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zzlangerhans (99.81)

Seeking Alpha SEC complaint submitted today regarding stock-manipulating subscription service SA Pro.

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May 06, 2014 – Comments (22) | RELATED TICKERS: NVIV , VCEL

This complaint relates to the manipulation of low float stocks for profit by the stock blog site Seeking Alpha. Seeking Alpha generates income through sales of subscriptions to their premium service SA Pro. Seeking Alpha pays certain blog writers for submissions earmarked for SA Pro and then frontruns these articles to SA Pro subscribers. These articles are generally one-sided and promotional. SA Pro subscribers are then able to purchase stock in the companies promoted in the articles before the articles are published on the Seeking Alpha website for the general public. Seeking Alpha is highly influential in the stock trading community due to the fact that their articles are carried on the Yahoo Finance news feed, and Yahoo Finance is the predominant news portal for retail stock traders. A Seeking Alpha article can have a dramatic effect on the share price of a low float stock in the short term. Therefore, Seeking Alpha is selling individuals the opportunity to profit from short-term trades in stocks whose price they plan to manipulate through release of a promotional blog piece.

I will cite two individual examples of this practice, although there have been many.

On March 20, 2014 an article was published to Seeking Alpha concerning the stem cell company Aastrom (ASTM). The title of the article was "4 Reasons Aastrom Looks Good Right Now." The tone of the article was highly positive and promotional. Aastrom has a tiny float of 4 million shares and trades at very low volumes (typically 50K-100K). On March 19, the day the article was released to SA Pro subscribers, volume spiked to almost 600K and the stock spiked to an intraday high of 4.12 from an open of 3.78, despite a lack of any material news regarding the company. The intraday high on March 20 after the article was published to the general readership was 5.33 and the intraday high on March 21 was 7. SA Pro subscribers had ample opportunity to profit substantially from this stock manipulation, as long as they sold before the share price steadily degraded back to the mid 3's over the next two weeks.

On April 30, 2014 an article was published to Seeking Alpha concerning the biotech company InVivo (NVIV). The title of the article was "InVivo's Day Has Arrived." The author was the same author that penned the Aastrom article described above, and the tone was similarly promotional. In the month up until April 25 InVivo stock had traded in a narrow range with a low volume of 50-150K. On April 25 the stock closed at 1.5. On April 28 volume spiked to 700K shares and the stock closed at 1.84, with an intraday high of 2.05. I believe this was the day the Seeking Alpha article was frontrun to SA Pro subscribers, two days ahead of general publication. On April 30 the article was published and over the next two days the stock rose to an intraday high of 2.25, providing ample profit to those who had loaded up pre-publication. However, by the close on May 5 the price was back down to 1.75.

I am not well-versed in securities law but it is hard for me to believe that the SEC can permit this form of flagrant stock manipulation for profit. I believe that every investor should trade on an even field and succeed or fail based on his own ability to acquire a deep understanding of the fundamental value of individual companies. The activities of Seeking Alpha and their associates make a mockery of the US securities system.

22 Comments – Post Your Own

#1) On May 06, 2014 at 10:51 AM, constructive (99.98) wrote:

I don't think you have much chance of success. There is a wide grey area between sketchy/promotional and illegal.

But I'll wish you good luck anyways. More aggressive enforcement against stock promotion couldn't hurt.

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#2) On May 06, 2014 at 10:53 AM, atrickpay (< 20) wrote:

Yes, it's unfair. But that's the structure of existence on this planet. Those with more money are able to buy a subscription like to give themselves more edge. 

And I don't think government is the solution. It's a very archaic idea of using violence to control things. More enlightened, non-violent solutions should be used in 2014. 

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#3) On May 06, 2014 at 11:00 AM, portefeuille (98.66) wrote:

However, by the close on May 5 the price was back down to 1.75.

And it opened today at $1.09 after this offering.

NVIV 10d chart.



enlarge

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#4) On May 06, 2014 at 11:04 AM, zzlangerhans (99.81) wrote:

The offering immediately after the SA pump is a whole different can of worms, so I didn't include it in the complaint. However, one wonders if InVivo colluded with SA or the author in advance of the pump, or whether InVivo just decided to try and take advantage of someone else's independent shenanigans. Either way, it doesn't seem to have worked out for them.

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#5) On May 06, 2014 at 12:22 PM, Valyooo (39.34) wrote:

If people want to buy junk stocks because they read so,ething on SA, that's their fault. The pumpers are taking on the risk of holding the bag. I don't see the problem. What about the reverse? If you bought stock on March 9, 2009, should you have to give some or your money back to the guy who sold it for you since you clearly ripped him off by buying so low?

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#6) On May 06, 2014 at 6:40 PM, awallejr (61.45) wrote:

Don't get me going on this since this one particular writer, QouththeRaven, kept writing cut and past inaccurate articles on QCOR.

