Compliance

SEC Scolds Firms Running Stock-Pumping Schemes

Josh O'Neill Assistant Editor 13 April 2017

SEC Scolds Firms Running Stock-Pumping Schemes

The US' most prominent regulator is clamping down on schemes that ultimately mislead the common investor.

A US regulator has unveiled a plethora of schemes involving companies paying writers to promote their stocks online, demonstrating the challenges watchdogs face policing “fake news” that often misleads investors. 

The Securities and Exchange Commission earlier this week announced it had taken enforcement action against 27 individuals and entities behind stock promotion schemes that led investors to believe they were reading independent, unbiased analyses on investing websites, even though writers were secretly being paid to tout company stocks. 

The SEC said more than 250 articles included false statements that writers were not compensated for by the companies they wrote about. 

As a result, the US' most prominent financial watchdog has ruled that if a company pays for bullish articles on stocks, it must be disclosed to the public. 

“Deception takes many forms,” said Melissa Hodgman, associate director of the SEC's enforcement division. “Our markets cannot operate fairly when there are deliberate efforts to reach prospective investors with positive articles about a stock while hiding that the companies paid for those articles.”

The SEC has filed fraud charges against three public companies and seven stock promotion or communications firms, as well as two company chief executives, six individuals and nine writers. The regulator did not provide details about the entities involved, however. 

Of those charged, 17 have agreed to settlements that include penalties ranging from $2,200 to nearly $3 million on a case-by-case basis. Litigation continues against 10 others, the SEC says. 

“Stock promotion schemes may be conducted through investment research websites,” said Lori Schock, director of the SEC’s office of investor education and advocacy. “Investors looking for objective investment information should be aware that fraudsters may use these websites to profit at investors’ expense.” 

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