The Securities and Exchange Commission has taken enforcement actions against 27 individuals and entities for various alleged stock promotion schemes.
The schemes left investors with the impression they were reading independent, unbiased analyses on investing websites, while writers were secretly compensated for touting company stocks.
SEC investigations discovered that public companies hired promoters or communications firms to generate publicity for their stocks, and the firms subsequently hired writers to publish articles that didn’t publicly disclose the payments from the companies. The writers allegedly posted bullish online articles about the companies under the guise of impartiality, but the articles were nothing more than paid advertisements.
More than 250 articles specifically included false statements that the writers hadn’t been compensated by the companies they were writing about, the SEC alleges.
“If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public. These companies, promoters and writers allegedly misled investors by disguising paid promotions as objective and independent analyses,” says Stephanie Avakian, acting director of the SEC’s enforcement division, in a release.
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The SEC’s orders, as well as a pair of complaints filed in federal district court, say that deceptive measures were often used to hide the true sources of the articles from investors.
For example, one writer wrote under his own name and at least nine pseudonyms, including a persona he invented who claimed to be “an analyst and fund manager with almost 20 years of investment experience.”
One of the stock promotion firms went so far as to have some writers it hired sign non-disclosure agreements specifically preventing them from disclosing compensation they received.
The SEC filed fraud charges against three public companies and seven stock promotion or communications firms, as well as two company CEOs, six individuals at the firms and nine writers. Of those charged, 17 have agreed to settlements that include disgorgement or penalties ranging from approximately US$2,200 to nearly US$3 million based on frequency and severity of their actions. The SEC’s litigation continues against 10 others.
The SEC also instituted separate charges against another company for its involvement in circulating promotional materials that didn’t comply with prospectus requirements under the federal securities laws. The company settled the case.