Stock promoters making inroads on financial news sites

Stephen Gandel of Fortune writes about how the writing of stock promoters is increasingly being found on financial news sites.

Gandel writes, “In the past year or so, several finance websites — including Forbes.com, Seeking Alpha, Wall St. Cheat Sheet, and others — have published articles by authors who were allegedly paid to promote the stocks they were writing about. These articles were not labeled as advertisements and carried no disclosures that the authors had been compensated by their subjects. In fact, on at least one of the websites — stock blog Seeking Alpha — the articles carried a disclosure stating the author had not received any compensation from anyone outside of Seeking Alpha to write the article. Seeking Alpha now admits that some of those disclosures were inaccurate.

“The articles in question were published through the websites’ contributor networks and were allegedly paid for by an investor relations firm called The DreamTeam Group. Most of these pieces focused on so-called penny stocks — companies with shares that trade for less than a dollar and not very often, a favored terrain of stock promotion schemes.

“While not all of the facts are clear, the websites admit that they were duped. In the past few weeks, more than 100 articles have been pulled from Seeking Alpha, Wall St. Cheat Sheet, and other websites that have been caught up in the stock promotion scheme.

“In some cases, the stock promoters were successful. In late December, Forbes.com published an article by Tom Meyer called ‘The race to develop a brain cancer treatment takes an interesting turn.’ The article said a small biotech company called CytRx had ‘remarkable results’ in a recent drug trial and ‘appears poised for a significant run in the months and years ahead as the company’s platform continues to be validated by science.’

“Within days of the article’s publication, CytRx’s stock rose nearly 50% to $6.90. Last week, a class action suit was filed against CytRx, its CEO Steven Kriegsman, and an investor relations firm The DreamTeam Group. The suit says that CytRx (CYTR), through DreamTeam, hired Meyer and another author named John Mylant to place positive articles about the company and its shares on Forbes.com and other websites.”

Read more here.