SEC v. Galas, et al.

Violations Charged

Section 17(a), Section 10(b), Rule 10b-5

Case Overview

The SEC's emergency action charged four traders, Mikhail Galas, Alexander Hawatmeh, Christopher Mrowca, and Tovy Pustovit, with running a coordinated manipulation across six thinly traded microcap stocks: ISML, ADPC, ADSU, PHOT, HEMP, and RVDO. Acting in concert, they used wash trades and matched orders, trades between accounts they controlled, to create the illusion of an active market and push the prices higher.

The group coordinated its selling with aggressive internet and social media promotions, some run through websites they controlled themselves, and timed sales to the artificially high prices the promotions created. Two of the promoted companies had no business operations at all. When the promotions ended the prices collapsed, leaving buyers with the losses while the traders made over $2.5 million in profits.

What Joe Did

Joe was the principal investigator, and his 26-page, 24-exhibit declaration supported the SEC's emergency application. In it, he described reviewing Electronic Blue Sheet data across the six stocks, analyzing order and execution records from six brokerages, and identifying matched orders and wash trades by correlating order timestamps across nominally separate accounts. He described brokerage access logs showing logins from a single IP address at a Boulder, Colorado motel tied to defendant Mrowca, reaching accounts registered across four states, and he prepared the exhibits: six sets of matched-order charts, six price-and-volume charts, and six sets of promotional materials.

Outcome

The court granted the TRO and asset freeze on the strength of the declaration. The defendants ultimately consented to or defaulted into permanent injunctions, disgorgement of their profits, civil penalties, and penny-stock bars.

Records Analyzed

• Bluesheets & trade blotters
• Brokerage order & execution data
• IP address records
• Bank & wire records
• Promotional materials