SECURITIES AND EXCHANGE COMMISSION v. STEVEN M. GALLAGHER
21-cv-8739 (PKC)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
Filed 06/18/26
CASTEL, Senior District Judge
Case 1:21-cv-08739-PKC Document 289 Page 1 of 51
CASTEL, Senior District Judge
The Securities and Exchange Commission (“SEC”) brought a civil enforcement action against Steven M. Gallagher alleging that he bought penny stocks1 before promoting those stocks to the approximately 70,000 followers of his Twitter account, from which he posted under the handle @AlexDelarge6553.2 Gallagher would state or imply to his followers that he was holding his shares when in truth and in fact he was selling them.
The SEC proceeded to trial on claims under
BACKGROUND
The SEC presented two claims at trial: a “scalping” claim and a “manipulative trading” claim. As to the “scalping” claim, the SEC alleged that Gallagher violated
The scalping claim required the SEC to prove that Gallagher (1) “employ[ed] any device, scheme, or artifice to defraud, . . . ma[d]e any untrue statement of a material fact or [ ] omit[ted] to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or . . . engage[d] in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,” (2) “in connection with the purchase or sale of any security,” (3) with intent to defraud,
As support for the scalping claim, the SEC called Alex Lefferts, Securities Compliance Examiner at the SEC, who analyzed trading data from Gallagher’s brokerage accounts along with @AlexDelarge6553 Twitter activity. Lefferts testified that for each of the 31 stocks, Gallagher tweeted at least one recommendation of the stock and subsequently sold shares. (Trial Tr. 154–269; see also PX 518–548-1; Trial Tr. 723.) The SEC presented evidence that Gallagher almost never disclosed that he was selling, and sometimes affirmatively stated that he was not selling when the opposite was true. (Trial Tr. 703–20.) For 22 of the 31 stocks, Lefferts testified that Gallagher “pre-alerted” confederates in private messages before touting the stocks to the public on Twitter, (Trial Tr. 154–269; see also PX 518–548-1; Trial Tr. 725), giving confederates an opportunity to buy shares before Gallagher directed a broader audience to the stocks.
Multiple victims who traded based on Gallagher’s recommendations testified at trial that they would have wanted to know that when they were buying, Gallagher was selling. Hanfen Liu responded, “of course” when asked if she “would have wanted to have known” that Gallagher was selling shares in PDPR on the same day she was buying. (Trial Tr. 594.) Ryan Scribner replied “absolutely” when asked whether it would “have been important to [him] to know, before deciding to buy HDII on Alexander Delarge’s recommendation, that he was also selling that stock at the same time[.]” (Trial Tr. 813–14.) He explained that it “seems deceitful to tell people to buy a stock when you’re selling it.” (Trial Tr. 814.) Sagine Nicolas responded
The SEC also introduced evidence showing Gallagher was aware that his followers were taking his advice. One direct message Gallagher sent to a confederate read, for example, “its insaine [sic] when i tell my followers to buy they do[.]” (PX 68a; Trial Tr. 931–32.)
Gallagher testified that when he tweeted about a stock, he “never” knew at the time of the tweet that he was going to sell. (Trial Tr. 1107.) It was also Gallagher’s position that his trades were not inconsistent with his tweets because he was not selling all his shares of a stock, but rather “shaving profits” or “taking profits” by selling only some of his shares. (Trial Tr. 1124–25, 1134.) Gallagher further testified that when he tweeted that he was not selling, he only meant to convey that he was not selling at that precise moment. (Trial Tr. 1188.) He claims he was not commenting on his trades, say, “two weeks” earlier, as “[t]wo weeks is an eternity.” (Trial Tr. 1188.)
The credibility of Gallagher’s testimony was repeatedly undermined. Gallagher acknowledged that he sometimes sold within seconds of promoting a particular stock. (See, e.g., Trial Tr. 961.) At Gallagher’s plea allocution in parallel criminal proceedings before Judge Caproni in this District based on his trading in one of the 31 stocks, SCIE, Gallagher stated under oath that he knew certain “tweets concerning [his] stock holdings of SCIE were wrong because [he] was selling some of [his] SCIE portions at the time that [he] was tweeting, therefore, misleading [his] financial position to others.” (Trial Tr. 939; PX 457-R at 6.)
The SEC also argued that the prospect of trading profits was “powerful motive for fraud.” (Trial Tr. 1504.) Max Clarke, Senior Financial Economist at the SEC, estimated Gallagher’s trading profits from the 31 stocks to be $2,626,855. (Trial Tr. 659–61; PX 392-2.)
To prove the manipulative trading claim, the SEC was required to show a series of transactions in a security creating actual or apparent trading in that security, or raising or depressing the price of that security, carried out with scienter and for the purpose of inducing the purchase or sale of that security by another. See
The jury saw evidence that Gallagher placed numerous buy orders in SPOM and BZWR in the last ten minutes of the trading day. (See PX 395-2a; PX 395-2b; PX 549; PX 550.)
Again, the evidence undermined Gallagher’s testimony. On July 29, 2020, for example, he tweeted, “Hey traders can you guys buy $spom if it moves 1 penny I’ll be green. Lets keep the green streak alive! Thank you in advance. .175 is a great buy price FYI[.]” (PX 549.) He also tweeted on the same day: “I’ll be hitting $spom at .17 come join me move this. EOD[.]” (PX 549.) When TDA restricted his account, Gallagher messaged confederates that he “got suspended from trading two weeks for slapping too much” and that he “knew [he] was manipulating.”7 (Trial Tr. 1086; see PX 105a; PX 237a.)
The action is now before the Court on Gallagher’s motion pursuant to
LEGAL STANDARDS
“A court may grant a new trial ‘for any reason for which a new trial has heretofore been granted in an action at law in federal court[.]’” Raedle v. Credit Agricole Indosuez, 670 F.3d 411, 417 (2d Cir. 2012) (quoting
“[A] decision is against the weight of the evidence . . . if and only if the verdict is seriously erroneous or a miscarriage of justice.” Farrior v. Waterford Board of Education, 277 F.3d 633, 635 (2d Cir. 2002). “[A] new trial under
“A principle that strikes very deep is that a new trial will not be granted on grounds not called to the court’s attention during the trial unless the error was so fundamental that gross injustice would result.” Frazier v. FCBC Community Development Corp., 22-cv-5270, 2024 WL 3666372, at *6 (S.D.N.Y. Aug. 6, 2024) (Subramanian, J.) (quoting 11 Wright & Miller’s Federal Practice & Procedure § 2805 (3d ed. 2024)).
“A post-trial
I. Motion for a New Trial
The Court reviews each of Gallagher’s arguments for a new trial both in isolation and for their combined impact. The Court ultimately concludes that the weight of the evidence was strongly in the SEC’s favor, that there were no errors in the admission of evidence, and that neither the conduct of the trial, nor the jury instructions, nor the verdict form warrant a new trial.
A. Evidence of Gallagher’s Trading Profits
Prior to trial, Gallagher sought to preclude evidence of gains from his trading of the 31 stocks at issue. He argued that the SEC was trying “to convince the jury that he must have done something bad because he made money.” (ECF 158 at 5–6.) In fact, as the Court made clear at the final pre-trial conference, the profits evidence was permitted only on the issue of motive for the alleged fraud. (ECF 198 at 67–68.) In response to a specific question from Gallagher’s counsel on whether he would be “allowed to say that there are other reasons for the gains[,]” the Court responded that “[i]f they are going to put it in, of course you can.” (Id. at 68.)
