Revelations that financial news sites have their own fake news problem puts investors as well as public corporations on guard.
The Securities and Exchange Commission recently took enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes that led investors to believe they were reading independent, unbiased analysis. In reality, writers were being secretly compensated for touting company stocks.
PR Schemes Exposed
The SEC announced that it filed fraud charges against three public companies, seven public relations firms, two executives, six individuals at the firms and nine writers. Companies hired PR firms to generate publicity for their stocks. The PR firms hired writers to pitch and place articles they said were their own unbiased reviews. More than 250 articles included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.
Writers often used deceptive measures to hide their real identities. For example, one writer wrote under his own name as well as at least nine pseudonyms. One of the stock promotion firms went so far as to have some writers it hired sign non-disclosure agreements specifically preventing them from disclosing compensation they received.
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 issued an alert warning investors to beware of stock investment recommendations on research websites. Stock promotion schemes can also be conducted through social media, investment newsletters, online advertisements, email, Internet chat rooms, direct mail, newspapers, magazines, television and radio.
News Sites & Financial PR Suffer a Credibility Blow
There’s no indication the news sites knew writers were paid to write favorable articles. Still, the scandal undermines their readers’ trust and may threaten their viability.
“Transparency and credibility are the stock-in-trade of any financial news site,” writes Indira A.R. Lakshmanan, chair in journalism ethics at the Poynter Institute. “The SEC actions are a reminder to editors to redouble verification of any contributor’s potential conflicts of interest, clearly mark paid content as ‘sponsored’ and be ready to scrap any story you can’t vouch for.”
The revelations are also a blow for financial PR practices in general. Readers may be less inclined to believe corporate news releases. The crackdown exemplifies the problem of unethical PR practices.
The Role of Media Monitoring
The news underlines the value of media monitoring of competitors. By monitoring online news for competitors, public companies can quickly find articles that build up competitors’ stock value at the expense of their own companies and consider possible counter actions. They may wish to respond to the publication or comment in the article’s comment section. Companies can also cease doing business with writers and PR agencies that were implicated in the fraudulent practices.
Despite the SEC’s efforts, fake financial news will continue. As Barron’s points out, the SEC lacks authority to penalize news sites for being tricked into publishing fraudulent stock articles. Sites like Seeking Alpha still accept articles from writers using pseudonyms but still claim they take steps to block stock manipulators.
Bottom Line: The SEC allegations that companies paid freelance writers to write and place favorable articles on financial news sites while hiding their compensation exposes the problem of fraudulent stock stories. Ethical PR pros will strive to combat such unscrupulous practices. Through continuous media monitoring media, PR will be able to identify possible fraudulent news articles in their industry.
William J. Comcowich founded and served as CEO of CyberAlert LLC, the predecessor of Glean.info. He is currently serving as Interim CEO and member of the Board of Directors. Glean.info provides customized media monitoring, media measurement and analytics solutions across all types of traditional and social media.
