SEC Cracks Down on Paid Advertisements Disguised As Independent News

Chris Gaetano
Published Date:
Apr 10, 2017

The Securities and Exchange Commission (SEC) filed 27 enforcement actions related to paid articles promoting a stock that were made to appear as impartial news but were effectively nothing more than advertisements. The SEC said that a number of measures were taken to hide the true nature of these bullish articles. For instance, one writer used both his own name and at least nine other pseudonyms, one of whom falsely claimed was an analyst and fund manager with decades of experience. Some even went so far as to make their writers sign non-disclosure agreements that prevented them from saying they were paid to promote a stock. In over 250 of these articles the writers specifically said they weren't being paid by the companies they were promoting when, in fact, they had. 

“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,” said Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement.

The SEC filed fraud charges against three public companies and seven stock promotion or communications firms as well as two company CEOs, six individuals at the firms, and nine writers.  Of those charged, 17 have agreed to settlements that include disgorgement or penalties ranging from approximately $2,200 to nearly $3 million based on frequency and severity of their actions.  The SEC’s litigation continues against 10 others. 

The SEC also instituted separate charges against another company for its involvement in circulating promotional materials that did not comply with prospectus requirements under the federal securities laws.  The company settled the case.

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