id be very careful with htis stock as it is featured in the UN reputable Money World all the time........here is some interesting info onthat publication
but than again who knows...maybe it is the next mcdonalds
Experienced investors fully understand the major potential risks of purchasing small-cap stocks: the lack of liquidity relative to larger-cap stocks, the enhanced likelihood of price volatility compared with higher-priced stocks, the inherent instability that comes with younger or smaller companies, and so forth.
Another seldom discussed risk concerning many small-cap stocks is the paucity of reliable, untainted analysis and information. And most novice investors -- plus even many otherwise sophisticated ones -- fail to recognize the difference between objective, straightforward stock analysis and one-sided promotion, and why this distinction is so important.
It is critical to understand that far too many "research" reports touting a stock traded on the NasdaqSmallCap market or the OTC Bulletin Board are no more than paid advertisements. In other words, the profiled company or its "affiliates" -- typically stock promoters or their investor relations firms -- have paid a fee for the production and distribution of the report which, as the old song goes, strongly tends to "accentuate the positive and eliminate the negative."
<Picture>In today's information age, individual investors enjoy unprecedented access to vast quantities of small-cap stock research. In the last year or two, as the influence of the Internet has advanced by leaps and bounds, the available information sources have increased exponentially. But discerning unbiased research from paid promotion often is difficult.
The distinction is important. In order to make the most informed investment decisions, individuals need to know whether the information guiding their actions consists of real reporting and analysis or mere puffery.
The More Things Change...
It is unlawful "to publish... or circulate any notice, circular, advertisement... or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer... without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof."
The latest proclamation from Securities and Exchange Commission Chairman Arthur Levitt? A recently enacted law from the U.S. Congress? Think again. The above passage is contained in Section 17(b) of the Securities Act... written in 1933!
In plain English, publishers that have been compensated in any way for discussing a stock -- even if it is not to be construed as "investment advice" -- must disclose this fact, as well as the form and the amount of the compensation.
The provision was "particularly designed to meet the evils of the 'tipster sheet,' as well as articles in newspapers or periodicals that purport to give an unbiased opinion but which opinions in reality are bought or paid for," according to the report from the Committee on Interstate and Foreign Commerce which led to the 1933 law. The more things change...!
The stock promoters, for the most part, have successfully ignored Section 17(b). Indeed, the SEC has been slow to enforce it, perhaps because the agency's resources have increased at a small fraction of the rate of increase of participants and assets invested in the securities markets.
Well, The Stock Detective wants to help save the SEC -- and you, the individual investor -- the trouble. In this report, we will present a list of some of those newsletters, direct mail producers, Internet sites and radio shows that tend to "recommend" stock positions in companies that actually have provided compensation, directly or indirectly, to the publisher.
Money Whirl
Virtually every financial publication, web site, radio program, etc. carries paid corporate advertising. For example, you'll see one at the top of this page. There's no question that this is an advertisement, and there's certainly no editorial endorsement of the company or product displayed in the ad. In bona-fide publications, this is standard journalistic integrity.
The problem arises when this line of distinction becomes blurred. Some financial publishers cleverly -- and deceitfully -- blend real, useful investment information with stock "recommendations" that actually are paid promotions, thus boosting the perceived credibility of the profiled stocks.
MoneyWorld, for example, is a colorful, glossy little magazine spiced with juicy tidbits of financial information -- tax tips, industry forecasts, fast facts about NYSE-listed companies, and so forth. Sprinkled between these useful nuggets, however, are glowing stories about an assortment of high-risk Nasdaq small-cap and OTC Bulletin Board stocks.
That might be acceptable if the publishers of MoneyWorld were offering unbiased editorial commentary. But each of the small-cap companies discussed paid a fee to the publisher for the articles, which appear in lengths varying from one column to four full pages.
