By Qudsia Shafiq, Fall 2017 IAC Student Intern
Are you smarter than the ads you see? While you may think you can outsmart any ad, have you considered the possibility that you may not know an ad when you see one?
Think about where you turn to for investment advice: Is it from individuals (such as your financial adviser, friends, and relatives), traditional news sources (like television shows, radio stations, newspapers or magazines), or is it from the internet on your personal computer, tablet or smartphone? For most individuals, it’s usually a combination of these sources. But one thing these categories have in common is that they are platforms for product placement and advertisements.
As the internet increasingly becomes a primary source of information, the advertising industry has shifted to capture this audience – and consumers need to be aware that these advertisements no longer come in the form of pop-up advertisements on their browser, web page or ads. Instead, ads may now be embedded in a paid product review by a blogger on what seems to be an impartial website. As a result, these cloaked ads are much more difficult to identify because the reader believes the source to be objective and independent and in some cases, the source may go so far as to outright lie about its expertise in the area or claim that it does not receive compensation for promoting a company’s product or stock. This was the case in over 250 articles the SEC found, where the SEC alleged “included false statements that the writers had not been compensated by the companies they were writing about.”
In fact, these practices prompted the SEC to investigate and charge 27 parties (including public companies, firms, and writers) with fraud for creating and/or publishing articles that promoted certain stocks, when some or all of the writers allegedly:
- Failed to disclose that they received (direct or indirect) compensation by the companies they were promoting;
- Used the same name to promote the same stock in multiple articles, on different websites;
- Claimed (falsely) accreditation or experience about their credentials (misrepresenting the writer’s career as an accountant, fund manager, or research analyst who had certain academic degrees); and/or
- Intentionally recommending stocks to consumers to artificially inflate stock prices, only to sell the stocks at the artificially inflated price (engaging in what is known as “scalping.”)
These practices prompted the SEC’s Office of Investor Education and Advocacy to issue an alert on April 10, 2017 cautioning investors that “seemingly independent commentary on investment research websites may in fact be part of paid stock promotion campaigns.”
How can you stay safe?
- Be careful about who you get information from. Look up the writers and verify their credentials. If they claim to be a broker, look them up on Broker Check.
- Be careful about what you’re getting information about. If it’s investment advice, make sure to research the company and look at governmental and regulatory organizations to make sure it’s not part of a larger scam. If you see a company’s stock is promoted more than the products or services its offering, it may be a red flag of investment fraud (especially in the case of penny stocks).
- Be careful about where you get information from. Beware that stock promotion schemes can be conducted through a variety of outlets: social media, investment newsletters, online advertisements, email, internet chat rooms, direct mail, newspapers, magazines, television, and radio.
- Be careful about when you are searching. Different search engines often utilize a user’s browser and search history to cater advertisements targeted to fit the “needs” of that particular user.
- Always remember why and how you ended up on a specific webpage. Did someone direct you to a website? Did you hear about it from the radio or read about it on a blog? Did it pop up out of nowhere or was it an ad you clicked? More importantly, if you’re interested in a specific project, ask yourself why you’re interested in that particular product what initially sparked your interest in that product.
Keeping these tips in mind will not only help you stay safe, it will prevent you from making a costly mistake.