Companies charged with fraud over stock promotion stories

On behalf of Brewer, Pritchard & Buckley, P.C. on Monday, July 16, 2018.

The Securities and Exchange Commission (SEC) recently filed charges against several companies accused of hiring writers to promote their stocks, without disclosing the writers were being paid to create these promotional articles.

The accused companies hired communication firms and other writers to create stories that cast the companies in a positive light, all while the writers pretended to be impartial sources. These stories were essentially paid advertisements written under the guise of expert advice. The stories appeared in well-known publications like Wall Street Cheat Sheet, Benzinga and Seeking Alpha. There were more than 250 articles written.

Pseudonyms and non-disclosures

According to the SEC, one writer used nine different pseudonyms, one of which was purported to be an experienced analyst and fund manager. A firm hired to write the promotions also forced writers to sign non-disclosure forms stating that they would not speak about their compensation for the stories.

Writing a promotional post is a common practice in today’s market. However, these companies did not disclose to the investing public that these articles were paid posts. Instead, the companies engaged in deception by leading the public to believe these recommendations were based on independent opinions.

Some parties face large fines

The SEC filed 27 charges of fraud against several companies, communication firms, as well as individuals within the company and the post writers. Over half the parties settled with the SEC and agreed to pay fines ranging from just over $2,000 up to almost $3 million. These fines are based on the frequency of the fraud, as well as the severity of the fraudulent actions.