SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors

[nitpicker]

https://www.sec.gov/news/press-release/2017-79

SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors

27 Firms and Individuals Charged With Fraudulent Promotion of Stocks

FOR IMMEDIATE RELEASE
2017-79
Washington D.C., April 10, 2017—

The Securities and Exchange Commission today announced enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes that left investors with the impression they were reading independent, unbiased analyses on investing websites while writers were being secretly compensated for touting company stocks.

SEC investigations uncovered scenarios in which public companies hired promoters or communications firms to generate publicity for their stocks, and the firms subsequently hired writers to publish articles that did not publicly disclose the payments from the companies. The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.
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According to the SEC’s orders as well as a pair of complaints filed in federal district court, deceptive measures were often used to hide the true sources of the articles from investors. For example, one writer wrote under his own name as well as 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.
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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 $2,200 to nearly $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 did not comply with prospectus requirements under the federal securities laws. The company settled the case.

The SEC today released an investor alert warning that articles on an investment research website that appear to be an unbiased source of information or provide commentary on multiple stocks may be part of an undisclosed paid stock promotion. Investors should never make an investment based solely on information published on an investment research website. When making an investment decision, thoroughly research the company using multiple sources.
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[nitpicker]

1. More From Barrons

http://www.barrons.com/articles/fake-investment-news-could-be-here-to-stay-1491951655?mod=BOLFeed&tesla=y

Fake Investment News Could Be Here to Stay

The Securities and Exchange Commission is trying to rid the nation of phony stock stories. It’s safe to say that the agency has a steep climb ahead of it. On Monday, the SEC announced that it is cracking down on stock promotion schemes that played out on Seeking Alpha, Benzinga, Wall Street Cheat Sheet and other investment websites in recent years.

According to the SEC, the announced enforcement actions are against 27 individuals and entities behind whose alleged schemes “left investors with the impression they were reading independent, unbiased analyses on investing websites while writers were being secretly compensated for touting company stocks.” According to the SEC, “The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.” The defendants, which include a spate of small biotechs including Galena Biopharma, ImmunoCellular Therapeutics, and Lion Biotechnologies, agreed to pay close to $5 million to settle these charges and to refrain from further wrongdoing.

One would hope that the a crackdown by the SEC would have a chilling effect on this epidemic of fake or fraudulent investment news on websites, many of which run articles written by a vast army of free-lancers rather than a paid staff of experienced financial writers. But that would be wishful thinking. While the SEC can use federal laws to crack down on the creators of fraudulent stock stories, laws don’t exist for the SEC to penalize the websites that are merely guilty of running these bogus stock articles on their platforms.

In other words, news sites have the right to be duped, just as long as they aren’t part of the conspiracy. For example, Seeking Alpha can claim that it has taken steps to keep its site from being used by stock manipulators. A piece by Bloomberg states that the popular investment site – which is filled with articles written by thousands of writers who often use clever nicknames rather than proper bylines -- tries to ensure that research published on its site is unbiased by requiring writers to disclose whether they’ve been paid for touting stocks. But stock manipulators can simply lie in their disclosures.
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