Gallagher argues that the Court should have imposed a causation requirement. Gallagher places much reliance on several cases that he claims stand for the proposition that the SEC was required “to demonstrate that [his] profits were derived from the fraudulent scheme” before the profits could be used as evidence of scienter. (ECF 242 at 26.) The Court agrees that something more than the mere prospect of profit is needed to show motive. See ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 201 (2d Cir. 2009). But the required showing is not onerous. See San Antonio Fire & Police Pension Fund v. Dentsply Sirona Inc., 732 F. Supp. 3d 300, 318 (S.D.N.Y. 2024) (Subramanian, J.) (finding bonus
The exhibit offered by the SEC at trial, (PX 392-2), showed the start and end dates of Gallagher’s trading in each of the 31 stocks, the start and end dates for his tweeting about each stock, and the profit he made for each stock. It also compared his profit ratio in the 31 stocks (77.7%) with his profit ratio resulting from other trading (.4%). (PX 392-2.) That was enough to establish the admissibility of the profits evidence on the issue of motivation. Gallagher was free to offer any other relevant and probative evidence—or argument—to rebut the inference that the SEC encouraged the jury to draw from the trading data.
Further, there was no claim for damages presented to the jury. In private securities litigation, it may be appropriate to insist on evidence isolating the portion of the profits directly attributable to the unlawful trading to the exclusion of other market factors. But as Judge Schofield concluded, an “event study” or the like is not necessary to offer profits evidence on the issue of motive in an SEC enforcement action. SEC v. Genovese, 17-cv-5821, 2022 WL 16748779, at *6 (S.D.N.Y. Nov. 7, 2022) (“Because reliance, loss causation and damages are not at issue, there is no need for an expert with an event study to tease out with mathematical precision the effect of the pitch and the alleged omission, relative to non-fraudulent information.”); see also United States v. Treacy, 08-cr-0366, 2008 WL 4934051, at *9 (S.D.N.Y. Nov. 19, 2008) (Carter, J.), opinion after reconsideration, 08-cr-0366, 2009 WL 47496 (S.D.N.Y. Jan. 8, 2009) (The defendant’s “alleged illegal profits from the backdating scheme is relevant and admissible on the issue of motive for entering into the allegedly illegal agreement.”).
Gallagher argues that the SEC left the jury “with the false narrative that Mr. Gallagher’s profits were, in fact, caused by fraud.” (ECF 242 at 27 (emphasis in original).) Showing that Gallagher profited from trading the 31 stocks, however, is different than showing that his tweets or end-of-day trades caused the upward price movements that led to his profits. The Court made this distinction clear to the jury through its instruction that “the SEC is . . . not required to prove that the alleged fraudulent conduct was successful, profitable, or otherwise beneficial to the defendant.” (Trial Tr. 1585.) Further, putting aside that the SEC’s arguments, not always perfectly expressed, were consistent with the Court’s in limine ruling that evidence of Gallagher’s profits may be used to show motive, it is dispositive that Gallagher points to no instance where he made a timely and specific objection based upon the Court’s ruling or sought and was denied a curative instruction.
Finally, Gallagher insists that the profits evidence was “extraordinarily” prejudicial. (ECF 242 at 27.) Assuming he intends to invoke the
The admission of evidence of Gallagher’s profits from trading the 31 stocks at issue was probative of Gallagher’s motive without being unfairly prejudicial and does not warrant a new trial.
B. Victim Testimony
Three witnesses, Sagine Nicolas, Hanfen Liu, and Ryan Scribner, testified that they traded certain penny stocks in reliance upon materially misleading statements made in Gallagher’s tweets. Gallagher argues in his motion for a new trial that Nicolas and Liu were not reasonable investors and thus should not have been permitted to testify as to the materiality of Gallagher’s statements or omissions on Twitter.
A statement or omission is material when “a reasonable investor would have considered [it] significant in making investment decisions[.]” Litwin v. Blackstone Group, L.P., 634 F.3d 706, 717 (2d Cir. 2011) (quoting Ganino v. Citizens Utilities Co., 228 F.3d 154, 161 (2d Cir. 2000)). The Second Circuit has instructed that “testimony about the significance of the content of a defendant’s misstatements” is permissible only if “each trader’s ‘own point of view’ is shown to be within the parameters of the thinking of reasonable investors in the particular market at issue.” United States v. Litvak, 889 F.3d 56, 65 (2d Cir. 2018). “In other words, there must be evidence of a nexus between a particular trader’s viewpoint and that of the mainstream thinking of investors in that market.” Id.
The SEC contends Gallagher waived any argument that Nicolas’s and Liu’s testimony on materiality should have been excluded. Gallagher raised the argument in his
Even if the Court’s general ruling that victim testimony would be admissible provided the victims are reasonable investors could have preserved Gallagher’s specific objections to Nicolas’s and Liu’s reasonableness, Gallagher’s arguments fail. “Views that are not ‘erroneous or idiosyncratic’ do not implicate Litvak II’s core theory that ‘the point of view of an investor who is admitted to be wrong’ could not be ‘relevant to prove what a reasonable investor, neither confused nor incorrect, would have deemed important.’” United States v. Gramins, 939 F.3d 429, 450 (2d Cir. 2019) (quoting Litvak, 889 F.3d at 69)).
That Nicolas and Liu may be risk-tolerant, inexperienced traders does not compel the conclusion that they are unreasonable investors. The OTC penny stock market is accessible to inexperienced retail investors and may draw individuals who tend to have a higher risk tolerance.8 See, e.g., (Trial Tr. 528 (Whitlock agreeing that OTC stocks are “highly speculative, risky investments”); S.E.C. v. Stubos, 634 F. Supp. 3d 174 (S.D.N.Y. 2022) (Liman, J.) (describing penny stock fraud perpetrated against retail investors). Nor is it necessarily rare for investors today to rely on internet personalities for investment advice. See, e.g., S.E.C. v. Beck, 22-cv-00812, 2024 WL 1626280, at *2 (C.D. Cal. Mar. 26, 2024), aff’d, 24-2244, 2025 WL 2986481 (9th Cir. Oct. 23, 2025) (“Beck operated a Twitter account with the handle ‘@BigMoneyMike6,’ which recommended certain ‘penny stocks’ to his followers . . . . [T]his account had over three million followers.”).
In addition, where multiple witnesses testify “similarly,” their beliefs should not be considered “idiosyncratic.” See Gramins, 939 F.3d at 450 (holding that the challenged testimony was not idiosyncratic, as “all three of the government’s other counterparty witnesses
Gallagher also argues that Litvak imposes a burden on the SEC to produce evidence showing that Nicolas and Liu meet the “reasonable investor” standard. The Court declines to read Litvak as imposing a requirement of a special showing or finding on whether the challenged testimony is that of a reasonable investor. As Litvak acknowledged, Rules 401 and 403, Fed. R. Evid., generally govern relevance and unfair prejudice determinations. 889 F.3d at 68–69.
Based on the entirety of the foregoing, and even assuming arguendo that the Court’s equivocal in limine ruling preserved Gallagher’s objection, the Court does not conclude that Nicolas and Liu are unreasonable investors ineligible to testify about materiality.