See: http://caps.fool.com/Blogs/pigs-and-drug-prices/920999

He was clearly coordinating his articles with Citron.  Brightside is he got crushed on his shorts largely because there was a strong vocal group on the Yahoo message board.  It was the only time I ever saw a group of longs tearing apart the Short's arguments as they tried to manipulate the stock.

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#7) On May 06, 2014 at 10:40 PM, TSIF (99.97) wrote:

Nothing even remotely illegal about publishing a paid newsletter with "general" information.  (No, I'm not a seeking alpha writer, I look at their pump article for short ideas, and look at their short ideas to laugh when they get burned).

I believe in a level playing field and it's too bad it takes money to get it. If they have inside information or misrepresent information, burn them, (the writers).  But selling a subscription is NO different than BARRONS which has tremendous influence, or Motley Fool with their subscription services, (except it's on shady companies and marginally accurate).  It is not ususal for a MF buy or sell to generate a 2-3% pop or drop on moderate sized businesses within 30 minutes of the email alert to subscribers.  A Crammer, buy or sell may not take any money to learn about, but if you could stand to watch him at the right times, you could do a lot of front running as well.

If you can catch them lying, bag 'em.  They do skirt areas of the law and if they cross it nail 'em, but I don't think the "front running" paid newsletter itself is in violation or than being a sad example of manipulation. Using the low float stocks compounds it. 

The SEC should go after the boiler room crew.  While often paid to promote junk stocks, they also randomly pick low float stocks, sometimes without the companies permission and do spread blantant mis-information. 

TSIF 

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#8) On May 07, 2014 at 7:01 AM, JeffryClarke (33.52) wrote:

Interesting.  I thought SA pro was dangerously close to 'pump and dump' territory.   I can't remember the name of the company, but I saw a palladium or platinum mining company in Canada actually issue a press release to refute claims made in an SA pro article.  I've never seent that before.  At any rate, most of those SA pro articles are more 'promotion' than 'analysis' and are unethical in my opinion.     

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#9) On May 07, 2014 at 10:44 AM, zzlangerhans (99.81) wrote:

Just out of curiosity, if Cramer takes 100K on Wednesday to tell a hedge fund trader that he's going to slam some stock on TV on Thursday, then that's also OK? I really don't think most of the commenters here processed the substance of the issue.

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#10) On May 07, 2014 at 11:24 AM, TSIF (99.97) wrote:

I'm not disagreeing zz that the process is "shady" and should be frowned on.  But investors should be doing their own DD.  Many are, and the majority of the volume is day traders trying to one up each other.

Legally, however, if Cramer were paid a $100K consulting fee, and he wrote a slanted opinion article which the hedge fund manager published, then no issue.

If he published the article himself, then he should disclose that he was paid a consulting fee to do so.

Retail longs, shorts, day traders, etc, all have a choice where they get their data and if it is fact based or opinion based. The internet allows more dissimulation of the info and the computer trading adds to the volume. 

I fully agree the paid writers doing an article for a "magazine" that then sells "subscriptions" should have a code of conduct and attempt to get there facts straight. I read the Aastrom crap after it popped and shorted it here on CAPS as an easy call. Would I pay for PRO and try front running it...no, the article might simply fizzle.

The boiler room pumping and pumping by SA and then a dump or a dilution are definitely getting more prevelant, but those losing money are looking for a get rich scheme and they will either learn or their trading funds will disappear.

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#11) On May 07, 2014 at 11:37 AM, TSIF (99.97) wrote:

PS.  If "The Street" offered Adam F's articles to paid subscribers would that be wrong?

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#12) On May 07, 2014 at 12:16 PM, awallejr (61.45) wrote:

ZZ, seriously check out what was going on between SA, Citron and Barron's involving QCOR.

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#13) On May 07, 2014 at 12:32 PM, zzlangerhans (99.81) wrote:

The issue is one privileged group of investors being given stock-moving information in advance of the general population of investors, not the general fact of publication of a paid article which moves the stock. If The Street offered to frontrun Feuerstein's articles to subscribers for money then that would be the same thing as SA is doing and it would be wrong. I don't think Feuerstein would accept such an arrangement.

Even if the SEC does not consider this activity illegal, it should be given as much exposure as possible because there is no legitimate reason for Seeking Alpha articles to move stocks. If Seeking Alpha articles did not appear on the Yahoo Finance feed they would not move stocks. If the Seeking Alpha effect can be reduced or negated it will eliminate their ability to extract profits from their nefarious activities.

Instead of seeking to provide rationalizations and justifications for these kinds of activities by institutions, retail investors should be uniting to make the playing field more level. It seems everyone would rather pretend they are the "smart" individual investor who recognizes every instance of stock manipulation and profits along with the hedge funds while everyone else gets conned.

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#14) On May 07, 2014 at 12:57 PM, peregrine (99.42) wrote:

I don't think they are doing anything wrong, its basically a paid newsletter, no different then the subscriptons readers pay for the Wall St. Journal.  The SA article actually brings attention to a lot of low volume stocks, which allow all investors to profit.  If a stock shots up on hype, non subscribers can always profit from it on the way down.  Maybe I'm crazy -- but I'd get bored without the games of outfits like SA.

