Meta Materials Executives, John Brda and George Palikaras, charged with Market Manipulation, Fraud and Other Violations

Thanks to an SEC Complaint filed today, MMTLP shareholders finally have the undisputable evidence needed to point their previously misguided blame for their massive losses at the proper culprits. For months after the Financial Industry Regulatory Authority (“FINRA“) halted trading of MMTLP shares following trading on December 8, 2022, to avoid settling issues for the scheduled preferred stock dividend set to take place on December 12, 2022, MMTLP shareholders have aimed their anger toward FINRA, blaming the organization that operates to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly for spoiling their credulous short squeeze.

In reality, according to evidence collected and shared by the Securities and Exchange Commission (the “SEC“) in its complaint filed today, the rumors about the short squeeze were, in fact, started by the former CEOs of Meta Materials Inc., John Brda (“Brda”) and George Palikaras (“Palikaras”), as part of a sophisticated market manipulation scheme that they had planned months in advance.

Timeline of the Scheme

Early 2020 – Torchlight in trouble

By early 2020, Torchlight Energy Resources, Inc. (“Torchlight”)  was at a crossroads. It had sold all of its revenue-generating oil and gas assets, leaving Torchlight with oil and gas leases on only a few early-stage, exploratory properties. Torchlight’s primary remaining oil and gas asset, the Orogrande Project, was undeveloped, had no proven oil and gas reserves, and covered significant areas of acreage far removed from existing proven geologic formations. Consequently, only a small number of very large and/or specialized oil and gas companies were possible candidates to purchase Torchlight’s Orogrande lease interests.

June 2020 – Brda hatches his plan

Brda believes that he has identified a significant volume of short interests in Torchlight stock. In a June 2020 email, Brda wrote that “the short position” in Torchlight stock “is quite extensive.” In that same email, Brda expressed his belief that through certain steps, Torchlight’s “short position…will be forced to cover,” which could trigger a short squeeze.

Starting that same month, Brda began developing the following plan:

• Find a merger partner who desired Torchlight’s Nasdaq listing but not its oil and gas leases;
• As part of the merger structure, issue a dividend—in the form of preferred stock issued to Torchlight stockholders of record at closing—that Torchlight would not register or make available for immediate trading on any exchange (i.e., the “Preferred Dividend”), ostensibly to allocate proceeds from the sale of Torchlight’s oil and gas assets to legacy Torchlight shareholders;
• Market and promote the Preferred Dividend to spread the narrative to select investors that short sellers would not be able to obtain the Preferred Dividend, thus pressuring short sellers to close their positions, leading investors to believe a short squeeze would occur, and artificially inflating the price of Torchlight common stock on a temporary basis;
• Capitalize on Torchlight’s inflated common stock price by, among other things, raising capital through an ATM Offering (at-the-market price offering); and
• Use capital raised through the ATM Offering to drill wells required to maintain Torchlight’s oil and gas leases.

September 21, 2020 – A merger partner is found, and the plan goes into action

Brda found his merger partner in Metamaterial, Inc. (“Meta”) and its CEO, Palikaras. Brda proposed the Preferred Dividend to Meta and secured Meta’s initial consent via a letter of intent that Torchlight and Meta announced on September 21, 2020. Meta was a growing Canadian company listed on the Canadian Stock Exchange looking for an opportunity to gain access to U.S. capital markets. Torchlight’s Nasdaq listing offered Meta that opportunity. At the same time, Meta was an applied materials technology company; it was not in the business of acquiring, developing, or selling oil and gas leases.

Brda told Palikaras about the scheme at the outset of negotiations. Palikaras fully embraced and participated in the scheme. In fact, according to the SEC, Meta’s CEO, Palikaras, went above and beyond what Brda needed.

According to the SEC, the design and structure of the Preferred Dividend that Brda devised, proposed, and negotiated with Meta included as follows:

• First, the Preferred Dividend would provide holders of Torchlight common stock one share of preferred stock, purportedly entitling its owner to receive the net proceeds of the sale of Torchlight’s remaining oil and gas assets.
• Second, only the owners of record of Torchlight stock, as of a designated record date (the “Record Date”), would be entitled to receive the Preferred Dividend.
• Third, after its issuance, the Preferred Dividend would purportedly not be registered or made available for trading on any exchange.

