SEC Cracks Down On Bogus News Articles Promoting Stocks
SEC Cracks Down On Bogus News Articles Promoting Stocks
By Carmen Germaine of Law360.com
The U.S. Securities and Exchange Commission on Monday announced a major dragnet of stock promotion schemes that disguised promotions as independent research, unveiling settlements with more than a dozen communications firms, company CEOs and writers, and federal litigation against 10 other parties.
The agency released enforcement actions against 27 individuals, companies and firms in a crackdown on several alleged schemes using paid promoters to write bullish articles. (AP)
The SEC released enforcement actions against 27 individuals, companies and firms in a crackdown on several alleged schemes using paid promoters to write bullish articles that tout a company’s stock while concealing that the articles were commissioned and paid for by the stock issuer.
Stephanie Avakian, the acting director of the SEC’s Enforcement Division, said Monday that the charges and settlements constitute the largest set of actions the agency has ever brought targeting stock promotions that don’t disclose the promoter’s compensation.
“Today’s actions should serve as a warning to others whose business model revolves around generating research that falsely represents itself as independent,” Avakian said.
The SEC actions targeted several promotional and communications firms, including Lidingo Holdings LLC, Lavos LLC, CSIR Group LLC, The DreamTeam Group LLC and Dunedin Inc., as well as each firm’s owner.
The firms were hired by public companies, some of which were also charged on Monday, to generate publicity for their stocks, the SEC said. The promotion firms then in turn hired writers to draft articles about the companies, which the writers or the firms themselves then posted on investment websites such as SeekingAlpha.com, Bezinga.com and WallStCheatSheet.com, according to the agency.
Roughly 450 of the articles the firms published didn’t disclose that the authors had been compensated to write the article, and in more than 250 articles the writers falsely stated that they had not been compensated. One firm, Lidingo, even asked writers on at least two occasions to sign non-disclosure agreements that prevented them from disclosing the compensation they received, the SEC said.
The promotional firms further obscured the origins of the articles by creating fake profiles and using pseudonyms on the investment sites when posting, the SEC said.
Avakian acknowledged Monday that the cases are “different from the fraud cases you usually see us bring.”
“The more typical case is where we allege someone made misrepresentations about the company being touted. Here we alleged that the fraud was in presenting the analysis as impartial, when in fact it was anything but impartial,” Avakian said. “It was bought and paid for.”
The SEC filed one complaint against Lidingo, its owner Kamilla Bjorlin and her associate Andrew Hodge, and Lidingo writers Brian Nichols and Vincent Cassano, and another against CSIR Group, its owner Christine Petraglia, her associate Herina Ayot, and writers Thomas Meyer and John Mylant, both in New York federal court.
Several other stock promotion firms agreed to settlements that were filed Monday in the SEC’s administrative court. Lavos LLC, a firm associated with Lidingo, and its owner Manish Singh agreed to pay nearly $3 million in disgorgement, interest and penalties. Edward Borrelli and his firm Dunedin Inc. and Michael A. McCarthy and his firms The DreamTeam Group, Mission Investor Relations LLC and QualityStocks LLC also agreed to settle the SEC’s charges.
The agency also reached settlements with five writers who were allegedly paid by the promotion firms to publish articles while concealing their relationship with the firms and the issuers. The writers agreed to disgorge their earnings from the articles, and four of the authors also paid civil penalties.
Several of public companies that hired the promotion firms were also caught up in the dragnet.
The SEC said that, while CEO of Lion Biotechnologies Inc. and ImmunoCellular Therapeutics Ltd., Singh commissioned Lidingo to publish purportedly independent research touting the companies’ stock. Lion Biotechnologies also came under fire for “gun-jumping,” by publishing an article that Singh had commissioned after it filed a registration statement but before the statement became effective.
ImmunoCellular Therapeutics did not pay a penalty for commissioning the articles, which did not disclose that the company had paid for the promotion, while Lion Biotechnologies paid a $100,000 penalty.
Galena Biopharma Inc. and its former CEO Mark Ahn also settled SEC allegations that they engaged Lidingo and the DreamTeam group to publish misleading paid promotions and engaged in gun-jumping. Ahn will pay $1.3 million in disgorgement, interest and penalties, and Galena will pay $200,000. Galena previously agreed to pay $20 million to shareholders to end a securities class action over the promotions scheme.
The SEC also filed separate charges over CytRx Corp., alleging the company circulated promotional materials, including articles commissioned from the DreamTeam Group, that did not comply with prospectus requirements, although the agency said that while DreamTeam paid its writer the firm had told CytRx the articles would be written by independent writers. CytRx agreed to pay a $75,000 penalty.
The respondents in the administrative actions neither admitted nor denied the SEC’s allegations. The settlements reached with the promotional firms imposed limitations on their future promotional activities, while Singh and Ahn agreed to be barred from serving as officers or directors of public companies for five years.
A representative for McCarthy and The DreamTeam, Paul Huey-Burns of Shulman Rogers Gandal Pordy & Ecker PA, told Law360 on Monday that his clients were pleased to have resolved the matter.
“We are gratified that the SEC agreed with us that DTG had not acted with any intent to violate the law and had consulted with its prior counsel on certain issues related to these events,” Huey-Burns said, adding that the activities at issue in the case are a small portion of the firm’s business and that the DreamTeam and McCarthy were looking forward to refocusing on their core mission.
An attorney for Vincent Cassano, Robert Heim of Meyers and Heim, told Law360 that Cassano “vigorously denies the allegations in the SEC’s complaint and he looks forward to having his day in court so he can clear his name.”
A representative for Galena, Dixie Johnson of King & Spalding, said the company “cooperated fully with this investigation and is pleased that the settlement is complete.”
Russell Duncan of Shulman Rogers Gandal Pordy & Ecker PA, an attorney for Christopher French, said his client’s involvement was through work for other people.
“He has admitted the errors he made in the case and cooperated fully with the SEC, and doesn’t expect to have any repeat dealings with the SEC,” Duncan said.
A representative for Joel Corenman declined to comment. Representatives for the remaining respondents and defendants did not immediately respond to requests for comment.
The respondents were represented by attorneys with Debevoise & Plimpton LLP, Allen/Fuller PA, Gartenberg Gelfand Hayton & Selden LLP, Meyers and Heim, the Law Offices of Seth Weinstein, Latham & Watkins LLP, Skadden Arps Slate Meagher & Flom LLP, Shulman Rogers Galdal Pordy & Ecker PA, King & Spalding, Cooley LLP, Sidley Austin LLP, Dickinson Wright PLLC, The Law Offices of Steven Goldsobel, Vorndran Shilliday PC, Bartlett Legal, Sher Tremonte LLP, Koenig Law Group PC, Buckley Sandler LLP, and Shustak Reynolds & Partners PC.
The administrative cases are In the Matter of Joel Corenman, Galena Biopharma Inc., et al., ImmunoCellular Therapeutics Ltd., Craig Keolanui, Lion Biotechnologies Inc., Edward Borrelli, et al., Stephen Ramey, Michael A. McCarthy, et al., Ciaran Thornton, Manish Singh, et al., and Christopher French, case numbers 33-10336 through 33-10347, before the Securities and Exchange Commission. The federal cases are Securities and Exchange Commission v. Lidingo Holdings LLC, et al., case number 1:17-cv-02540 and Securities and Exchange Commission v. CSIR Group LLC, case number 1:17-cv-02541, both in the U.S. District Court for the Southern District of New York.
The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.