Relatedly, defense counsel sought to cross-examine the victim witnesses about whether they had a “right to expect the disclosure” that Gallagher was selling shares of stocks he was promoting or whether Gallagher had a “legal requirement” to make such disclosures. (ECF 242 at 54.) The question defense counsel sought to put to Nicolas was: “Do you understand that there’s a difference between what you would want to know and whether Mr. Gallagher has a legal obligation to tell you that he is selling his shares?” (Trial Tr. 433.) The Court properly sustained the SEC’s objection on relevance grounds. Materiality does not turn on why an investor finds information important, just that they find it important. Nor was Nicolas qualified to testify to Gallagher’s legal obligations.
Gallagher claims Scribner lied by stating that he relied on certain of Gallagher’s tweets in purchasing shares of HDII when in reality he saw the tweets for the first time when the SEC presented them to him before trial. Scribner’s testimony during cross-examination continued as follows:
Q. And did you pick those [tweets] out or did the SEC pick those out?
A. I did not pick those out.
Q. So the SEC presented them to you, and you agreed that that’s why you purchased shares of HDII, right?
A. I—I don’t know if the SEC was the one that produced those. I mean, they produced them to me.
Q. Right. But it wasn’t you who sent them those tweets; it was them who showed them to you, right?
A. Correct.
(Trial Tr. 815–16.) Far from showing that Scribner committed perjury by clear and convincing evidence, Scribner’s testimony simply suggests that the SEC showed certain tweets to Scribner during the course of trial preparation.9 The testimony does not establish that Scribner saw the HDII tweets for the first time when the SEC presented them to him, and Gallagher offers no
Gallagher’s second perjury claim is also baseless. Scribner testified as follows on direct examination:
Q. Did you know that on July 30, 2020, the same day that you purchased 15,500 shares of HDII, that Alexander Delarge sold 50,000 of his shares?
A. No, I did not know that.
(Trial Tr. 813.) Cross-examination based on Scribner’s brokerage records later revealed that Scribner had in fact purchased HDII on July 28, 2020, with a settlement date of July 30, 2020. (Trial Tr. 819–20; see DX 222 at 39.) But there is nothing in the record to suggest Scribner’s testimony was anything other than inadvertent error. The Court concurs with the SEC’s assessment that “the error . . . was in the SEC’s question . . . not [Scribner’s] answer.” (ECF 252 at 42.) Further, whether Scribner purchased HDII on July 28 or July 30 has no bearing on his testimony that the fact that Gallagher was selling shares of HDII while promoting the stock would have been important to him. The error was corrected during cross examination, and no miscarriage of justice resulted.
C. The Special Verdict Form
On December 16, 2024, the Court set February 19, 2025, as the date for the parties to submit their proposed verdict sheets. (ECF 137.) The SEC submitted a two-page verdict sheet with five questions, none referring to the stocks at issue. (ECF 178-10.) Gallagher submitted 176-page verdict sheet with well over 100 questions. (ECF 178-11.) Neither submission was especially useful, and the Court directed the parties to submit revised verdict
The ultimate special verdict form utilized by the Court was two pages in length and required the jury to render a verdict as to some or all of the 31 stocks at issue. (See Court Ex. 12, ECF 237.) The jury was instructed to “answer the questions in accordance with the Court’s instructions.” (Id.) The form first asked whether the SEC proved the elements of the scalping claim by a preponderance of the evidence. (Id.) If the jury answered in the affirmative, the jurors would be directed to the second question, which asked whether the SEC had carried its burden on the scalping claim “with respect to all 31 stocks presented at trial[.]” (Id.) If the jury found the SEC had not succeeded on all 31 stocks, it would then be required to indicate for each stock whether the SEC proved the claim by checking the applicable box. (Id.) With respect to the manipulative trading claim, the form asked whether the SEC proved the elements of the claim by a preponderance with regard to SPOM, and separately, with regard to BZWR. (Id.)
Gallagher now argues that the form should have required the jury to make a separate written finding on each element of the scalping and manipulative trading claims. He also contends that, for the scalping claim, the form should have included the over 1,000 tweets identified by the SEC and required the jury to indicate on which of the statements it was basing its verdict.
“To preserve objections to the form or substance of a special verdict form, a party must object before the jury has retired to deliberate.” Buchwald v. Renco Group, 13-cv-7948, 2015 WL 925954, at *5 (S.D.N.Y. Mar. 4, 2015) (Nathan, J.). “The objection must be made ‘on
Gallagher contends he preserved his objection through a motion in limine, oral argument during the final pretrial conference, and the submission of competing verdict sheets during trial. But while Gallagher’s motion in limine asked the Court to use a jury form containing every alleged false or misleading tweet, defense counsel backtracked at the final pretrial conference, agreeing that including over one thousand questions in the verdict form would be inappropriate, and explaining, “I didn’t want to put all of the misstatements because I didn’t want to make it too big. My thought was they would have the complaint, and they would go back and look[.]” (ECF 198 at 18–19.) Further, none of Gallagher’s other proposed verdict forms required the jury to find liability for each statement.
Gallagher thus did not preserve an objection to the failure to list each allegedly false statement on the verdict form. See United States v. Yu-Leung, 51 F.3d 1116, 1121 (2d Cir. 1995) (explaining that a motion in limine “may preserve an [evidentiary] objection when the issue (1) is fairly presented to the district court, (2) is the type of issue that can be finally decided in a pre-trial hearing, and (3) is ruled upon without equivocation by the trial judge”).
Even if Gallagher did not waive his argument, however, there was no error. “Decisions as to the format and language to be used in a special verdict form are committed to the trial court’s discretion, and there is no abuse of discretion if the verdict form, when read in conjunction with the instructions to the jury, clearly presents the material factual issues raised by the pleadings and evidence[.]” Lore v. City of Syracuse, 670 F.3d 127, 159–60 (2d Cir. 2012) (citations omitted). Gallagher raises no objection to the contents of the jury charge, which instructed the jury comprehensively on each element of the scalping and manipulative trading
It was not error that the special verdict form did not recite the entirety of the jury charge or every element of the SEC’s claims. See Zaratzian v. Abadir, 10-cv-9049, 2015 WL 5474246, at *2 (S.D.N.Y. July 8, 2015) (Briccetti, J.), aff’d, 694 F. App‘x 822 (2d Cir. 2017) (“That the verdict form did not lay out each element each party was required to prove does not constitute error.”); Camacho v. United States, 204 F. Supp. 2d 667, 671 (S.D.N.Y. 2002) (Stanton, J.) (explaining that “there is no obligation to require a verdict to state separately a finding on each element of an offense”).
Finally, Gallagher urges that it was error for the Court to instruct the jury that it may find him liable for scalping with respect to a stock based on a single statement or omission. This argument is without basis in the law. See
D. The Scalping Verdict on ALPP, ENZC, BZWR, SPOM, TSNP, and WTII
Gallagher argues that with respect to six of the stocks comprising the scalping claim, the jury verdict was against the weight of the evidence.10 Tellingly, Gallagher’s conduct
When Gallagher took the stand at trial for the instant civil case, he testified that he “accept[s] responsibility” with respect to SCIE because he “was guilty” of the crime to which he had pled. (Trial Tr. 935.) At his criminal plea allocution, Gallagher had made the following statement: “I know that these Tweets concerning my stock holdings of SCIE were wrong because I was selling some of my SCIE positions at the time that I was tweeting, thereby misleading my financial position to others.” (PX 457-R at 6.) On January 27, 2021, for example, he sent a private message to a confederate that read: “Scie soon CBDY later[.]” (PX 541.) Nine minutes later, Gallagher tweeted a public “alert” promoting SCIE.12 (PX 541.) Later that day, he sold 4,000,000 shares. (PX 541.) He tweeted the following day: “My $scie #buyscie order filled averaging up for the team! Buy smart sell smart we all win. FYI havent sold a share . . . .” (PX 541.) Gallagher‘s alleged trading activity and tweets with respect to ALPP, ENZC, BZWR, SPOM, TSNP, and WTII followed much the same pattern.