By this design, Brda intended to cause a short squeeze because he believed short sellers would have difficulty obtaining and delivering the Preferred Dividend (along with the borrowed Torchlight stock) to lenders in the future.

In a written presentation to Palikaras and Meta’s board in September 2020, Brda proposed his plan to emphasize the Preferred Dividend by using merger announcement press releases to “[p]lay up the [preferred share] dividend to make sure the shorts understand their dilemma.”

Likewise, in the September 6, 2020 email from a Meta board member, that board member wrote to his fellow board members, based on “two separate calls” that he and Palikaras had with Torchlight management (including Brda): “Torchlight’s well thought out strategy…is to finalize an LOI with [Meta]…and strategically jointly announce it by way of a joint Press Release after the markets close.” The board member wrote that the joint press release “will announce that at closing of the transaction all current shareholders of Torchlight will be issued an equivalent number of Pref Shares.” He also explained that, per Brda/Torchlight’s strategy, if the two companies agreed on “when the Joint Press Release goes out, the shorts will only have the weekend to come up with their own strategy to cover their short positions.” He added that “Torchlight’s management [which included Brda] is confident” that Torchlight’s stock price would go up following a press release playing up the Preferred Dividend.

December 2020 – The definitive agreement for the planned merger of the two companies, including plans for the Preferred Dividend, is announced

On December 14, 2020, Torchlight announced it had entered into a definitive agreement to merge with Meta, including the Preferred Dividend for Torchlight shareholders. 

January 2021 – July 2021 – Brda and Torchlight mislead investors

According to the SEC, Brda and Torchlight made several public disclosures about the Preferred Dividend, including in proxy statements, press releases, and other SEC filings, but those disclosures were misleading—and in some instances, false—because Brda omitted material information about the plan to use the Preferred Dividend to manipulate the price of Torchlight stock and defraud investors.

In addition to concealing their scheme from the market through misstatements and omissions, Brda and Palikaras deceptively marketed and promoted the narrative that the Preferred Dividend would cause a short squeeze, furthering their plan to artificially inflate Torchlight’s stock price.

The SEC provides as an example some conversations Brda had with a couple of unnamed “stock-support consultants” that Brda recruited to help sell the Preferred Dividend and the resulting short squeeze. 

For example, in January 2021, Brda emailed information about the outstanding short position in Torchlight to the stock-support consultants and wrote: “[w]e all knew [the shorts] would come after us one more time. They are creating a massive bubble, IMO, that is going to slingshot in our favor. The dividend is going to be a huge problem for them.” Through these and other communications, Brda prompted Torchlight’s consultants to explain the Preferred Dividend and its impact on short sellers to investors without revealing that he and the company were driving that message or disclosing his intention to take advantage of the eventual temporary price inflation by selling Torchlight stock at inflated prices.

Brda and Palikaras also deceptively communicated directly with select groups of investors, playing up the short squeeze to further their scheme.

• From March 16-18, 2021, Brda and Palikaras met with a series of institutional investors as part of an investment bank’s virtual Annual Investor Conference. During these meetings, Brda and Palikaras pitched the justification for the merger and described to at least one investment firm the potential for the Preferred Dividend to cause a short squeeze.
• On May 13, 2021, Palikaras participated in a virtual meeting with a group of Italian shareholders that he believed held a significant number of shares of Torchlight common stock. During that meeting, Palikaras described the plan to cause a short squeeze on several occasions. During the call, Palikaras also made false and misleading statements, including that the value of the Preferred Dividend could be between $1 and $20 per share, which was completely unsupported. 

In addition, Palikaras and Brda used social media to indirectly tout the Preferred Dividend in furtherance of their market manipulation scheme. 

