The SEC announced enforcement actions against 27
individuals and entities in relation to stock promotion schemes.
The SEC also published an Investor Alert cautioning investors to be
skeptical of information and articles published on investment
The SEC investigations found numerous examples in which public
companies had hired writers to author bullish articles under the
"guise of impartiality" in order to generate publicity.
The SEC uncovered more than 250 paid advertisements that made false
statements of independence, and one instance of a writer who used
nine pseudonyms in addition to his real name. In total, the SEC
filed fraud charges against (i) three public companies, (ii) seven
stock promotion or communications firms, (iii) two company CEOs,
(iv) six individuals at the firms, and (v) nine writers. Seventeen
of these cases were settled through administrative proceedings
(with penalties ranging from f $2,200 to $3 million). The remaining
charges resulted in two complaints filed in the Southern
District of New York.
The SEC also published an Investor Alert cautioning investors to note
that investment research on the internet may not be objective or
independent, and to conduct proper due diligence before making
Commentary - Nihal Patel
For the most part, the actions focus on situations where issuers
or stock promoters paid writers to cover stocks favorably and the
writers failed to disclose the compensation. From the perspective
of issuers and investor relations firms, it should be noted that
the SEC filed charges in some
cases based on a recklessness standard (i.e., the
defendants knew or should have known) concerning the issuer or
stock promoter's knowledge of the relevant writers'
misrepresentations or failures to disclose. In addition, while the
bulk of the alleged improper content was published on a handful of
content aggregation websites (Seeking Alpha is named in
the majority of cases), none of the publishers were charged with
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