ALPP: SEC witness Alex Lefferts testified that between December 8, 2020, and March 29, 2021, Gallagher accumulated, and sold, 158,100 shares of ALPP. (Trial Tr. 153; PX 519.) During this period, Gallagher posted numerous tweets promoting ALPP that were inconsistent with his own trading in the stock. (See Trial Tr. 154–56; PX 519.) On December 22, 2020, for instance, Gallagher sold 10,000 shares of ALPP. (PX 519 at 3.) Roughly one week
Evidence of Gallagher‘s state of mind included his acknowledgement of wrongdoing with respect to SCIE based on largely the same conduct as his ALPP trading and Twitter activity, as well as his understanding that his followers were taking his advice and purchasing shares of ALPP. (See PX 397-2 at 33.) Additionally, Gallagher‘s claim that he was not planning to sell at the time he was tweeting strains credulity given the breakneck speed with which he sold. Max Clarke testified that on one occasion, Gallagher sold shares of ALPP just 16 seconds after posting a promotional tweet about it. (Trial Tr. 683; PX 488-1.) The SEC also introduced evidence that Gallagher made $475,166 in profits from his ALPP trades. (PX 392-2 at 3.)
Gallagher contends the verdict on ALPP was against the weight of the evidence for several reasons, none of them persuasive. He notes that he did not pre-alert confederates about his promotional ALPP tweets, did not own shares of ALPP before his first tweet about the stock, and held some shares of ALPP for approximately six months. Pre-alerts may have bolstered the SEC‘s case for the 22 stocks in which the pre-alerts occurred, but the “heart” of the fraud Gallagher perpetrated was “that for all 31 stocks he secretly sold shares in the same period of time that he was publicly promoting the stocks on Twitter.” (Trial Tr. 1494.) While Gallagher may have stood to gain little from the three ALPP tweets he posted before buying shares, the same cannot be said of the 367 tweets he posted after he began purchasing shares. (See PX 510.)
Gallagher next urges that “SCIE was inapposite to ALPP.” (ECF 242 at 30.) He suggests that while “SCIE was a lotto play and a complete gamble,” the “hype and growth” surrounding ALPP “was in reaction to company news.” (Id.) It is unclear what significance Gallagher ascribes to this distinction, as his opinions on the commercial viability of the underlying issuer of the stock is not relevant to the SEC‘s claims.
Gallagher‘s remaining arguments concern possible confounding factors driving movement in ALPP‘s share price. That there was “broader OTC volatility,” other “chatter” about ALPP besides Gallagher‘s tweets, and news that ALPP would soon be listed on the NASDAQ is also immaterial given that the SEC was under no obligation to prove that Gallagher‘s tweets moved the market.13 (ECF 283 at 11); see S.E.C. v. Simpson Capital Management, Inc., 586 F. Supp. 2d 196, 201 (S.D.N.Y. 2008) (Koeltl, J.) (“Unlike private litigants, the SEC is not required to prove investor reliance, loss causation, or damages in an action for securities fraud.“).
Given the foregoing, there was sufficient evidence in the record to permit a jury to find Gallagher liable for scalping with respect to ALPP, and there was no manifest injustice. The SEC presented evidence of multiple ways in which Gallagher may have violated Section 10(b) and Rule 10b-5. A jury could reasonably have found Gallagher‘s tweets about ALPP omitted a material fact, namely that Gallagher was selling, or that his tweeting constituted a deceptive scheme or practice that operated as a fraud. The jury was not required to credit Gallagher‘s
ENZC, TSNP, WTII, BZWR, SPOM: The SEC‘s evidence with respect to ENZC, TSNP, WTII, BZWR, and SPOM was much the same as with ALPP and the remainder of the 31 stocks. Gallagher purchased shares of each stock and sold shares while promoting the stock to followers. He often sold quickly after tweeting and profited from the sales. For each stock, Gallagher received messages or reply tweets from other Twitter users informing him that they had purchased shares after reading his tweets.
In arguing that the verdict was against the weight of the evidence for these stocks, Gallagher repeats several of the arguments he raised, unsuccessfully, as to ALPP. He states ENZC, TSNP, WTII, BZWR, and SPOM were all long holds. He explains he believed that WTII was “a potentially good investment[,]” ENZC was “a real company with real products[,]” and that he “truly loved SPOM.” (ECF 242 at 31, 33–34.) These arguments fail for the same reasons addressed in the case of ALPP trading. Indeed, Gallagher concedes in his reply brief that “ENZC being a ‘real company’ or a ‘trips play’ does not matter because [the SEC‘s] theory was about [his] statements about his own position and his intent to sell.” (ECF 283 at 11.)
Specifically with respect to ENZC, Gallagher also seizes on Liu‘s testimony that she had seen the following tweet by Gallagher: “Anyone who knows me know [sic] I don‘t pump and dump. I can‘t say sell. Never have I alerted a stock and sold. After alerting, I hold 90 percent long and collect free shares. I take profits, as all should. TSNP and ENZC will explode.” (ECF 242 at 31; see Trial Tr. 595–96.) In Gallagher‘s telling, this shows that Liu “understood that [he]
With respect to BZWR, Gallagher highlights that he appended the phrase “IMO” (“in my opinion“) to one of his tweets. He also contends that some of the BZWR tweets that the SEC included in one exhibit, PX 524, were not “rendered false” by him “taking profits[.]” (ECF 242 at 32–33.) The jury, however, was presented with BZWR tweets that could fairly be considered materially misleading, and it was free to draw its own reasonable inferences from those tweets. On February 24, 2021, for example, Gallagher tweeted, “$BZWR YOU MIGHT WANNA LOOK AT THIS!! ITS ONE OF MY BIGGEST HOLDINGS!” before making an undisclosed sale of 21,078 shares later that day. (PX 524 at 3.) Gallagher further objects that PX 524 covers January 7, 2021, to March 3, 2021, but excludes March 4, 2021, to September 20, 2021, though the latter dates are within the charged period. Gallagher, however, does not contend his activities during this later period were somehow exculpatory or otherwise undermine the SEC‘s case, and he declined to provide any such information in his motion.
With respect to SPOM, Gallagher contends that PX 543 contains chronological errors. More specifically, he argues that the first page of the exhibit, which summarizes the remaining pages, is misleading because the rows for “buys,” “public tweets,” and “sells” represent overlapping date ranges. But the date ranges are clearly stated, and the rest of the exhibit is comprised of over two hundred rows depicting individual tweets and trades in perfect
Finally, as with ALPP, the SEC did not present evidence that Gallagher pre-alerted confederates about BZWR and SPOM. The SEC‘s theory of Gallagher‘s fraudulent conduct, however, was not dependent upon his pre-alerting a group of confederates who also loaded up on the stock before Gallagher tweeted publicly. It was sufficient to show that Gallagher loaded up on shares of the stock himself before his blasts promoting the stocks and sold after the price moved favorably while implying that he was holding his position. The verdict against Gallagher on these stocks was neither against the weight of the evidence nor a miscarriage of justice.