• For instance, on June 7, 2021—one week before Torchlight announced the Preferred Dividend Record Date (as defined in paragraph 31 above)—Brda posted a video discussing short squeezes in the context of other stocks on Torchlight’s Twitter account. After viewing the tweet, Palikaras texted Brda, advising caution: “I don’t think you should be sharing posts on the short squeeze… yet. Just my two cents. Once it happens that’s ok as it is fact, but before you are putting yourself at risk for potentially speculative content.”
• On June 13, 2021—the day before Torchlight announced its Preferred Dividend Record Date—Palikaras tweeted a graphic of shorts-in-flames, kicking off a series of tweets designed to promote the short squeeze theory and encourage investors to purchase Torchlight’s common stock. A true and correct copy of this tweet is depicted below:

As Brda and Palikaras intended, users on Twitter, StockTwits, YouTube, Reddit, and other social media platforms discussed the merger, the Preferred Dividend, and the short squeeze in the days leading up to the merger and Record Date.

June 24, 2021 – June 28, 2021 – The Market Manipulation reaches its peak, and Torchlight cashes in

Brda and Palikaras succeeded in manipulating Torchlight stock’s price in the days leading up to the merger closing. Before the merger was announced, Torchlight stock was trading below $1.00 per share. As a result of Brda’s and Palikaras’s scheme, Torchlight’s stock price sharply rose during a ten-day period—between June 14–24, 2021—from $3.58 per share to as high as $10.88 per share before dropping back to $4.95 per share by June 25, 2021.

When Torchlight’s stock price began to surge, Brda wrote Palikaras: “We have two days to take advantage of the squeeze[.]” (emphasis added). Between June 18–24, 2021, Brda caused Torchlight to sell off-the-shelf shares into the public markets in an ATM Offering. Over the five-day ATM Offering, Torchlight sold 16.2 million shares to investors at an average price of $8.50 per share. In total, the ATM Offering raised $137.5 million from investors.

These proceeds primarily benefitted the company that resulted from the Torchlight-Meta merger— Meta Materials, Inc. (“MMAT”)—which appointed Palikaras as CEO. And for his part, Brda demanded and received a $1.5 million bonus.

June 28, 2021 – Merger Closes and MMAT begins trading on the NASDAQ.

On June 28, 2021, Torchlight and Meta closed the transaction, and the resulting company began trading on the Nasdaq under a new name, Meta Materials Inc., and a new stock symbol, MMAT.

Other Allegations

The SEC also alleges that besides making misleading statements, Brda knowingly or severely recklessly omitted material facts and information that were necessary in order to make his statements in Torchlight’s public filings not misleading. For example:

• Brda failed to disclose that, at the time of his above-referenced statements, Torchlight had no specific prospects or candidates to buy its largest oil and gas assets, that Torchlight had unsuccessfully tried to sell those assets for years, that Torchlight had no plans in place to use “commercially reasonable efforts” to complete the sale of its assets within six months of the merger closing, or that a sale of those assets within six months of the merger closing was not possible given the lack of prospects or candidates.  
• Brda also knowingly or severely recklessly failed to disclose that he had laid the foundation for a spin-off of Torchlight’s oil and gas assets into a new entity as early as December 2020—mere days after the definitive agreement for the merger between Torchlight and Meta was signed. In particular, beginning in December 2020, Brda circulated to Torchlight’s Chairman and other insiders presentations outlining capital formation plans for a spin-off entity (the “Spin-Off Entity”). He did not publicly disclose these plans.
• Brda knowingly or severely recklessly failed to disclose that, starting in January 2021, he caused Torchlight to begin secretly paying $20,000 a month to individuals who would form the initial management team of the Spin-Off Entity. To conceal his plans, Brda caused Torchlight to make these monthly payments through an intermediary who received “consulting fees” for doing no actual work. He further caused Torchlight to keep inadequate books and records and/or caused it to maintain insufficient controls to document why Torchlight was making these monthly payments to this intermediary. Brda did not publicly disclose these payments or his fully formed spin-off plans before the merger closing.
• By August 2021—just six weeks after the merger closed—Brda sent the post-merger MMAT Board a fully-formed plan to abandon all of its so-called “efforts” to sell the assets and, instead, to spin off the assets into the Spin-Off Entity—which had the same name as the Spin-Off Entity that Brda identified in his presentation to Torchlight’s board back in December 2020—with a specific management team that Brda and Torchlight had been paying clandestinely through an intermediary since January 2021. Consistent with Brda’s recommendation, by August 17, 2021—less than 60 days after the merger closed—MMAT’s Board voted to “discontinue” any so-called “effort” to sell the assets and, instead, to drill wells required to maintain the leases, with a goal of spinning off the assets into a separate company as soon as possible. Thus, Brda knew or was severely reckless in not knowing that no “commercially reasonable efforts” would be undertaken to sell Torchlight’s assets, that the assets could not be sold within six months of the merger closing, and that no distribution from such a sale would occur. And he knowingly or severely recklessly made false and misleading statements and omissions to the contrary in furtherance of his scheme to manipulate Torchlight’s stock price.

