U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23802 / April 12, 2017
Securities and Exchange Commission v. Lidingo Holdings, LLC, et al., No. 1:17-cv-02540 (S.D.N.Y filed April 10, 2017)
Securities and Exchange Commission v. CSIR Group, LLC, et al., No. 1:17-cv-02541 (S.D.N.Y. filed April 10, 2017)
27 Firms and Individuals Charged With Fraudulent Promotion of Stocks
The Securities and Exchange Commission filed enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes that left investors with the impression they were reading independent, unbiased analyses on investing websites while writers were being secretly compensated for touting company stocks.
SEC investigations uncovered scenarios in which public companies hired promoters or communications firms to generate publicity for their stocks, and the firms subsequently hired writers to publish articles that did not publicly disclose the payments from the companies. The writers allegedly posted bullish articles about the companies on the internet under the guise of impartiality when in reality they were nothing more than paid advertisements. More than 250 articles specifically included false statements that the writers had not been compensated by the companies they were writing about, the SEC alleges.
According to the SEC's orders as well as a pair of complaints filed in federal district court, deceptive measures were often used to hide the true sources of the articles from investors. For example, one writer wrote under his own name as well as at least nine pseudonyms, including a persona he invented who claimed to be "an analyst and fund manager with almost 20 years of investment experience." 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.
The SEC filed fraud charges against three public companies and seven stock promotion or communications firms as well as two company CEOs, six individuals at the firms, and nine writers. 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 promotion firms Lidingo Holdings, LLC and CSIR Group, LLC, their associates Kamilla Bjorlin, Andrew Hodge, Christine Petraglia and Herina Ayot, and writers, Brian Nichols, Vincent Cassano, Thomas Meyer and John Mylant. The complaints charge each of the litigating parties with violations, and/or aiding and abetting violations, of Sections 17(a) and 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC is seeking injunctive relief, disgorgement of ill-gotten gains plus pre- and post-judgment interest, and civil money penalties. In addition, the SEC is seeking penny stock bars against Bjorlin, Hodge, Petraglia and Ayot and an officer and director bar against Bjorlin.
The SEC also instituted separate charges against another company for its involvement in circulating promotional materials that did not comply with prospectus requirements under the federal securities laws. The company settled the case.
The SEC released an investor alert warning that articles on an investment research website that appear to be an unbiased source of information or provide commentary on multiple stocks may be part of an undisclosed paid stock promotion. Investors should never make an investment based solely on information published on an investment research website. When making an investment decision, thoroughly research the company using multiple sources.
The SEC's investigations were conducted by Beth Groves, Ian Rupell, Shelby Hunt, Jim Blenko, and Jonathan Jacobs with assistance from Michi Harthcock, Jamie Wohlert, Suzanne Romajas, and Frederick Block. The cases were supervised by Rami Sibay, and the litigation will be led by Ms. Romajas and Patrick Costello.