April 12, 2017

When investors go to financial news websites, they’re looking for unbiased, independent guidance. Financial news sites’ reputations, user traffic and advertising depend on readers’ trust — and often the explicit promise — that writers don’t have conflicts of interest and don’t accept payments that could sway the advice they give.

So when the Securities and Exchange Commission announced Monday that hundreds of articles published on top financial news websites were written by individuals paid to promote certain biotech stocks, it was scandal for consumers and upsetting for a segment of the news industry whose credibility is at stake.

The SEC announced enforcement actions against 27 individuals and entities, including public companies, stock promotion and communications firms, executives and writers behind alleged schemes that gave investors the “impression they were reading independent, unbiased analyses on investing websites, while writers were being secretly compensated for touting company stocks.” Of those charged, 17 have agreed to settlements ranging from $2,200 to nearly $3 million.

The SEC complaints says the articles appeared on Benzinga, Forbes, Investor Village, Minyanville, Seeking Alpha, Small Cap Network, The Motley Fool, TheStreet and Yahoo Finance.

There is no indication in the SEC complaints that the payments the writers received from public relations companies to promote the stocks were disclosed to the financial news sites where their stories were published, and none of the news sites are listed in the charges.

But the question editors in the financial news industry should be asking themselves today is this: How did the stories get onto their sites in the first place? Was this sponsored content (and if so, was it clearly marked for readers to understand it was advertising)? Was it freebie content editors accepted to fill up their site? Or did they get duped into paying unscrupulous freelancers who were pushing stocks?

Once internal reviews have established those basic facts, the bigger challenge is to adopt stronger ethics policies, disclosures and safeguards to stop similar cases in the future.

A Yahoo Finance spokeswoman declined to comment on the SEC charges, but said all content that appears on Yahoo Finance comes from Yahoo’s own editorial staff and a small group of known contributors with whom the site has long-standing relationships or through the site’s news feed from partner media organizations, such as Reuters, Bloomberg or CNBC. Editors and programmers monitor the news feed and flag updates. Any paid content that appears on the site is marked as “sponsored,” to indicate to readers that it is a paid advertisement.

The SEC said its investigations uncovered schemes involving publicly traded companies that hired PR firms to generate publicity for their stocks; the firms hired writers to pitch and place “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.

The SEC complaints lay out elaborate schemes to place promotional articles with influential investing websites and disguise the writers’ identities, deny any outside payments, and cover the tracks of those who submitted the articles.

One website that was targeted for its influential reach and membership was Seeking Alpha, a site with a substantial number of paid subscribers. The site bolstered its ethics and disclosure policy in 2012, requiring that any contributor publish under a single identity and attest that he or she was not accepting outside payments related to the article.

In 2013, the SEC alleges, Seeking Alpha reprimanded and banned some of the site’s users for using its direct messaging service for having solicited writers to promote stocks for money. The SEC alleges the individuals continued the scheme nonetheless, lying in order to get their articles placed on Seeking Alpha and other sites, including Benzinga.com and WallStCheatSheet.com.

“Every article referenced in the complaints violated Seeking Alpha’s terms of use,” Daniel Shvartsman, managing editor for subscription content, said by email.

Editors of other financial news sites could learn from some of the steps Seeking Alpha has taken since 2014, when a number of shady stock promotion schemes were exposed and Seeking Alpha removed the articles from their site.

At the time, Editor-in-Chief Eli Hoffmann outlined steps the site was taking to prevent paid stock promotion, such as reexamining due diligence of contributors and implementing safeguards such as ticker monitoring, blacklisting stocks suspected of promotion and verifying contributors’ identities using publicly available databases.

“Our system documents all authors’ claims to not having been compensated by third parties, and we maintain accurate records of all Seeking Alpha authors’ real-life identities,” managing editor for breaking news Stephen Alpher said by email. Alpher said the site is cooperating with the SEC’s inquiries, adding that “our policies act as a strong deterrent against potential promotions.”

Transparency and credibility are the stock-in-trade of any financial news site. The SEC actions are a reminder to editors to redouble verification of any contributor’s potential conflicts of interest, clearly mark paid content as “sponsored” and be ready to scrap any story you can’t vouch for.

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Indira Lakshmanan is the executive editor at the Pulitzer Center on Crisis Reporting and a Boston Globe columnist. She also served as the first Newmark…
Indira A.R. Lakshmanan

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