US SEC announces crackdown on alleged stock promotion schemes

The US Securities and Exchange Commission yesterday announced a crackdown on alleged stock promotion schemes in which writers were secretly paid to post hundreds of bullish articles about public companies on financial websites.

Twenty-seven individuals and entities, including a Hollywood actress, stood charged with misleading investors into believing they were reading "independent, unbiased analyses" on websites such as Seeking Alpha, Benzinga and Wall Street Cheat Sheet.

According to the SEC, many writers wrote under pseudonyms such as Equity Options Guru, The Swiss Trader, Trading Maven and Wonderful Wizard to hype stocks.

It added that it found over 450 problem articles, of which over 250 falsely said the writers were not being paid.

"This is different from the fraud cases that you usually see us bring," Reuters quoted Stephanie Avakian, acting director of the SEC enforcement division, as saying on a conference call.

"Here, we allege that the fraud was in presenting the analysis as impartial," she said. "It was bought and paid for."

Seventeen defendants, including Galena Biopharma, ImmunoCellular Therapeutics and Lion Biotechnologies, agreed to pay over 4.8 million, including fines, to settle, and not indulge in further wrongdoing.

Not all defendants were making payments, and Galena, ImmunoCellular and Lion did not admit wrongdoing. Charges had not been brought on any of the websites.

According to the SEC, public companies would hire PR groups to create a buzz around their stock performance and the firms would then hire writers to write bullish pieces even as they pretended to be impartial.

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

The SEC said one writer wrote under nine pseudonyms and under one alias, he falsely claimed to be "an analyst and fund manager with almost 20 years of investment experience."