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8 Charged In Discord Scheme Must Wait For Details From Feds

By Catherine Marfin

Law360 (March 14, 2023, 9:25 PM EDT) -- A Houston federal judge said Tuesday that federal prosecutors don't yet have to clarify a complaint against eight men accused of running a "pumpand-dump scheme" on social media despite finding that $100 million in stock trades are missing from the indictment.

U.S. District Judge Andrew S. Hanen told counsel for the government that he was concerned about the gap in the 21-count superseding indictment, signed Feb. 8.

The introduction to the indictment accuses the men of committing $114 million in securities fraud between January 2020 and April 2022, but the specific counts only total $14 million, according to the document.

"Fourteen and 114 is a pretty big gap, and we need to close that gap," Judge Hanen said.

Scott Philip Armstrong, assistant chief of the U.S. Department of Justice's Fraud Section, told the court that the government planned to provide the defense team with the full record of evidence for each defendant by the end of the month, which would close the gap.

"No one is trying to hide the ball here," he said.

Armstrong said it wouldn't be difficult to use the "critical mass of info" the government provided to the defense team to see where the United States came up with the $114 million total. The social media posts, which were primarily on Twitter and Discord, could easily be lined up with trading records for each defendant, he argued.

"It becomes obvious that they're trading opposite" of the information being shared with their followers, he said.

But Q. Tate Williams, counsel for defendant John Rybarczyk, said being expected to compare trading records and social media posts would be like trying to find a rotten brick in Minute Maid Park.

"That's not helpful. ... We need to know what the specific fraudulent statements are" for each alleged misleading stock trade, Williams said.

Williams was asking for a bill of particulars, or a document that clarifies claims in a lawsuit.

Judge Hanen overruled the motion but said he wanted to follow up on the issue if the discovery documents provided by the government didn't clarify questions about the total fraud.

"If there's no information for the $100 million gap, turn around and file something," he told Williams.

The eight men — four Texans, two Californians, and two men from New Jersey and Florida — were first indicted in December. According to court documents, the men would buy shares of securities, post false positive messages about the stock on Twitter and Discord, and then sell their shares at a higher price.

Their misleading statements included how many shares they owned and how long they intended to keep them, according to the indictment.

Judge Hanen also heard motions Tuesday from defendants Mitchell Hennessey and Edward Constantinescu, who asked the court to dismiss various counts of the indictment. The superseding indictment provides only each defendant's name, the time period and the stock at issue for most of the counts.

Laura Marie Kidd Cordova, counsel for Hennessey, asked the court to dismiss three counts against him, arguing that the indictment wasn't specific enough to prove Hennessey made false statements.

"They fail to allege the false representation," she said. "Without false representation, there is no securities fraud."

Armstrong countered that the government's primary obligation with an indictment is to inform defendants of the charges against them, which the document "certainly" accomplishes.

Constantinescu's counsel asked the court to dismiss the final count of the indictment, which accuses him of "engaging in monetary transactions in property derived from specified unlawful activity."

Matthew Aaron Ford, his attorney, told the court that the portions of the U.S. Code that the count references, Title 18 Sections 1349 and 1957, don't specifically list securities fraud as a crime.

"It's clear from the plain language of the statute ... it's not intended to be covered," Ford said.

But federal prosecutors countered that Ford's reading was overbroad. The government wrote in a brief opposing Constantinescu's motion that those portions of the code point back to definitions within the code that include the term "monetary instrument."

The term is defined as "investment securities or negotiable instruments," and thus the indictment should cover Constantinescu's alleged fraud, they argued.

Judge Hanen took the motions under advisement. He told all the parties that his priority was making sure the case stayed on track for trial in October.

Counsel for Rybarczyk declined to comment. Counsel for Constantinescu did not provide additional comment.

Counsel for the remaining parties did not immediately respond to request for comment Tuesday.

The remaining defendants are Perry "PJ" Matlock, Gary Deel, Stefan Hrvatin, Tom Cooperman and Daniel Knight.

The government is represented by Glenn S. Leon, John J. Liolos and Scott Armstrong of the U.S. Department of Justice, and Alamdar Hamdani and Thomas H. Carter of the U.S. Attorney's Office for the Southern District of Texas.

Constantinescu is represented by Matthew A. Ford and Cara J. Filippelli of Ford O'Brien Landy LLP.

Rybarczyk is represented by Philip H. Hilder, Q. Tate Williams and Stephanie K. McGuire of Hilder &

Associates PC, and Eric Samuel Rosen of Freedman Normand Friedland LLP.

Hennessey is represented by Laura Marie Kidd Cordova and Michael J. Murtha of Jackson Walker LLP.

Matlock is represented by Luis A. Reyes and Johnny Sutton of Ashcroft Sutton Reyes LLC.

Deel is represented by Zachary Fertitta.

Hrvatin is represented by Edward Mallett of Mallett Saper Berg LLP.

Cooperman is represented by Chip B. Lewis, Erin Michelle Epley of Erin Epley Law Firm, and Sina Zadeh with the Sina Zadeh Law Firm.

Knight is represented by Cordt Cullen Akers of The Akers Firm.

The case is USA v. Constantinescu et al., case number 4:22-cr-00612, in the U.S. District Court for the Southern District of Texas.

--Additional reporting by Emilie Ruscoe. Editing by Rich Mills.

Update: This article has been updated with additional counsel information for Cooperman.