In MoneyWorld, virtually no visual distinction is made between advertising and editorial content. The two appear side by side throughout the magazine, and they are presented in graphically identical form -- no difference at all in artwork, color, style, font, point size or headlines. In most cases, the only way the reader can pinpoint an advertisement is the nearly unnoticeable use of the word "advertorial" at the end -- not the beginning -- of the writeup.
Some small-cap companies hire promoters and "investor relations" firms to help raise awareness in the investment community, and these firms recruit brokers to help push the stock to individual investors. Investor relations firms also attempt to reach individual investors by finding willing vehicles in the media to spread the word about the company's positive attributes in the hope that this will generate interest in purchasing its stock.
In an arrangement frequently seen in the stock promotion business, the same parent organization owning the company which publishes MoneyWorld magazine also owns such an investor relations firm. Most, if not all, of the small-company stocks featured in the typical issue of MoneyWorld, as well as its companion web site, are clients of the investor relations firm.
The folks at MoneyWorld are certainly not the only ones presenting stock promotions dressed up as unbiased editorial recommendations; they probably aren't even the most egregious offenders. But they are very good at what they do. And investors shouldn't mistake the small-cap company profiles appearing alongside the tax tips and the economic forecasts for anything other than advertisements paid for by the companies themselves.
Read The Disclaimer!
Financial publishers that accept payment from publicly-traded companies in exchange for discussing their stock are legally obligated to fully disclose this fact. According to Section 17(b) of the Securities Act of 1933, they are required to disclose the form and the amount of payment as well. The truth is, however, that almost no one in the stock promotion business exercises full disclosure.
<Picture>MoneyWorld's disclaimer is fairly typical in the industry, stating that the advertisement for the identified company "is not a solicitation to buy or sell securities... investing in securities is speculative and carries a high degree of risk. Past performance does not guarantee future results." Nowhere in the disclaimer is the word "advertisement" used, and there is no mention of the particularly risky nature of the Nasdaq small-cap and OTC Bulletin Board companies that are virtually always the subject of such ads in the magazine.
The disclaimer goes on to say that the firm preparing the report "is retained by the [advertised] company as investor relations counsel. Officers, directors and employees... may from time to time have a position in the securities mentioned."
From the disclaimer, we can determine that some form of compensation was made -- surely it is safe to assume that the firm preparing the report was not "retained" for free -- and the compensation may (or may not) have consisted of shares of the advertised company's stock. Beyond that, however, the reader is left to find out for himself.
Here are some of the phrases contained in the disclaimers we found which indicate to The Stock Detective that the publisher has been paid by a company in order to write about it:
"the publisher received a fee from the company to write this report" "may be paid a fee by the company referred to herein" "serves as a special advisor" "acts as a consultant" "the publisher is a financial relations consulting firm" "is retained as investor relations counsel" "receives compensation for providing shareholder and broker communication" "may provide investment banking services" "personnel may be Directors of client companies" "may offer broker relations services"
Before reading even a single word of any analysis of a small-cap stock, always read the disclaimer. Ignore it at your peril!
Good Disclosure vs. Bad Disclosure
In most publications of this kind, the disclosure is "identifiable" -- that is, the disclaimer accompanies the story about the specifically identified stock. But some publishers utilize only "blanket" disclosure -- a single disclaimer that applies throughout.
The Opportunist magazine, for example, takes the booby prize for generating the largest, most comprehensive vehicle for stock promotion seen anywhere in print media. While MoneyWorld at least offers some worthwhile info-nuggets alongside its paid small-cap company analysis, The Opportunist is a continuous stream of over 100 pages of paid ads with only a smattering of other content. On occasion, the publisher even places a photo connected to one of the paid advertisers on the magazine's cover.
Each of the several dozen companies profiled in The Opportunist carries a brief disclaimer with the usual language: "This is not a solicitation to buy or sell securities... This does not purport to be a complete analysis of [the company]," and so on. None of these disclaimers, however, includes any mention of compensation or even the word "advertisement."
A blanket disclaimer at the front of the magazine refers to various departments within the issue: "Profiles, Success Stories, Interviews, Fact Sheets and Research Reports of featured companies may be prepared by the companies... and the information they contain is not independently verified by The Opportunist, which receives a fee from the featured companies for publication."