E. The Manipulative Trading Verdict on BZWR
Gallagher contends the jury‘s finding of liability for manipulative trading with respect to BZWR entitles Gallagher to a new trial because the Court admitted evidence in contravention of
i. Lay Witness Testimony
At trial, the SEC called David Whitlock, who served as Senior Compliance Advisor in TDA‘s trade surveillance group. (Trial Tr. 478.) He testified that he sent a warning
Q. This message says, “This activity may be considered marking the close by regulators.” Do you have an understanding of what “marking the close” means in this usage?
MR. ROSEN: Objection.
THE COURT: No, I‘ll allow it.
A. Yes.
Q. What is your understanding?
A. Marking the close is the placing of orders or trades at or near the end of the day, which could have the appearance of attempting to influence a closing price of the security.
Q. You say “end of the day.” Is that a particular time period you‘re referring to?
A. Generally, it‘s the last 10 to 30 minutes. However, you know, somebody could place a trade, you know, at 1 o‘clock and it could the closing price [sic]. But generally, in most cases, the last 10 to 30 minutes is what we would focus in on.
(Trial Tr. 486–87.)
Immediately before this portion of Whitlock‘s testimony, the Court gave a limiting instruction as requested by defense counsel:
So TDA‘s view on whether trading activities are proper or not or reflective of improper trading is not offered for its truth that it is improper trading or unlawful activities, but it is offered on the question of notice. So you may consider the fact that the defendant was told what it was told by TDA, but it doesn‘t come in that TDA was right. The question—that‘s a question that you will decide as a
jury. But the question of whether the defendant had notice that his brokerage firm took this position is something that you may consider.
(Trial Tr. 485.) This instruction made clear that the jury was only to consider the extent to which Whitlock‘s testimony showed that Gallagher was on notice that TDA thought his trading activity might have been unlawful, not as evidence that Gallagher was in fact employing an illegal trading strategy.
As the examination proceeded, Whitlock was asked whether what he “described as marking the close” was one of the “manipulative trading practices” referenced in the TDA warning message. (Trial Tr. 487.) Gallagher objected and the Court overruled the objection, instructing the jury: “This is the view of TDA, ladies and gentlemen, and it‘s not binding on you as triers of fact in this case.” (Id.)
There is nothing unusual or inappropriate about a lay witness explaining his understanding of his employer‘s choice of words in a business communication. Whitlock was not opining on the legal meaning of “marking the close” or utilizing specialized knowledge to provide such a definition. Rather, he explained the term only “in order to describe specific facts in this case.” See United States v. Mavashev, 455 F. App‘x 107, 113 (2d Cir. 2012) (summary order).
The discussion of the warning message was a prelude to Whitlock‘s testimony that he made the decision to restrict Gallagher‘s account when the same pattern of trading occurred in his account two days later in the same stock. (Trial Tr. 491.) TDA sent Gallagher six messages about repeated purchase orders near the market close, and Whitlock personally spoke to Gallagher on the subject. (See Trial Tr. 499, 520.) It was thus relevant for the jury to hear what Whitlock, Senior Compliance Advisor at TDA, thought his employer was attempting to communicate to Gallagher through the words it chose to include in the warning message. It was certainly testimony “helpful to clearly understanding the witness‘s testimony” and was not based upon specialized knowledge. See
The Court gave the jury extensive instructions on the SEC‘s manipulative trading claim premised upon “marking the close” activity in SPOM and BZWR. (Trial Tr. 1580–85.) The Court instructed the jury that “[u]nlawful ‘marking the close’ takes place when an individual engages in a series of late-day transactions that create actual or apparent active trading in a security or raise or depress the price of such security for the purpose of inducing the purchase or sale of such security by others.” (Trial Tr. 1580.) The jury was also instructed that “it is your sworn duty to determine the facts and to follow the law as I give it to you.” (Trial Tr. 1557.) There was no error in overruling the objection to Whitlock‘s testimony, and even if there had been, Gallagher was not prejudiced by it because of the Court‘s instructions to the jury that it must follow only the Court‘s instructions on the law governing the claim. The Court‘s instructions on the applicable legal standard also vitiate any suggestion that the SEC or the Court
ii. Rule 404(b) Evidence
Gallagher challenges the SEC‘s use of “other acts” evidence under
Evidence of other crimes, wrongs, or acts “may be introduced under
Gallagher maintains that “the connection between the March 2021 claim and the August 2021 404(b) evidence was tenuous, at best.” (ECF 242 at 41.) Gallagher also argues that the SEC “used August 2021 to do the work March 2021 evidence did not do.” (ECF 283 at 15.) The Court disagrees on both counts. Though the August evidence was more voluminous than the
In addition, the Court gave a limiting instruction on two occasions. The Court explained during trial that:
[I]n this trial, the trades that are at issue in SPOM . . . are between July 23 and August 3, 2020. And as to BZWR . . . the dates . . . are March 2 to March 5, 2021. The SEC has sought to admit trades outside of that time period on a theory that they bear some relevance, some showing, of the defendant‘s intent, his state of mind, perhaps the absence of mistake. You may consider this evidence of trades outside the time period that I‘ve told you that was at issue, other trades in SPOM and BZWR, as bearing on his intent during the relevant time period . . . . So you can‘t base liability on trades that took place outside the time period at issue, but you can consider this other evidence as bearing, perhaps, on the state of mind during the relevant time period. You may not use it for any other purpose . . . .
(Trial Tr. 288.) In the jury charge, the Court reinforced the message:
[Y]ou will recall that the SEC has introduced evidence of Gallagher‘s trades in SPOM and BZWR that took place outside of the time period during which the SEC has alleged that he engaged in marking the close activity. As I already mentioned, you may consider this evidence of trades outside the relevant time period as bearing on Gallagher‘s intent or state of mind or the absence of mistake during the relevant time period. You may not use this evidence for any other purpose in considering whether Gallagher is liable under the SEC‘s second claim.
(Trial Tr. 1584.)
Notwithstanding the limiting instructions, Gallagher urges that there was “classic propensity spillover” from the Rule 404(b) evidence. (ECF 283 at 16.) But the case law on
iii. The Weight of the Evidence as to BZWR
For its manipulative trading claim as to BZWR, the SEC was required to prove that Gallagher (1) effected a series of transactions in the stock, (2) that created actual or apparent trading in the stock or moved the price of the stock, (3) for the purpose of inducing others to buy or sell the stock. See
The SEC introduced evidence sufficient to prove each element. First, the SEC showed that Gallagher placed five buy orders in BZWR between March 2 and March 5, 2021, in the final minutes of market open, or one or two buy orders in a given day. (PX 550.) Gallagher‘s argument that the “series of transactions” element of section 9(a)(2) can only be met if the defendant engaged in three or more transactions on a single day is without basis in the law. See, e.g., In the Matter of Kidder Peabody & Co., et al., 18 S.E.C. 559 (Apr. 2, 1945) (“Pereyra‘s
Second, there was ample evidence to show actual or apparent trading or price movement in the stock. On March 2, the shares of BZWR that Gallagher purchased in the last minute of the trading day constituted 95 percent of the market volume in the stock during that time. (PX 395-2b.) Also during that time, the share price moved from $0.1925 to $0.2400, an increase of roughly 25 percent. (PX 395-2b.) Gallagher agreed during trial that “there‘s no one else whose trading could be responsible of the price movement at that time[.]” (Trial Tr. 1065.) He also testified that when he messaged a confederate about his March 2 trades, saying that he had “moved [BZWR] 5 cents eod wwhich [sic] is 50k[,]” he was referring to $50,000 in unrealized gains from those trades. (Trial Tr. 1064–66; PX 550.)
