 2022. This incident therefore occurred as bitcoin was rocketing from a price of ~$10,000 in October 2020 to a price of ~$58,000 in February 2021. It also occurred just days before the social media fuelled GameStop short squeeze began. And ARCS was not the only penny stock subject to rampant speculation during this late 2020 through early 2021 period.
SpectraScience Inc.
Price chart depicting an over 2,100% jump in shares of penny stock SCIE between Dec. 4, 2020 & Feb 9, 2021 and subsequent fall.
Range Bound
SpectraScience Inc., which trades under the ticker symbol SCIE, had not even kept up with its filing obligations with the Securities & Exchange Commission (SEC) from 2017 onwards, failing to meet even the minimal financial disclosure requirements expected of a publicly traded company, let alone demonstrating prospects for future profits. SCIE had failed to file annual reports (Form 10-K) for 2017, 2018, and 2019. Moreover, it had not filed quarterly reports (Form 10-Q) for the first, second, and third quarters of 2018, 2019, and 2020. Nor did SpectraScience file any Form 12b-25’s explaining why it had failed to submit those reports in a timely manner.
And when SCIE had last submitted a Form 10-Q to the SEC for the period ended September 30, 2017, it reported a net loss of $3,802,693 over the preceding nine months.
Fittingly, shares in the ramshackle enterprise traded at $0.0001 from October 21, 2021 through December 3, 2021.
During this period, many trading days saw no shares change hands (i.e. no trading volume). The two highest trading volume days during this period were October 21st, where 6.87 million shares changed hands, and December 2nd, where 10 million shares were traded.
Sudden Surge & Fall
Then on December 4, 2020, shares in the inactive Minnesota-based corporation spiked, closing at $0.0002, double the previous day’s closing price, despite an absence of any novel news about the company’s prospects. Over 951 million shares were traded this day, a flurry of activity far in excess of the stock’s average daily trading volume. This marked the start of a roughly two-month period of increased volatility and trading volume during which SCIE surged 2,100% from $0.0001 to $0.0022.
On December 7, the share price jumped again to $0.0003 and would hit $0.0004 on December 14.
SCIE then entered a trading range, oscillating between $0.0002 and $0.0004 inclusive from December 15, 2020 through January 21, 2021. Trading volume was abnormally high during this period: every trading day saw 10’s or 100’s of millions of shares exchange hands, except December 7 where 5.26 million shares were trade.
Shares in SpectraScience Inc. then closed at a new high of $0.0005 on January 22. On January 28, the share price jumped to $0.0024. The stock price then proceeded to plummet to $0.0010 the following day before leaping to yet a new high of $0.0025 on February 9. On February 10, SCIE closed at $0.0022.
The volatility prompted the Securities & Exchange Commission to step in on February 11 and suspend trading in the stock for two weeks through February 25. Its trading suspension order cites the possibility that some social media accounts may be coordinating to ‘artificially influence the share price,’ driving it higher despite an ‘absence of any publicly available news from the company.’
When trading resumed on February 21, 2021, shares plunged back to $0.0001, a 95.45% single day decline.
An Alleged Scalping Scheme
Eight months later, on October 26, 2021, the SEC obtained an injunction and asset freeze against Steven M. Gallagher, a 50-year old Ohio resident who went by the Twitter name ‘Alexander Delarge 655321’ and Twitter handle @AlexDelarge6550 for alleged securities fraud. The SEC’s complaint alleged that the defendant engaged in a fraudulent practice known as ‘scalping.’ Under this scheme, Gallagher would accumulate shares in microcap companies (typically defined as enterprises with a market capitalization of less than $250 million or $300 million), use his Twitter account to encourage his followers to buy the stocks, and then sell his stocks at artificially inflated prices. Gallagher did not disclose to his followers that he was selling the stocks he encouraged them to purchase. According to the SEC complaint, Gallagher had engaged in scalping in the shares of 60 different companies and the fraud had netted him a profit of at least $3.39 million. The SEC complaint states that Gallagher had over 70,000 Twitter followers at the time of filing.
The SEC’s complaint reads:
2. Since at least December 2019 and continuing to October 2021, the Defendant has used his Twitter platform to promote and encourage the purchase of dozens of specific microcap stocks, while simultaneously selling his own shares and not disclosing that fact (a practice known as “scalping”).