Brda’s and Palikaras’s false and misleading statements gave investors the false impression that Torchlight had made some progress toward selling its oil and gas assets and that MMAT would be able to quickly monetize Torchlight’s oil and gas assets and distribute the net proceeds to shareholders post-merger. This false impression incentivized investors to acquire or hold Torchlight common stock through the Record Date to be eligible to receive the Preferred Dividend. Torchlight legacy shareholders who believed Brda’s and Palikaras’s misrepresentations about the value of the Preferred Dividend were incentivized not to sell before the Record Date and, thus, missed the opportunity to sell when Torchlight’s stock price increased leading up to the merger. In turn, this false impression furthered Brda’s and Palikaras’s scheme to manipulate the market by artificially inflating the value of Torchlight’s stock.

That’s where the SEC’s story ends, but we know that the nightmare for Preferred Stockholders would continue and eventually end in total devastation.  

The Story Continues 

September 2021 – The SEC begins its investigation

According to the MMAT SEC filings, in September 2021, the company received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned “In the Matter of Torchlight Energy Resources, Inc.” The subpoena requested that the Company produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc.  From the MMAT filings:

In September 2021, we received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that we produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. We are cooperating and intend to continue to cooperate with the SEC’s investigation. We can offer no assurances as to the outcome of this investigation or its potential effect, if any, on us or our results of operation.

October 6, 2021 – the Preferred Shares begin trading as MMTLP, and the short squeeze narrative is reignited. 

Meta Metals, Inc. Series A Preferred Stock (“MMTLP”) began trading under the symbol MMTLP on October 6, 2021, according to FINRA’s Daily List.

According to social media posts, on October 7, 2021, it was trading as low as $0.01, but by the following day, it had risen as high as $2.90. Initially, it appears to have only primarily caught the attention of MMAT shareholders who’d received their preferred stock dividend but were surprised to see it trading.

Two days later, people had already begun to talk. A social media poster who’d been “reading a lot of chatter and watching youtube” said MMAT “has no knowledge of [MMTLP}”. He added that it “could be massive short squeeze opportunity or smoke and mirrors. People began comparing it to overstock situation where it went from $8 to $80.”

December 2021 – Kerrisdale Short Attack 

On December 14, 2021, activist short firm Kerrisdale Capital published a very critical research report about MMAT, pointing out that the company had a $1 billion market cap for no real reason, backing it up with specifics. Kerrisdale did not, however, address the question of MMTLP’s sudden appearance as a publicly traded security. Kerrisdale was not the first professional short to take an interest in the issuers that made up the new MMAT. In April 2019, White Diamond Research wrote a research report about Torchlight. Obviously, neither Kerrisdale nor White Diamond had naked-shorted any of the relevant stocks at that time; both fully disclosed their positions.

January 2022 – Class Actions

MMAT didn’t fare better at the start of 2022. The year kicked off with a class action lawsuit being filed against MMAT, Palikaras, the founder and CEO, Kenneth Rice, the CFO, Greg McCabe, and Brda. The complaint accuses the defendants of securities fraud by making materially false and misleading statements about the company, its products, and its business connections and dealings. That class action lawsuit was consolidated with two others also filed in January of 2022. That case ended on May 22, 2024, with an approved settlement agreement requiring the defendants to pay $3,000,000 to the class action participants. 

