Protect Yourself from Investment Research Stock Scams

Fraudsters use a wide array of tactics in their hunt for a new mark, and the Securities and Exchange Commission (SEC) recently started cracking down on a new method, posting deceptive articles on relevant sites.

The SEC announced earlier this year that fraud charges were filed against 27 businesses and people for the alleged publication of deceptive articles on investment research websites frequently used by the public. According to the Commission, these authors were paid by scammers to write and publish hundreds of bullish articles on certain publicly listed companies, and broke the law when they failed to disclose the fact that they were paid to write this content to readers.

"These companies, promoters and writers allegedly misled investors by disguising paid promotions as objective and independent analyses,” Stephanie Avakian, Acting Director of the SEC’s Division of Enforcement, said in a written statement.

In addition to these writers’ failure to disclose their financial ties, they also reportedly hid their identities by using pseudonyms. Some writers even created new biographies that claimed years of significant experience in the industry. In order to better arm people with the knowledge they need to protect their investments, the SEC released an Investor Bulletin warning potential investors of these scams. Some key steps to follow to protect yourself include:

  • Look into the author’s background. While certain sites have implemented steps to prevent this type of scam from being published on their site, it’s always best to do some independent research to confirm that the information is coming from an unbiased source. There are multiple tools available to the public, including the SEC's Investment Adviser Public Disclosure website and FINRA's BrokerCheck. If you’re having trouble finding information on the author or authors in question, that is likely a red flag.
  • Always proceed with caution when articles promote microcap stocks. These types of stocks are for small companies that have low trading volumes, and microcap stocks that trade under $5 per share can also be referred to as penny stocks. Penny stocks don’t need to follow the same rules around reporting that exchange-traded stocks need to follow, and this often results in enforcement cases being brought against stock promoters by the SEC every year.
  • Use multiple sources. If you find information that seems too good to be true, there’s a good chance that it is. However, if you find the same or similar great information from multiple sources, then odds are you’ve found the gold nugget you’ve been looking for. If you are unable to find even a second source promoting the information, then that should be a red flag to stay away.

Our investment fraud attorneys at Meyer Wilson have recovered more than $350 million in verdicts and settlements over our nearly 20 years of working with victims of fraud, and we remain dedicated to fighting to secure the legal outcome each of our clients need. If you were the victim of a scam, contact us today to learn what we can do to assist you.

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