No reference is made anywhere concerning the form or amount of payment. What's more, the vast majority of the actual "featured company" stories contain no department heading, so the reader cannot possibly determine which companies are considered Profiles, Success Stories, etc. Does that mean these featured companies are different? Are they considered unbiased editorial research or advertisements? We guess the latter.
The difficulty arising from blanket disclosures such as that found in The Opportunist is that the investor can't know for certain who's paid for and who isn't. When a disclaimer says the publisher has been paid (or "may have been paid," as some say) a fee, or that its employees and affiliates "may have positions in the securities discussed," and the publication profiles several securities, the reader doesn't know which ones apply. If three companies are profiled, none, one, two, or all three actually could be paid promotions.
For the individual investor, the wisest course is probably to assume that all are paid.
Arrowhead Financial High Growth Newsletter was guilty of offering the weakest attempt at disclosure out of all the stock promotion vehicles we reviewed. The sample issue we obtained reviewed 11 Nasdaq small-cap or over-the-counter bulletin board stocks, yet contained only one brief disclaimer. The publisher and "its employees, associates and/or affiliates may own securities, or options or warrants to purchase the securities of subject companies," a common practice, of course.
But the disclaimer goes on to state, "The opinions expressed are those of the authors." No mention is made that the "opinions" are advertisements of any kind, or that any form of payment was accepted. Taken together, the reader would understandably assume that the company profiles in Arrowhead Financial High Growth Newsletter are bona-fide editorial recommendations.
Yet in its investigation of Say Yes Foods Inc., a heavily promoted bulletin board stock, The Stock Detective was told by sources at both Say Yes Foods and Arrowhead Financial that payments were indeed made. The sources confirmed that Say Yes Foods paid between $7,500 and $10,000 for publication in each of six separate issues of Arrowhead Financial High Growth Newsletter. ("Just Say No to Say Yes Foods" - July 29, 1997)
Only a few publishers in the stock promotion business actually practice "full" disclosure, completely revealing the form and the amount of all compensation. Hot Stocks Review's George Chelekis, for example, receives cash from companies he "analyzes" but, in his disclaimer, he reveals the full amount (the fact that he was fined by the SEC probably provided plenty of incentive for him to do so). Personal Investing News, while sometimes compromising its integrity by running photos provided by advertisers on its cover, does reveal cash payment amounts in company-specific disclaimers. Inside Wall Street is a widely disseminated direct- mail promotional device, but the publisher fully states his compensation -- specifically "20,000 warrants and 40,000 shares of common stock which is available for public trading" in the issue we obtained.
The Danger For Unsuspecting Investors
The practice of full disclosure means more to the investment public than mere pontificating about what may or may not violate the letter and the spirit of the law. When the form and the amount of compensation is not disclosed in small-cap company advertising, the unsuspecting investor is far more likely to get burned.
Companies often pay their promoters in stock rather than cash; for many small companies, it is the only way they are able to pay. Regardless of the form of payment, however, sooner or later the promoter will want to sell the stock to convert it into cash. After all, the magazine publishers, printers, post office and the like want their services to be paid for in cash.
Consider an example where a promoter is paid 200,000 shares of a $1 stock. And let's say this stock has two million shares in its float. This means that 10% of the float likely will be sold at some point in the short term. It doesn't take a genius to see that the stock price is going to take a beating when the sale occurs, and that the individual shareholder will suffer.
Furthermore, any company issuing stock as compensation or award must recognize the value of the stock at the time of issuance as an expense on its financial statements. Thus, in the above example, the company will suffer a $200,000 hit to its earnings in the period it issued the 200,000 shares. That event isn't likely to be viewed favorably in the financial market.
So the issue of full disclosure isn't just an academic exercise. It can cut right to your bottom line.