July 2022 – Rinse Repeat

On July 15, 2022, a Nevada company called Next Bridge Hydrocarbons, Inc. (“Next Bridge”) filed an S-1 registration statement with the SEC. The filing was directed to holders of MMAT’s Series A preferred, that is, MMTLP shares:

This prospectus (“Prospectus”) is being furnished to you as a Series A Preferred stockholder of Meta Materials, Inc. (“Meta”) in connection with the planned distribution (the “Spin-Off” or the “Distribution”) by Meta to its Series A Preferred stockholders of all the shares of common stock, par value $0.0001 per share (the “Common Stock”), of Next Bridge Hydrocarbons, Inc. (the “Company,” “Next Bridge,” “we,” “us” or “our”) held by Meta immediately prior to the Spin-Off. As of immediately prior to the time of the Distribution, Meta holds 165,523,363 shares of Common Stock, which is 100% of the outstanding shares of capital stock of the Company.

And consistent with the first dividend that led to the preferred stock being created out of Torchlight common shares, once again, the resulting shares from this dividend would not be made available for trading on any exchange, which was carefully noted in the Next Bridge S-1:

“Meta currently owns all the outstanding shares of Common Stock of the Company [Next Bridge], and we have not sought to have the shares of Common Stock traded on any exchange. Accordingly, there is currently no public market for the Common Stock, and there is no current expectation for a public market to develop for the Common Stock.”

It was Brda’s original plan in reverse. He manipulated the Torchlight stock price by giving Torchlight common shareholders a preferred stock dividend and using that dividend and short squeeze rumors as fuel. But this time, the preferred stockholders were being given a common stock dividend in Next Bridge, and once again, short squeeze rumors would be the gasoline, only this time to manipulate the MMTLP share price.

July 2022 – December 2022 – Short Squeeze Pump

Much like how the Torchlight pump leading up to the merger and record date was largely supported by social media posters, so too did the MMTLP pump take on a life of its own with social media posters on Twitter, StockTwits, YouTube, Reddit, and other social media platforms discussing the dividend and the short squeeze, picking right up where the Torchlight pump, started by Brda and Palikaras had left off. Only this time, the pump grew much larger, reaching a cult-like level, with popular social media pumpers calling for MMTLP to squeeze to $200 and troves of inexperienced traders actually believing the unbelievable claims.

By October 2022, things really started to heat up, and MMTLP started to see a significant increase in volume and price. By the end of October, it was trading above $6. Then, on November 21, 2022, the stock hit a historic high of $11.65. As the December 12 record date neared, the volume increased significantly, and the price dropped accordingly. Many preferred stockholders wisely exited their positions before their shares inevitably became worthless. Others held on, having bought into all the hype about a pending short squeeze.

December 2022 – Chaos and Disaster

As the dividend’s record date of December 12 approached, calls for a short squeeze only became louder and more widespread. And a huge number of people actually believed that if they held onto their stock for as long as possible before the symbol was deleted and their preferred stock was exchanged for worthless Next Bridge stock, they would be rich. Some, being inexperienced, didn’t seem to even understand that once the dividend took place, they would no longer be able to cash in on their holdings at all. Needless to say, it was complete chaos. 

Things only got more chaotic when FINRA halted trading in the stock after Thursday, December 8, one day earlier than people expected, to ensure that there would be no settlement and clearing issues, with the record date being Monday, December 12.

However, not only did FINRA’s earlier-than-expected halt foil the never-was-gonna-happen short squeeze, but it also burned any shareholders that planned on selling the next day (short squeeze or not). The bottom line is, however, that FINRA did its job, and shareholders never should have been playing with fire. And though those shareholders quickly turned their rage toward FINRA, the true culprits would eventually get what was coming to them.

December 13, 2022 – Social Media Pumpers Charged

Just hours after the MMLTP pump exploded into a complete disaster, the SEC charged some social media posters involved in the earlier Torchlight stock manipulation. The same social media posters were also criminally charged.