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#15) On May 07, 2014 at 1:08 PM, TSIF (99.97) wrote:

zz, I think I see your underlying issue, and I'm 100% behind educating investors to these type of nuances that might be considered cheating, but don't fall under the SEC pervue, if the articles are opinion based and don't release material substance not generally available.  The MF articles that fill the Yahoo board also contain conflcting opinions. I understand to your point that SA are front run with money, but anytime an equity gets moving it gets noticed.

Yahoo should have a catagory or a way of marking such articles as OPINION as they are usually lacking in facts and "news worthiness". 

I'll do everything I can to educate retail investors before they get burned out and cynical on investing (as some of us are). Hopefully your blog will make a few think.  Generally I find retail investors have conviction bias and have to get burnt a few times.

The information is NOT stock-moving information, but it does move stocks.  The market is a business, I'd I'd be pretty certain that if The Street wanted to try to make Adam's articles "premium" under a charge section that he would go along, but that's just my opinion.

Happy to unite with you in making the practice known, anyway that I can.  I am NOT in the category of trying to profit from my fellow retail investor, but this practice is not SEC material unless you can prove one of the articles LIES, in which case hit 'me and hit 'em hard.

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#16) On May 07, 2014 at 1:31 PM, zzlangerhans (99.81) wrote:

Let's say the Wall Street Journal was going to publish a major investigative report on Apple, in which they had conclusive evidence that Tim Cook had falsified sales and earnings in a way that made Enron look like a tea party. Two days before publication, the Wall Street Journal frontruns the article to Goldman Sachs for ten million in cash and Goldman Sachs shorts every share of Apple available for a 600 million dollar profit. Everyone is cool with that, right? Totally legal and legit?

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#17) On May 07, 2014 at 1:36 PM, zzlangerhans (99.81) wrote:

If The Street were to make Feuerstein's articles available to paying subscribers only it would absolutely not be the same thing. The Street and Feuerstein know that if they did make the articles premium, way fewer people would read them and they would not move stocks in the short  term. The issue is secretly frontrunning the articles to paying subscribers and then releasing them to the general readership one or two days later, with special attention to low float stocks that are more liable to react to this type of manipulation.

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#18) On May 07, 2014 at 2:00 PM, TSIF (99.97) wrote:

#16 " had conclusive evidence that Tim Cook had falsified sales and earnings in a way that made Enron look like a tea party"

No, not legal and legit. Using information not known to the general public.  The SA articles have NO content not available to general public, if they do, burn them.

#17.  I disagree with it not being the same thing. If anything it would drive up subscriptions. Regardless, the articles with opinion would still be considered the same, with the same value as they are today.

I do agree what SA does is manipulation, but only because they do it with an intended result.  I don't think it's ethical, but I won't repeat why it's not illegal or why new retail investors carry the burden of investing their money.

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#19) On May 07, 2014 at 2:08 PM, constructive (99.98) wrote:

"Two days before publication, the Wall Street Journal frontruns the article to Goldman Sachs for ten million in cash and Goldman Sachs shorts every share of Apple available for a 600 million dollar profit."

Journalists have done things like this before (although not on that scale). As far as I know it's not illegal in the US.

It's not insider trading if there's no insider. Journalists don't count.

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#20) On May 07, 2014 at 2:23 PM, TSIF (99.97) wrote:

"conclusive evidence" came from someone.  So it might make a differnece how they came to that information or the WSJ is also guilty of selling insider information, journalist or not.  If they frontran it to GS, and the information is NOT available to the general public, then Goldman Sachs is conducting illegal trading on insider information. (It doesn't matter who they got it from).  Now if the WSJ hit the street at 9:31 on Monday morning, and GS shorted it at 9:32, then it's "probably not" illegal.

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#21) On May 19, 2014 at 6:05 PM, miteycasey (29.19) wrote:

I don't think it's illegal because the information isn't coming from 'the inside'. Immoral? yes.

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#22) On June 26, 2014 at 11:23 PM, tbash789 (< 20) wrote:

We just talked to the head of ISIS IR who refutes completely this recent article by the individual who would not sign their name and who did a very superficial evaluation that really was a hack.  It is the target, ApoB 100, that gave Kynamro a bad name, not the backbone for the drugs.  In any case, this was a 2.0 generation drug without the recent modifications that ISIS uses in all of their new products including everything they have in their pipeline, except their even better drugs, their 2.5 generation drugs.  The newer version of the 2.0 generation drugs that this person is not aware of we call the 2.0a generation drugs.  No flu-like symptoms, very little ISR's, and in ISIS ApoC III four phase II trials NOT ONE patient dropped out of any of those trials.  This person's timing is in question as well with the time the article was released.  ISIS will be vindicated due to their strong pipeline and clinical advances, but will investors who got tricked get vindicated??  t

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