Third, the SEC‘s evidence was enough to permit the jury to infer that Gallagher “acted with the intent to deceive or defraud others by sending a false pricing signal into the market or by artificially affecting market activity.” (See Trial Tr. 1583.) In August 2020, he tweeted “$SPOM ERS EOD I HAVE 3 PEOPLE SO FAR HITTING THE ASK A PENNY HIGHER AT 355 TODAY! JOIN US IN THIS! WHAT EVER THE ASK IS ADD A PENNY AND ITLL END ON A HIGH NOTE!” (PX 559.) Gallagher agreed during trial that in posting that tweet, he was “telling [followers] to do that in order to move the price of SPOM higher at the end of the day[.]” (Trial Tr. 1021.) Gallagher also received multiple warnings from TDA about possible manipulative trading in SPOM before March 2021 concerning the same trading behavior underlying the SEC‘s BZWR claim. (See PX 417, 418, 421.) In August 2021, he told confederates that he had “played stupid” with TDA after receiving its warnings. (See Trial Tr. 1076–77.) Gallagher elaborated at trial: “I knew I was buying the ask multiple times, and I knew
There was no manifest injustice from the section 9(a)(2) verdict. The motion for a new trial will be denied in its entirety.
II. Motion for Post-Trial Remedies
The SEC‘s motion for post-trial remedies asks the Court to (a) permanently enjoin Gallagher from future violations of Exchange Act sections 9(a)(2) and 10(b) and Rule 10b-5 thereunder, (b) impose a penny stock bar on Gallagher, (c) order Gallagher to pay disgorgement of $1,255,889 plus pre-judgment interest, and (d) order Gallagher to pay civil penalties of $7,802,883. In the proposed Joint Pre-Trial Order, the SEC stated: “In the event that the SEC prevails on any of its claims, the Court shall determine the appropriate amount of disgorgement, prejudgment interest and civil monetary penalties, if any, after the jury renders its verdict according to the criteria described in the applicable statutory provisions.” (ECF 178 at 6.) Gallagher did not object to the Court‘s determination of these issues. (See id. at 6–7.)
A. Permanent Injunction
On November 30, 2021, the Court entered a “Stipulated Preliminary Injunction Order,” (ECF 21), in which Gallagher was preliminarily enjoined from violating Securities Act section 17(a), Exchange Act section 9(a)(2), and Exchange Act section 10(b) and Rule 10b-5
The SEC must demonstrate a “substantial likelihood of future violations of illegal securities conduct.” S.E.C. v. Cavanagh, 155 F.3d 129, 135 (2d Cir. 1998). “In determining whether there is a realistic likelihood that a defendant will violate the securities laws in the future, courts look to a number of factors: (1) the degree of scienter involved; (2) the isolated or persistent nature of the past fraudulent acts; (3) the defendant‘s appreciation of his wrongdoing; and (4) the defendant‘s opportunities to commit future violations.” S.E.C. v. Opulentica, LLC, 479 F. Supp. 2d 319, 329 (S.D.N.Y. 2007) (Holwell, J.) (citing Cavanagh, 155 F.3d at 135).
As demonstrated by his testimony at trial and messages to confederates, among other evidence, Gallagher acted with a high degree of scienter. The nature of the conduct for which he was found liable was recurrent over a two-year period and involved 31 penny stocks. Gallagher has largely failed to take responsibility for his wrongdoing, suggesting that his tweets were not false or misleading, (see Trial Tr. 1134, 1188, 1192), and maintaining that he did not know that manipulative trading was unlawful, (Trial Tr. 1205). He also remains in a position to commit future violations. Gallagher has remained active on Twitter, in some cases appearing to “make[] light of the conduct underlying” the instant case. (ECF 251 at 2.)
The SEC‘s motion prominently seeks a permanent injunction against future violations. Gallagher pointedly does not respond to the SEC‘s arguments on this point. Gallagher is hereby permanently enjoined from violating Exchange Act section 9(a)(2) and Exchange Act section 10(b) and Rule 10b-5 thereunder.
Exchange Act section 21(d)(6) authorizes district courts to prohibit a person from participating in an offering of penny stock if the person was participating in such an offering at the time of the alleged misconduct. See
Neither party disputes that the stocks in this case are penny stocks. Gallagher asserts that “[h]e was not involved with brokers, dealers or issuers[.]” (ECF 284 at 40.) Nonetheless, “he consents to a lifetime bar from trading in penny stocks.” (Id.) As previously discussed, Gallagher acted with a high degree of scienter, misled investors, and is in a position to commit repeated violations. A permanent penny stock bar on consent is therefore warranted and imposed.15
C. Disgorgement
The SEC asks the Court to order disgorgement of Gallagher‘s unlawful trading profits and prejudgment interest on those profits. See
“The ‘amount of disgorgement ordered need only be a reasonable approximation of profits causally connected to the violation.‘” S.E.C. v. Ahmed, 72 F.4th 379, 397 (2d Cir. 2023) (quoting S.E.C. v. Fowler, 6 F.4th 255, 267 (2d Cir. 2021)). “So long as the measure of disgorgement is reasonable, any risk of uncertainty should fall on the wrongdoer whose illegal conduct created that uncertainty.” S.E.C. v. Core Business One, Inc., 24-2104, 2025 WL 3066349, at *5 (2d Cir. Nov. 3, 2025) (summary order) (quoting S.E.C. v. Warde, 151 F.3d 42, 50 (2d Cir. 1998)). “Once the SEC has met the burden of establishing a reasonable approximation of the profits causally related to the fraud, the burden shifts to the defendant to show that his gains ‘were unaffected by his offenses.‘” S.E.C. v. Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013) (quoting S.E.C. v. Lorin, 76 F.3d 458, 462 (2d Cir. 1996)). A district court has broad discretion in determining the amount a defendant should disgorge. S.E.C. v. First Jersey Securities, Inc., 101 F.3d 1450, 1474 (2d Cir. 1996).
The SEC seeks disgorgement in the amount of $1,255,889, which represents SEC expert Max Clarke‘s calculation of Gallagher‘s trading profits from the relevant stocks. Notably, Gallagher does not provide an alternative calculation of his profits. He does, however, argue that Clarke‘s latest report is untimely, and that it suffers from various other deficiencies.
i. Clarke‘s Analysis
During discovery, the SEC noticed Clarke, a Senior Financial Economist at the SEC, as an expert witness. (See ECF 156 at 5.) Clarke has produced two reports in addition to a
The second report (“Rebuttal Report“), (ECF 156-1), addressed defense expert Lauren Van Allen‘s arguments, which centered on the purported failure of Clarke‘s Expert Report to address causation and to isolate Gallagher‘s precise impact on the market, (see ECF 201-7). Finally, post-verdict, Clarke submitted a declaration (“Declaration“) that “perform[ed] the same analyses [as the Expert Report] . . . for just the 31 stocks underlying the jury‘s verdict.” (ECF 250 ¶ 18.) Again, SCIE and several additional stocks for which confounding factors existed were excluded from the analysis, leaving 21 stocks remaining. (Id. at 5 n.6.) It is Gallagher‘s profits in those 21 stocks for which the SEC now seeks disgorgement.
