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SEC charges 27 with deceptively promoting stocks to investors

Under federal law, promotional works must be identified as such to prospective investors.

By Doug G. Ware
SEC charges 27 with deceptively promoting stocks to investors
The U.S. Securities and Exchange Commission on Monday announced charges against 27 people and businesses for unlawfuly promoting certain companies' stock shares to potential investors. File Photo by John Angelillo/UPI | License Photo

April 10 (UPI) -- The U.S. Securities and Exchange Commission on Monday announced charges against more than two dozen individuals and businesses it says wrote up articles to promote certain companies' stock in an effort to get money from investors.

The SEC said the promotional writings misled potential investors into believing they were reading independent, unbiased analyses about the shares.

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"If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public," Stephanie Avakian, acting director of the SEC's Division of Enforcement, said in a statement. "These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analyses."

The SEC announced fraud charges against three public companies and seven stock promotion firms -- as well as two corporate CEOs, six firm employees, and nine writers. So far, 17 of those charged have agreed to settlements that include penalties between $2,200 and almost $3 million, based on the severity of their actions. Litigation continues against 10 others, the agency said.

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"Deception takes many forms," Melissa Hodgman, associate director of the SEC's Division of Enforcement, said. "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."

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Officials said investigations revealed multiple scenarios in which publicly-traded companies hired promoters or communications firms to generate publicity for their stocks and writers to publish bullish stories about them that did not disclose the fact that they were paid -- effectively making the articles paid advertisements.

"More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about," the SEC said.

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In fact, one of the firms had some writers sign confidentiality agreements to prevent them from revealing the payments, the federal agency said.

The SEC said it issued an alert Monday to notify potential investors of the schemes.

"Investors should never make an investment based solely on information published on an investment research website. When making an investment decision, thoroughly research the company using multiple sources," the agency said.

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The SEC also said Monday it has settled separate charges against another company for "circulating promotional materials that did not comply with prospectus requirements" of federal law.

"Stock promotion schemes may be conducted through investment research websites. Investors looking for objective investment information should be aware that fraudsters may use these websites to profit at investors' expense," Lori Schock, director of the SEC's Office of Investor Education and Advocacy, said.

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