A growing phenomenon that will soon be the focus of regulators’ expanding efforts to improve equity market integrity is that where glowing coverage of thinly traded (and typically penny) stocks gushes with knowing innuendo about the subject company’s prospects, only to be posted anonymously with no author attribution.
The value of such posts are worse than worthless, because they bring, by definition, the mantle of ‘shadiness’ to the whole sector. For the clutzy micro-cap CEO who squanders valuable investment dollars on such fifth-rate hucksterism, it is an assault on investor relations best practices that amounts to shareholder value destruction, because anybody with half a brain looks at such coverage disdainfully.
The preferred venue for anonymous pumpers and bashers, and those who are pro or anti a given stock respectively are known, is chat forums, where anybody can say anything they want, and sheer volume of posts lends the forum for said stock an either ‘pro’ bias, or ‘anti’ bias, depending on which camp posts the most prolifically.
Seeking Alpha, formerly an up-and-coming source of great private investor analysis, has become a venue where paid touts thrive under a sea of pseudonyms, and stocks are maniupulated in broad daylight by the nameless faceless hordes who constantly undermine credibility or overhype stocks.
According to an article in Fortune magazine back in March of this year;
“In the past year or so, several finance websites — including Forbes.com, Seeking Alpha, Wall St. Cheat Sheet, and others — have published articles by authors who were allegedly paid to promote the stocks they were writing about. These articles were not labeled as advertisements and carried no disclosures that the authors had been compensated by their subjects. In fact, on at least one of the websites — stock blog Seeking Alpha — the articles carried a disclosure stating the author had not received any compensation from anyone outside of Seeking Alpha to write the article. Seeking Alpha now admits that some of those disclosures were inaccurate.”
Greenlight Capital, Seeking Alpha, and Micron Technologies
David Einhorn, Chairman of Greenlight Captial Re, (NASDAQ:GLRE) sought to force Seeking Alpha in 2013 to reveal the name of a blogger operating under the pseudonym ‘Valuable Insights’, who had posted that Einhorn had made an as-yet unannounced investment in Micron Technology (NASDAQ:MU), a revelation that took the company’s share price dramatically higher. While Micron continues to perform beyond expectation today with a market cap over $34 Billion, the sideshow created by the lawsuit and unwanted scrutiny caused the share price to dip after mainstream media picked up the story.
Einhorn dropped the suit after he discovered the identity of Valuable Insights, who was obviously somebody peripheral to the transaction.
The fact that the SEC has yet to establish any sort of guidance to publishers of such drivel reflects a ‘cavaeat emptor’ attitude on their part: If you’re too dumb to see pumper hype for what it is, you deserve to get fleeced.
Still, that’s no consolation to those who scour the internet trying to build consensus around the value of any given issuer, and it’s investment-worthiness.
What’s so Bad About a Little Good Press?
One of the great foibles of being a human being is the propensity to regard a statement as fact the more often it is repeated. If you read a positive assessment of a stock from one writer on one site, and then another glowing recommendation at another site, your impression of the investment-worthiness of the subject stock tends to improve.
Often, in our media-saturated day-to-day, we neglect to assess the credibility of the message by verifying the identity of its author. In the case of items that lack such identification, this incorporates a subtle message about the writer: ‘I will write positive comments about this stock, but I will not put my name on it.’
That should normally be the flag to intelligent readers that this is a piece written for the sole objective of causing readers to buy the stock. In the case of a writer who attributes their comments accurately using their real name at the head of the piece, the signal is different, and should carry more weight: “Though I may have a vested interest in the stock under discussion, I am willing to affix my name to these comments because I believe them to be true, and therefore perceive no risk to my reputation by doing so.”
Reputable writers not only claim authorship, but disclose any vested interest, be it payment in cash, stock or options.
That’s a big difference. Or, at least, it should be.
Investors, for the most part, are smart enough to understand that. CEO’s who hire anonymous posters to spread their message are doing themselves and their companies a disservice, and risking exposure to regulatory censure in the process. At the end of the day, engaging anonymous writers to spread the value proposition of your story is a huge waste of investors’ money.
If there’s no real person claiming authorship in the heading of the story, then the story is nothing more than hype. Caveat Emptor indeed.
