The Securities and Exchange Commission took the “extreme step” of warning consumers that articles on the internet may not be objective and independent. They sent up a warning signal to deceptive promoters by announcing 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.
From the cases, it looks like the SEC found a rat’s nest of stock promotion companies, wiling to say great things about public companies in exchange for a fee. In total the SEC filed fraud charges against three public companies, seven stock promotion or communications firms, two company CEOs, six individuals at the firms, and nine writers.
In one case, the person engaged in the business of providing stock promotion services to publicly-traded issuers, and directed the publication on investment websites of over 400 articles about its issuer clients and the clients of an affiliated promotional services company.
“Despite being paid for their work, the writers failed to disclose their compensation in the articles and therefore misrepresented the nature of their relationship with the clients to the investing public.”
This included violating the terms on some major investment websites like SeekingAlpha and Motley Fool. Each of these require a disclaimer that the writer had not received compensation for an article.
The charges are all for fraud, deception or omitting material facts in violation of several securities laws.
The cases don’t address the line between lawfully promoting a company as part of public relations and fluff pieces that the SEC is concerned about here. It appears that the writers and scheme purposefully tried to look like impartial investors promoting their favorite stocks and doing so in places that expect impartial articles.