The U.S. Securities and Exchange Commission (SEC) brought fraud allegations against 27 companies and individuals — including three public companies, two CEOs, seven communications firms, six employees at the firms and nine writers — in connection with their alleged participation in stock-promotion schemes that involved deceiving investors with purportedly independent information that the companies actually bought and paid for.
The SEC reports that its investigations discovered companies that hired communications firms to generate publicity for their stocks, and that the firms subsequently hired writers to publish bullish articles about the firms “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 says. Furthermore, some of the writers used deceptive measures, including one that used at least nine pseudonyms, to further these schemes; and some of the communications firms required writers to sign non-disclosure agreements that specifically prevented them from disclosing the compensation they received.
Of those charged, 17 have agreed to settlements that include disgorgement or penalties ranging from approximately US$2,200 to almost US$3 million “based on frequency and severity of their actions.” Litigation continues against 10 others, the SEC notes.
“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 division of enforcement, in a statement.
In the wake of these cases, the SEC also issued 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.”
“Stock-promotion schemes may be conducted through investment research websites,” says Lori Schock, director of the SEC’s Office of Investor Education and Advocacy, in a statement. “Investors looking for objective investment information should be aware that fraudsters may use these websites to profit at investors’ expense.”
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