Promoting a stock in exchange for payment—without disclosing that payment—has been illegal since 1933, but digital syndication makes the enforcement of those rules a lot trickier, contends an article in the Columbia Journalism Review. The article points to the recent example of facial recognition software company Alfi, Inc., whose stock rose above $16 this past June after an article appeared in Yahoo! Finance that the stock was going “parabolic.”
What didn’t appear in Yahoo! was the disclosure that the piece was a promotion that Alfi had paid a financial news outlet called Benzinga to create. Every day, Benzinga publishes hundreds of stories, many of them paid promotions that are written by a dedicated team. For the $5,750 sponsored content package, you can get videos and press release articles that are then syndicated to various websites like Yahoo!. While Benzinga does include an advertiser disclosure on their pieces, that disclosure often doesn’t make it into the syndicated versions, as it didn’t with the Alfi piece. Though Benzinga and Yahoo! claimed this was an unintentional mistake, it’s not an isolated incident.
However, since being contacted by Columbia Journalism Review, Benzinga has begun to include more prominent disclosures. But for those that bought into Alfi at its peak in June, it’s too little too late: the stock is now settled at around $6 per share. In general, it’s hard to bring claims against a syndicate for failing to disclose if the original speaker—in Alfi’s case, Benzinga—did disclose. The SEC charged 27 firms and individuals with breaking the rule in 2017—but none of the sites that the promotions appeared on were included in the charges.
Ironically, Benzinga itself published its own bit of bullish news last week. In a deal valued at $300 million, the private equity firm Beringer Capital has purchased a majority stake in the company…or so reported by a syndicated version of the story that appeared on Yahoo!.