The Deal: Microcap Stocks Get Undeserved Promotions
Direct mail and e-mail campaigns have long been the staple of paid promotions of microcap stocks, but in recent months stock promoters appear to have had increasing success using a potentially more powerful outlet.
In order for a company to receive coverage now, however, it must carry a share price of at least $1 and a market cap of at least $100 million. "While we recognize that a 'one-size-fits-all' rule will inevitably impact our legitimate authors, our concerns over illegitimate stock promotions are such that we have to err on the side of caution," Moriarty said in a written statement. He later said in an interview that the new policy is not set in stone. "If there is a sufficient level of expertise and high-quality analysis and depth to a story and the stock is the focus of the story, we are going to consider making an exception," Moriarty said. Dave Gentry, chief executive of investor relations firm RedChip Cos., said that Seeking Alpha is often used as a vehicle by stock promoters. "Seeking Alpha is easily the biggest abuser, as far as allowing bloggers to promote stocks," he said. "Some of these guys are I.R. guys, quasi-I.R. guys or friends of the CEO, but they are being paid under the table to promote stocks." Gentry added that his Maitland, Fla.-based firm often writes blogs on behalf of clients, but that it always discloses its role in the writing. That is "something you aren't seeing from these promoters," he said. Moriarty said Seeking Alpha will also crack down on the practice of mentioning microcap stocks in articles that are largely about a megastock in the same industry: Devoting a few paragraphs to a small energy company in article that is largely about Exxon Mobil Corp. ( XOM), for example. This tactic is commonly used by promoters trying to lend credibility to small-cap stocks with no identities of their own. Some observers of the small-cap market have said they suspect that paid promotions have been planted in Forbes' blog network. Blogger Tedra DeSue penned a story for Forbes in February about Swingplane Ventures Inc., a copper mining concern based in Santiago, Chile. DeSue's story touched on the fact that Swingplane's shares had been volatile but that company representatives disavowed any knowledge of a promotion.