3. Scalping is a scheme or artifice to defraud in which a defendant (i) acquires shares of a stock; (ii) recommends that others purchase the stock without disclosing his intention to sell; and (iii) subsequently sells the stock for his own benefit.
4. As part of his scalping scheme, Gallagher also, on some occasions, disseminated false and/or misleading information about the promoted issuers, or falsely stated that he was not selling the stock that he was concurrently recommending that his Twitter followers and other Twitter viewers buy. For at least two issuers, Gallagher also engaged in multiple instances of manipulative trading by placing multiple buy orders at the end of the trading day to raise the stocks’ price (“marking the close”) to mislead the public about the trajectory of the stocks’ price. “Marking the close” is the term used to describe the practice of buying or selling stocks near the close of trading to affect the closing price. 5. Gallagher has engaged in scalping in connection with the stock of at least 60 issuers to date …. and has generated at least $3.39 million in profits from his fraudulent and manipulative scheme.
The complaint alleged that, at the time of filing, Gallagher was still conducting his scheme, thereby necessitating an emergency injunction.
6. Gallagher’s conduct is ongoing. Despite repeated, written warnings from his brokerage firm (“Broker A”) that he appeared to be engaged in manipulative trading in violation of securities laws and regulations, Gallagher continued to engage in manipulative trading and scalping.
8. To prevent continuing harm to investors, the Commission seeks emergency relief in the form of: (1) a temporary restraining order and preliminary injunction enjoining Gallagher from ongoing and future violations of the federal securities laws and rules this Complaint alleges he has violated; (2) a freeze on Gallagher’s assets, up to $6.9 million, to preserve the status quo and preserve assets sufficient for Defendant to pay disgorgement, prejudgment interest and civil money penalties in accordance with any final judgment of this Court; 3) an order permitting the Commission to engage in expedited discovery in preparation for a preliminary injunction hearing, if so ordered by the Court; and (4) an order enjoining Gallagher from destroying evidence.
According to the SEC complaint, Gallagher netted profits of approximately $22,000 in SCIE.
Gallagher generated profits of approximately $22,000 by engaging in a scheme to scalp shares of SCIE, which he traded between December 2020 and March 2021.
The table below, contained in the SEC complaint, lists the 60 stocks in which Gallagher is alleged to have engaged in scalping and the profits he is alleged to have generated.
On February 25, 2022, Gallagher plead guilty to one count of securities fraud.
As of May 5, 2023, the ‘Alexander Delarge 655321’ Twitter account’s pinned tweet, posted on January 30, 2021, continues to mention SCIE.
Notably, at the time of writing, the Twitter bio for the account now contains a link to an SEC webpage where the public can report suspected securities fraud to the Commission.
Cryptocurrency Advertizements On The London Underground
Image taken on November 4, 2021.
The above advertizement marketed a service which purportedly enabled automated trading of cryptocurrencies.
Image taken on November 5, 2021.
The above advertizement sought to captialize on a key element of speculative bubbles: the fear of missing out (‘FOMO’).
It marketed a cryptocurrency called floki and makes reference to the surge in the price of an obscure cryptocurrency known as dogecoin earlier in the year.
Image taken on November 5, 2021.
The above advertizement marketed a cryptocurrency called afrostar.
In late 2021 advertizements promoting various obscure cryptocurrencies littered the London underground network. By early 2022, as a collapse in the cryptocurrency and global equity markets was underway, advertizements of this sort had disappeared.
These images were taken on November 4th and 5th 2021 - before the cryptocurrency market had begun to crash - in preparation for the writing of a series of articles on this speculative bubble. The price of bitcoin peaked at ~$67,000 on November 8, 2021.
The proliferation of marketing campaigns promoting speculative financial products to the general public served as an indication that the bubble was in its waning days, and therefore, as a signal to - after a long wait - begin shorting the cryptocurrency space.
This approach offers a method for dealing with the idea that ‘markets can remain irrational longer than you can remain solvent’: the extent to which a speculative fever has gripped members of the general public that may ordinarily pay little attention to finance may be used as a indicator of how close we are to the end of a bubble. This idea will be explored deeper in my forthcoming article - Shorting A Speculative Bubble: Notes For My Future Self.
Forthcoming
Inside r/wallstreetbets
#DogeDay trends on Twitter
Elon Musk’s promotion of cryptocurrencies on Twitter
And more.