By: Patrick Mansfield | U.S. Gov Connect
Enforcement actions are being taken against 27 entities and individuals responsible for stock promotion schemes based on paid promotional stock analyses that were marketed to investors as unbiased reports from investing websites. The Securities and Exchange Commission announced the enforcement actions against those compensating writers for exaggerating the quality of company stocks.
According to the SEC, their investigations revealed that public companies had hired advertisers in the form of direct promoters or full agencies, and those entities had been tasked with hiring writers and subsequently releasing bullish articles online. Those articles did not disclose the fact that they were paid promotional articles, and more than 250 of them specifically stated they were not paid advertisement. Writers stated they were not compensated for their work, making it seem to potential investors as if they were impartial third parties.
Stephanie Avakian, the Acting Director of the Division of Enforcement for the SEC, stated that companies must disclose publicly when they pay for published advertisements in the form of articles touting their stocks. She continued by saying that the subjects of their investigation made no such effort to disclose the truth of these articles, and that they purposefully misled investors in order to garner larger and more frequent investments.
The SEC filed a pair of complaints in federal district court, and those complaints allege that intentionally deceptive tactics were employed to mask the fact that these articles were, in fact, paid advertisements and not legitimate unbiased opinion. One of the writers wrote under several names, including his own and a false persona he created that was supposedly a fund manager and stock analyst with nearly 20 years of experience in the investing world. There is even evidence that some of the firms cited in the complaint specifically forbade their writers from disclosing their compensation through non-disclosure agreements.
Melissa Hodgman, the Associate Director of the Division of Enforcement for the SEC, said that the stock markets cannot be expected to operate properly when companies are intentionally attempting to manipulate the atmosphere with misleading statements about the value of those companies.
Three public companies were named in the complaints, along with seven stock promotion agencies and two CEOs. Six other individuals in the firms were named, as were nine writers. 17 of those charged have already agreed to settlements, most of which include their repayment of funds earned illicitly, as well as penalties ranging from about $2,200 to $3 million. Larger penalties were placed on those whose actions were more severe or frequent. 10 others are under continuing litigation from the SEC.
Another company also received charges from the SEC based on its involvement in the circulation of materials that were promotional in nature and therefore did not comply with federal law. That company has already settled their case.
An alert warning was released to investors by the SEC that stated articles on certain research websites that were meant to seem unbiased were potential paid commentary on those stocks. They warned that investors should never make the decision to invest based solely on a sole source of information. It's always better to thoroughly research any company where an investment might be made.
Lori Schock, the Director of the Office of Investor Education and Advocacy for the SEC, said that all investors should find objective information from multiple sources in order to avoid fraudsters attempting to use websites as a way to profit at the expense of the investor.
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