Clarke‘s analysis proceeded in three parts. He first addressed confounding variables. The stocks for which he located “some information that may explain at least some portion of the run up in the stock price” were excluded from further analysis. (ECF 250 ¶ 25.) Then, “[t]o address the possibility that market and industry factors, rather than Gallagher‘s
Second, Clarke analyzed whether the stocks “showed an increase in trading volume and prices” during the periods in which Gallagher was tweeting about them. (Id. ¶¶ 34–38.) He concluded, using statistical t-tests, “that Gallagher‘s tweets caused an increase in price and volume for” the 21 stocks. (Id. ¶ 38.) Lastly, Clarke calculated Gallagher‘s profits using records of trades executed in Gallagher‘s and his wife‘s brokerage accounts with TDA and E*TRADE.18 (Id. ¶¶ 39–45.)
ii. Timeliness of Clarke‘s Declaration
Gallagher contends that the SEC may not use Clarke‘s Declaration in support of its motion because it is based on new analysis and opinions that were not disclosed during expert discovery.19 Gallagher is incorrect. Clarke performed much the same analysis in the Declaration as he had in the Expert Report and Rebuttal Report. The Declaration “simply narrows the presentation of [his] analysis and conclusions to the 31 stocks underlying the jury‘s
It is not the case that Clarke opined for the first time in the Declaration that Gallagher‘s tweets caused an increase in price and volume. (See, e.g., ECF 156-1 at 28–29 (“[S]everal examples indicate that Gallagher‘s tweets directly caused stock purchases. These stock purchases put upward pressure on stock prices and directly led to an increase in trading volume. The causal connection is clear.“).) Nor do Clarke‘s references in the Declaration to evidence from trial reveal “that his opinions are new” as Gallagher contends. (ECF 284 at 15.) Clarke‘s testimony at trial about Gallagher‘s trading profits and Twitter users’ engagement with Gallagher‘s tweets post-dated his examination of these issues in the Expert Report. (See Trial Tr. 660–63, 680–82.) Further, Clarke‘s trial testimony about the timing of Gallagher‘s tweets and trades was based on the same datasets underlying the Expert Report.20
Gallagher also repeatedly conflates the Court‘s ruling on the permissible scope of Clarke‘s trial testimony with what the SEC may argue in its remedies motion. It is true that the Court ruled Clarke may not testify at trial about Gallagher‘s profits for any purpose besides showing motive. But that ruling was confined to Clarke‘s trial testimony. The SEC made the decision not to call Clarke as an expert witness during trial, but it properly noticed him as an expert witness during discovery for other purposes.
In sum, the Declaration was properly submitted. See S.E.C. v. O‘Brien, 674 F. Supp. 3d 85, 93 (S.D.N.Y. 2023) (Cote, J.), aff‘d, 23-1071, 2024 WL 2813722 (2d Cir. June 3, 2024) (relying on a declaration in a securities enforcement action that “incorporates [the SEC
iii. Causation
Courts may only award disgorgement of profits “causally connected to the violation[s].” See Ahmed, 72 F.4th at 397 (quoting Fowler, 6 F.4th at 267). Gallagher challenges causation on a number of grounds, none of which is effective.
Gallagher claims Clarke only established correlation between his tweets and movements in the market, not causation. He seizes on Clarke’s pre-trial deposition, claiming Clarke testified that “his ‘analysis’ only showed ‘correlation’ not actual ‘causation[.]’” (ECF 284 at 9.) Gallagher mischaracterizes Clarke’s testimony. Clarke made clear during his deposition that, in his opinion, the correlation he uncovered between Gallagher’s tweets and rising share prices “supports a causal interpretation.” (ECF 285-1 at 112.) Clarke also explained in his Rebuttal Report that, “[c]onsistent with economic research, tweeting can cause increases in the price and volume of stocks” and that “[w]hile the adage ‘correlation is not causation’ is correct, causation reveals itself through correlations[.]” (ECF 156-1 at 5–6.) He elaborated:
Applied in this case, when Gallagher tweeted about specific stocks, his followers or those reached by his tweets bought the stock. This increase in demand for the stock would create upward pressure on prices. In addition, the increase in demand could lead to a further increase in activity and attention to the stock which could continue to increase price levels, volatility, and volumes. This conclusion is supported both by the analysis contained in my opening report, as well as my review of comments on Gallagher’s Twitter posts.
(Id. at 5.)
Gallagher also takes issue with Clarke’s regression analysis and urges that there is in fact “zero statistical link between the tweets and returns for nearly half the charged stocks.”
The Court is also unconvinced that Van Allen’s analysis is dependable. Clarke argues persuasively that Van Allen’s analysis fails to capture the influence of Gallagher’s tweets in the market because it relies on the number of tweets rather than users’ engagement. (ECF 156-1 at 23–24.) It also involves a separate model for each stock, which reduces the sample size and does not control for company-specific traits. (See id.) Van Allen also did not adjust for the fact that others’ tweets may not have been standalone posts, but rather responses to Gallagher’s own tweets. (Id. at 25.) When Clarke re-ran Van Allen’s model addressing these issues, he found that Gallagher’s tweets “have a statistically significant and positive effect on daily stock returns.” (Id. at 24.)
Gallagher’s attempts to identify confounding factors that defeat the SEC’s evidence on causation also fail. Gallagher seems to suggest that because his tweets only constituted three percent of “total tweet volume” for the stocks at issue, he could not have influenced the market. (ECF 284 at 23.) The Court, however, finds Clarke’s data on the level of user engagement with Gallagher’s tweets to be more compelling than simply considering the raw number of tweets. And Gallagher’s tweets were among the most influential, or the most influential, on Twitter for the 21 stocks. (See ECF 250-1 at 50–51.)
Gallagher next contends that his tweets could not have caused price spikes because OTC markets are inefficient, “meaning they do not rapidly incorporate public information (like tweets) into share prices.” (ECF 284 at 24.) However, as adduced by the evidence at trial, when Gallagher tweeted about a stock, his followers would buy the stock. This “can lead to increases in the price and volume of promoted stocks.” (See ECF 123-14 at 5.)
Gallagher’s arguments also overlook the applicable law. Only “a reasonable approximation of profits causally connected to the violation” is needed to determine the amount to be disgorged. See Ahmed, 72 F.4th at 397 (quoting Fowler, 6 F.4th at 267). Further, because of the difficulty in separating “legal from illegal profit, . . . it is proper to assume that all profits gained while defendants were in violation of the law constituted ill-gotten gains.” Universal Express, Inc., 475 F. Supp. 2d at 428 (quoting S.E.C. v. Bilzerian, 814 F. Supp. 116, 121 (D.D.C. 1993),
iv. Daubert and Rule 702
Gallagher urges that Clarke’s reports do not pass muster under
Gallagher again argues that Clarke’s analysis shows only correlation, and not causation, as he “did not perform the necessary econometric work[.]” (ECF 284 at 17.) Clarke, however, used common methods of statistical analysis accounting for a variety of potentially market-moving factors to conclude that Gallagher’s actions impacted the price of the 21 stocks for which the SEC seeks disgorgement. Gallagher fails to convincingly explain how Clarke’s data or methods were inadequate.