We Ask For Your Help
Certainly, The Stock Detective does not object to a company engaging in limited amounts of promotion. (The company that churns out a continuous stream of self-promotion, however, may be too busy hyping itself and not busy enough in building its business, but that's another story. Elsewhere on this web site, see Stock Scams, Schemes and Scums: Watch Out For These 10 Major Warning Signs.) And we don't necessarily object to financial publications which include such advertising.
It's another matter, however, when publishers engage in a deliberate, consistent and ongoing effort to disguise paid advertising as well-researched, unbiased financial reporting.
Individual investors have plenty of small-cap company information sources at their disposal whose editorial integrity appears beyond question. The Red Chip Review, for example, "prohibits personnel from trading in subject securities two weeks prior and one week subsequent to issue publication." Growth stock gurus like Al Frank, Jim Collins and James Oberweis have built outstanding track records entirely on their own, without accepting the garbage peddled by the promoters. With such outstanding sources for growth stock analysis, why accept inferior pseudo-research?
The Stock Detective asks for your assistance in helping us unmask the publishers, and their promoter accomplices, that seek to deceive the investing public. Dishonest financial "journalism" is commonplace, so our list no doubt is far from complete. If you are aware of paid promotions that look like unbiased stock recommendations, please let us know. If it checks out, we'll add it to the list.
Meanwhile, refer to this introductory list of print media, Internet sites and radio shows that habitually blur the distinction between unbiased research and paid advertising.
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(updated 8/7/97)
Insufficient Disclosure - insufficient or no information at all is provided to allow the reader to determine that a fee was paid for the "story" or research.
Blanket Disclosure - one disclaimer fits all the companies discussed in a publication or web site; reader is not informed whether the disclaimer applies to all, some or none of the companies
Identifiable Disclosure - a disclaimer accompanies each story about a specifically identified stock; better than blanket disclosure but still falls short of the SEC required description of compensation
Full Disclosure - individual disclaimers for each company profile, including the form and amount of all compensation received by the publisher; meets guidelines established in Section 17(b) of the Securities Act of 1933
N/A - disclosure information was not available to Stock Detective as of the date of the report
Publication Name
Media Sources
Disclosure
Arrowhead Financial High Growth Newsletter
Print, Internet
Insufficient
Berkshire International Finance
Internet
Blanket
Billington's Stock Research
Print, Internet
Full
Ed Taxin's Financial Hour
Radio
Blanket
The Explorer
Print
N/A
The Future Superstock
Internet
Blanket
Global Penny Stocks
Internet
Identifiable
Growth Stock Investor
Internet
Insufficient
Hot Stocks Review
Print, Internet (discontinued)
Full
Inside Edge
Print
N/A
Inside Wall Street
Print, Internet
Full
Inside Wall Street (Radio)
Radio
Blanket
Market Pulse Journal
Print
Blanket
Market Vision
Print, Internet
Insufficient
Microcap Alert Line
Internet
Blanket
Money World
Print, Internet
Blanket
The Next Superstock with Jerry Wenger
Radio
N/A
Next Wave Stocks
Internet
Blanket
The Opportunist
Print
Blanket
OTC Financial Network
Print, Internet
Identifiable
Personal Investing News
Print
Full
Progressive Media Group
Internet
Identifiable
Rising Public Companies
Radio
N/A
S. A. Advisory
Print
Identifiable
SGA Goldstar Research
Print, Electronic, Internet
Blanket
Steve Bonenberger's Financial Power Show
Radio
N/A
Stock-Line
Internet
Blanket
Stocks For Tomorrow
Print
Insufficient
StockUp Report
Print, Internet
Blanket
Today's Investor
Print, Internet
Blanket
Note: The ratings associated with the publications listed in the above referenced table were compiled by Stock Detective from information or materials believe to be accurate. These ratings are the opinion of the publisher as defined above. This does not purport to be a complete analysis of the aforementioned media. Any person(s) with information which may be contrary to these findings or having information which should be added to this list, is encouraged to contact the editor at info@axxessinc.com. |
