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 research websites.

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 investments.

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 misconduct.

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