The charts in Exhibit 5 were intended to show the impact of Gallagher’s tweets on price and volume. (See id. at 28–48.) Gallagher contends that price appreciation that occurred before he began tweeting disproves his impact. The Court is unconvinced. That some changes in price occurred before Gallagher became involved in a stock does not show that his later involvement had no effect. With BBDA, in particular, the large spike in share price that occurred before Gallagher’s tweeting may in fact be explained by “Gallagher’s purchase of 20 million shares on February 9, 2021 (two days before his first public tweet) and private DMs and pre-alerts . . ., also before he began tweeting publicly.” (ECF 288 at 8–9; see PX 521.) Gallagher also claims TLSS “crashed before [he] began tweeting and stayed flat during the entire time of his tweeting.” (ECF 284 at 19.) Exhibit 5 shows this is not the case. Though the share price of TLSS dropped significantly before Gallagher became involved with the stock, Exhibit 5 nonetheless shows increases in price and volume coinciding with Gallagher’s trades and tweets. (See ECF 250-1 at 45.)
Nor is Clarke’s deposition testimony declining to opine on how much investors lost as a result of Gallagher’s actions or acknowledging that it may not be possible to trace every dollar of Gallagher’s profits to his fraudulent actions cause for concern. The SEC was not
v. Special Verdict
Gallagher’s next challenge to the SEC’s disgorgement request centers on the jury’s verdict. In Gallagher’s telling, the verdict does not support disgorgement of the totality of his profits for each stock because the jury was only required to agree that one tweet per stock was fraudulent to find Gallagher liable. That argument fails because it is based on the mistaken premise that the SEC was required to isolate the profits that flowed from each of Gallagher’s tweets. It was Gallagher’s burden to show “that his gains ‘were unaffected by his offenses.’” Razmilovic, 738 F.3d at 31 (quoting Lorin, 76 F.3d at 462). He failed to make that showing, and the jury found that he committed fraud in each of the 21 stocks for which the SEC now seeks disgorgement. Courts have repeatedly concluded that the appropriate amount to be disgorged in similar circumstances is net trading profits from the stocks in issue. See Beck, 2024 WL 1626280 (ordering disgorgement of defendant’s trading profits obtained through penny stock scalping scheme), S.E.C. v. Sripetch, 20-cv-01864, 2024 WL 1546917 (S.D. Cal. Apr. 8, 2024), aff’d, 154 F.4th 980 (9th Cir. 2025), aff’d, 25-466, 2026 WL 1593329 (U.S. June 4, 2026) (same); S.E.C. v. Williky, 15-cv-0357, 2018 WL 3729137 (S.D. Ind. Aug. 3, 2018), aff’d, 942 F.3d 389 (7th Cir. 2019) (same). Gallagher does not point to any instances in which a court attempted to parse a defendant’s profits as Gallagher would have this Court do.
vi. Prejudgment Interest
“The decision whether to grant prejudgment interest and the rate used if such interest is granted are matters confided to the district court’s broad discretion[.]” First Jersey Securities, 101 F.3d at 1476 (quoting Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1071 (2d Cir. 1995)). “In deciding whether an award of prejudgment interest is warranted, a court should consider ‘(i) the need to fully compensate the wronged party for actual damages suffered, (ii) considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv) such other general principles as are deemed relevant by the court.’” S.E.C. v. Curshen, 08-cv-7893, 2014 WL 12791876, at *11 (S.D.N.Y. Mar. 21, 2014) (Gardephe, J.) (quoting First Jersey Securities, 101 F.3d at 1476). The SEC asks the Court to order Gallagher to pay $28,620.21 in prejudgment interest.
The Court initially froze close to seven million dollars of Gallagher’s assets, (ECF 21), eventually reduced to roughly one-and-one quarter million dollars, (ECF 216). Gallagher attests that because of the asset freeze, he paid his 2021 taxes late, which “cost [him] approximately $100,000 in excess interest and penalties.” (ECF 285-6 ¶ 10.) In light of that cost, the initial size of the asset freeze, and because the SEC does not contend that Gallagher ever violated the asset freeze, the Court declines to impose prejudgment interest in this case. See Razmilovic, 738 F.3d at 36 (“[W]here, as here, the defendant has had some or all of his assets
D. Civil Penalties
Exchange Act section 21(d)(3),
“Civil penalties are designed to punish the individual violator and deter future violations of the securities laws.” Opulentica, LLC, 479 F. Supp. 2d at 331. Courts imposing these penalties “have typically considered such factors . . . as ‘(1) the egregiousness of the defendant’s conduct; (2) the degree of the defendant’s scienter; (3) whether the defendant’s conduct created substantial losses or the risk of substantial losses to other persons; (4) whether the defendant’s conduct was isolated or recurrent; and (5) whether the penalty should be reduced due to the defendant’s demonstrated current and future financial condition.’” S.E.C. v. Rajaratnam, 822 F. Supp. 2d 432, 433 (S.D.N.Y. 2011) (Rakoff, J.) (quoting S.E.C. v. Haligiannis, 470 F. Supp. 2d 373, 386 (S.D.N.Y. 2007) (Holwell, J.)), aff’d, 918 F.3d 36 (2d Cir. 2019). However, these “factors are neither exhaustive nor ‘to be taken as talismanic.’” S.E.C. v. Lek Securities Corp., 612 F. Supp. 3d 287, 295 (S.D.N.Y. 2020) (Cote, J.) (quoting Rajaratnam, 918 F.3d at 45).
The SEC asks the Court to impose third-tier penalties, which amount to $236,451 per violation. See Adjustments to Civil Monetary Penalty Amounts, 90 Fed. Reg. 2767 (Jan. 13, 2025). The Court agrees that third-tier penalties are appropriate, as Gallagher’s activities “resulted in substantial losses or created a significant risk of substantial losses” for other investors. See
The Court does not agree with the SEC as to the number of violations on which to impose penalties. “[B]ecause the statutory penalty provisions authorize civil penalties ‘for each violation,’
Gallagher’s activities were intentional and perpetrated over the course of roughly two years. He has failed to adequately accept responsibility. While he states that he is “embarrassed and ashamed by [his] involvement in the case[,]” (ECF 285-6 ¶ 18), he maintained during trial that he was ignorant of the fact that he was engaged in wrongdoing despite evidence to the contrary. See S.E.C. v. Honig, 18-cv-8175, 2025 WL 3467911, at *7 (S.D.N.Y. Dec. 3, 2025) (Ramos, J.) (“Courts may weigh a defendant’s level of culpability when determining civil penalties by assessing whether the defendant is remorseful[.]”). However, “[a]lthough [Gallagher] engaged in repeated violations of the securities laws, they [ ] arose from a single scheme or plan.” See S.E.C. v. Rabinovich & Associates, LP, 07-cv-10547, 2008 WL 4937360, at *6 (S.D.N.Y. Nov. 18, 2008) (Lynch, J.). Further, “there is a realistic possibility” that Gallagher’s business will close in the near future as it is “suffer[ing] financially” due to industry decline. (ECF 285-6 ¶ 5.) The Court also considers the impact of the disgorgement ordered in the amount of $1,255,889. See Opulentica, LLC, 479 F. Supp. 2d at 332 (considering “the size of other financial components of the judgment” in determining civil penalties). Given the above, the Court concludes it is appropriate to order Gallagher to pay civil penalties in the amount of $472,902.
CONCLUSION
For the foregoing reasons, the motion for a new trial is DENIED. The SEC’s application is GRANTED in part. Gallagher is permanently enjoined from (1) violating
The Court respectfully directs the Clerk to terminate the pending motions at ECF 241 and ECF 248.
SO ORDERED.
P. Kevin Castel
United States District Judge
Dated: New York, New York
June 18, 2026