Interesting BusinessWeek story by Marcia Vickers:
Investors, Beware the Press Release
The right spin--or even a lie--can make stock prices soar
On Apr. 8, the Securities & Exchange Commission filed a suit against a Los Angeles tree trimmer, Stephen Sayre, for posting fake press releases on message boards on behalf of eConnect, a micro-cap Net stock. The suit alleges that Sayre put out phony 'buy recommendations' under the name Independent Financial Reports and posted them on Internet message boards. Those press releases were also distributed by Business Wire, a paid Internet news service, and ended up on news services like Bloomberg and investor Web sites like Marketwatch.com and TheStreet.com (TSCM). The stock traded as high as $22 a share on Mar. 9 and is now trading at less than $1 a share.
'We're pleased that the SEC is helping us guard information we're distributing to consumers,' says a Business Wire spokesman. An eConnect spokesman denies that the company has any relationship with Sayre.
FAST AND LOOSE. Once a relatively mundane communications device, a press release now has the might to dramatically drive the price of a stock. As a result, more companies are designing press releases with that goal in mind. But it's not just edgy or pushing-the-truth headlines from lesser-known companies that are designed to spike share prices. Stock analysts say established companies are also playing fast and loose with press-release language, especially those involving earnings reports. They may exclude entire unprofitable subsidiaries, or leave out key information--such as certain losses--in order to appear rosy to investors. This has captured the SEC's attention. 'While we don't regulate press releases, we are on guard for fraudulent and manipulative statements,' says Chris Ullman, an SEC spokesman. But even the SEC admits this is a gray area and difficult to police.
To be sure, stocks have always risen or fallen on news, but the Internet has fundamentally changed the way news is delivered. Average investors now get 'news' over the Internet as soon as--or in some cases before--it is posted on traditional wire services such as Dow Jones & Co. (DJ) or Reuters Group PLC (RTRSY). But often the 'news' is merely paid press release distributed through Internet news services such as PR Newswire and Business Wire. That's why many companies, especially Net-related and biotech companies that trade more on promise than profits, are able to put out a steady stream of releases to pump up their stocks. 'Investors are increasingly putting as much credence in paid releases posted on the Internet as they do in real journalism,' says Gerald S. Schwartz, president and CEO of G.S. Schwartz & Co., a New York public-relations firm.
Some companies are considered press-release 'blasters'--they put out a press release almost every day. 'Companies create questionable new 'divisions,' 'mergers,' and 'products' just to stay on investors' radar screens,' says Robert V. Green, an analyst at financial Web site Briefing.com Inc.
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