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By January 30, 2021No Comments


Hello and welcome to another Legal Briefs.  I know what you’re thinking today – I’m reading your mind – can I find the next Reddit thread and buy in early to whatever the next stock or crypto Pump up is coming up and make a million dollars? Or am I going to get in trouble.  Stay tuned.

Welcome back my fellow greedy investors (Don’t worry – I don’t judge you, I am only here to discuss).

First the disclaimer: Don’t rely on what I say as legal advice – these are very nuanced legal  issues with big problems if you break the law.  This guy listened to me and – look where he ended up.    Whats the actor’s name?  Very underrated actor.

As you know, a group of Reddit users kind of loosely banded together and drove up the price of GameStop stock to Crazy levels.  We’re talking a 1700% increase in price in a day or two?  Who was the mastermind of this?  According to, ( the grandfather of the idea was a guy whose Twitter handle is RoaringKitty (love that name) and he had the general idea back in 2019 and as more people jumped on the bandwagon they pumped up RoaringKitty’s initial investment of $50k to almost $50 million $50 million with an “m.”  Wow.  And the whole thing is still going on.  It’s such a big deal that its come to the attention of the top level s of the Federal Government – but don’t worry, they are on top of the situation!

Here she is, Ms. Yellen herself. Using the force to protect us all.

In any case, the GameStop stock wasn’t the end of it.  The revolution has caught on and then it was AMC stock and then the CryptoCoin Doge Coin and this weekend we started hearing about a pump of the XRP cryptocoin to happen February 1st. And just based on THAT, boom, XRP is up 40% today.  Brief aside: my 7 year old daughter heard me say “XRP is up 40%!” And she says, “It that because you made the video last night Dad?”  That’s the best thing ever – when your daughter thinks that highly of you.

So, how could you possibly  get in trouble by getting involved?  The law we’re looking at is generally the Securities Exchange Act of 1934 and this is what it looks like:

“It is Unlawful to…. If a dealerbrokersecurity-based swap dealermajor security-based swap participant, or other person selling or offering for sale or purchasing or offering to purchase the security, a security-based swap, or security-based swap agreement with respect to such security, to make, regarding any security registered on a national securities exchange, any security not so registered, any security-based swap, or any security-based swap agreement with respect to such security, for the purpose of inducing the purchase or sale of such security, such security-based swap, or such security-based swap agreement any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which that person knew or had reasonable ground to believe was so false or misleading.”

This is what a statute looks like and this is a relatively short one!  I’ll give you a hint when reading a statute – start by finding the verb in the gobbledegook. The verb is “make” and it’s right there so what this says is that it’s unlawful for a person selling a security to MAKE any false or misleading statement regarding the sale in order to effect the sale price.

Now there are about 500 other laws – including state laws – which have similar language, and even laws of a general nature which would attach to sales of non-securities and even crytpocurrencies but the gist of all of them is that you can’t work in concert with others to inflate stock prices with the intent to profit from the pump.

The law in this area is not well-defined but the one key AND the difficulty in proving  a pump and dump case is proving the intent necessary to prosecute. In Criminal law class they call it proving the necessary “Mens Rea” which is the intention or knowledge of wrongdoing.  In other words, WHY you do something matters in criminal law.

As an example, let’s say you’re on a chatboard and you chat “ I heard that a big hedge fund is going to purchase a billion dollars of XRP tomorrow” and you actually had heard that somewhere and your intent was not to cause the price to go up but only to chat about it online.  That’s not illegal even if the price goes up because of what you said – because you lacked the Intent to break the law.

But let’s say your brother, seeing that what you said caused the XRP price to go up, waits a month and then posts the EXACT same thing on a bunch of chatboards and then sells XRP when the price pumps up – THAT is a crime not only because he knew it was not true but because his INTENT was to do something that broke the law.

So, same exact words, two different outcomes (and now you’ll be funding your brother’s prison commissary account for a couple months so I hope you made some money).

Question, how do you stay out of trouble?  Now that you know that the law focuses on INTENT, first and foremost, don’t try and pump up a stock, but second – DO NOT POST ANYTHING THAT SHOWS YOU HAVE INTENT to pump up a stock.  Anything you put on the internet is forever is what I tell my daughters, so don’t post anything that would tell a prosecutor that you intended to lie about something or intended to pump up a price.  For example: “Hey Guys, I just posted on Reddit that a big investor is going to buy a billion dollars of XRP tomorrow and I’m going to sell before the morning when they realize the big buy didn’t happen and  the price drops.”

You’d think people wouldn’t type those kind of things out into the interwebs – you’d be wrong about the things people will post.

In any case, the last thing to point out is that in an online Pump and Dump even the SEC will not have unlimited manpower to investigate every thread and every person and statement. Like most things in life, the nail that sticks out gets hammered down.

If you find yourself in a situation online, you do not want to be the ring-leader. For example, in the GameStop situation it was the trader Roaring Kitty who is getting all the attention. I hope he’s lawyered up already – he needs to be very careful.

As another example, out of the thousands of people who stormed the US Capital, notice that the prosecutors are only going after a select few.

And what you can take away from theses arrests is do not draw attention to yourself and do not be seen as a leader in situations where a prosecutor is going to possibly reviewing chat threads looking for criminal intent.  If you must get involved in what is going on with GameStop / XRP, etc. be smart, keep quiet, don’t post a lot and remember:  There are more important things than money.

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