Using the business media to hype a penny stock

Tom Anderson, associate editor of Kiplinger’s Personal Finance, writes how a Chinese company that recently began trading in the U.S. markets is using ads in business magazines to pump up its stock price.

Anderson wrote, “Full-page advertisements that appeared in BusinessWeek, Forbes and Fortune make Guangzhou Global Telecom (symbol GZGT, quoted on the OTC Bulletin Board) sound like a major player in the world’s most populous country. They say that Guangzhou has partnered with China Mobile, China Unicom and China Telecom, and that its ‘major carrier partnerships account for nearly $50 billion in revenues.’ Readers are encouraged to buy Guangzhou’s stock because it will ‘fuel your portfolio for explosive growth.’

“Expect to see a lot more Guangzhou Global Telecom ads. Its advertising firm says similar ads are scheduled to run in upcoming issues of The Economist, Institutional Investor, Money and SmartMoney magazines, as well as other issues of BusinessWeek, Forbes and Fortune. We turned down insertion orders to run the ad in Kiplinger’s Personal Finance and on Kiplinger.com because the claims made in the ad could not be substantiated and because our inquiries raised more questions than they answered. In fact, the more we looked at this new stock, the more our eyes burned.

“How to hype a stock: As the promoter, you first order up the advertisements. In the ads, you refer people to a so-called third party to attest to the company’s virtues. To be that neutral party, you create an online newsletter. As its editor, you install someone whose existence as an actual person cannot be verified. Then you begin trading the stock, accompanied by almost daily press releases that create a drumbeat of optimism.”

Read more here.