According to the SEC, since at least January 2020, seven of the defendants (Perry Matlock, Edward Constantin, Thomas Cooperman, Gary Deel, Mitchell Hennessey, Stefan Hrvatin and John Rybarcyzk) promoted themselves as successful traders and cultivated hundreds of thousands of followers on Twitter and in stock trading chatrooms on Discord. These seven defendants allegedly purchased certain stocks and then encouraged their substantial social media following to buy those selected stocks by posting price targets or indicating they were buying, holding, or adding to their stock positions. However, as the complaint alleges, when share prices and/or trading volumes rose in the promoted securities, the individuals regularly sold their shares without disclosing their plans to dump the securities while promoting them.

One of the stocks Deel and Hennessey promoted was Torchlight. 

In the course of the scheme, various Defendants often highlighted an anticipated event that would purportedly raise the stock price (a “catalyst”) and encouraged buying and holding the stock until the event, falsely claiming that they too were holding the stock waiting for the catalyst. In the case of TRCH, the catalyst was a purported upcoming merger with another company, Metamaterial Inc. Hennessey claimed that he had discovered that this merger was coming in the course of his due diligence (“dd”) research on the company. Hennessey repeatedly promoted false information about Meta itself (e.g., that it was worth “north of $4.8 billion”) and promoted the purported benefits of the merger. Hennessey also posted about other purported long-term benefits to TRCH stock holders, including a “dividend” that TRCH shareholders would purportedly receive after the merger. Hennessey also claimed that Meta was potentially partnering with Tesla, and that Meta had products that had applications for fighting COVID-19 and thus a “10 billion dollar MARKET CAP POTENTIAL.”

[Emphasis ours.]  

July 2023 – Wells Notice

While many MMLTP investors refused to lay down their arms and take responsibility for their poor choices, the SEC was making progress with its investigation into Torchlight, which started in September 2021. Now, the SEC was taking direct aim at George Palikaras and John Brda.

MMAT filed a Form 8-K explaining that the company, its CEO, George Palikaras, and John Brda, the former CEO of Torchlight Energy Resources, the company with which Meta had merged to list quickly on the Nasdaq Stock Market, had received Wells notices from the Securities and Exchange Commission. 

A Wells notice is a communication from the SEC staff to a person involved in an investigation that: (1) informs the person the staff has made a preliminary determination to recommend that the SEC file an action or institute a proceeding against them; (2) identifies the securities law violations that the staff has preliminarily determined to include in the recommendation; and (3) provides notice that the person may make a submission to the Division and the SEC concerning the proposed recommendation.

2023 – Misguided Attacks

The MMLTP short-squeeze pushers had done their job so well that, for virtually the whole next year, MMLTP shareholders continued to aim their fury at FINRA, among other government agencies, for their losses.   This included death threats that forced FINRA workers to work from home for a week, letters to Congress, and even court actions against market regulators.

June 25, 2024 – the SEC Charges Brda and Palikaras

On June 25, 2024, the SEC investigation concluded with charges being brought against Brda and Palikaras for violating the antifraud and proxy disclosure provisions of the federal securities laws. The SEC also charged Brda with aiding and abetting Meta’s violations of the reporting, internal accounting controls, and books and records provisions. The complaint seeks permanent injunctions, officer-and-director bars, and civil penalties from both Brda and Palikaras. The complaint also seeks disgorgement with pre-judgment interest from Brda.

The SEC also instituted a separate administrative proceeding against Meta, entering a settled order finding that Meta violated the antifraud, reporting, internal accounting controls, and books and records provisions of the federal securities laws. Without admitting or denying the findings, Meta was ordered to cease and desist from violations of the relevant provisions of the federal securities laws and to pay a $1,000,000 penalty.

Most importantly, the SEC shed a lot of light on what the Torchlight and MMTLP short squeezes were really all about. And the SEC notes at the end of its litigation release that “A separate Commission investigation regarding subsequent events related to Meta Materials (MMTLP) remains ongoing.” So this may not be the last we hear from the SEC. More litigation related to MMAT/MMTLP could be forthcoming.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Park Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Park Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com