Are Forbes And Business Week Promoting Penny Stock Scammers?
June 15th, 2007 Davis Posted in Marketing, Spam |
After doing my research on GrowthStockGuru’s most recent hot stock tip, I contacted the business press and asked for comments on why they would run an ad for a microcap company, whose former Director is married to a convicted stock promoter? I emailed Business Week twice and Smart Money once, but neither of them seemed to feel it was important enough to reply to. Forbes and Investor’s Business Daily did reply though and unfortunately Forbes said that the print ads had gone out, but that future ads were being discontinued.
“Thanks for your note- we obviously take this very seriously given our
reputation in the industry. Just so you know Forbes.com and Forbes
magazine are separate organizations with separate sales teams. I had
some people here at Forbes.com run a check and it appears that we’ve
never shown those ads online. I can confirm that there had been ads run
in the print mag in the past but from what I’m told those are going to
be discontinued.”
While, it’s unfortunate that Forbes ran the ad to begin with, I can understand how they could miss some of the details behind GrowthStockGuru’s tip. Digging through the SEC files was like peeling an onion, the more I read, the more I wanted to cry. Forbes willingness to re-evaluate the history of the company and their decision to discontinue future ads, demonstrates that, while careless, they do care enough about their readers trust, to understand that the easy money, isn’t worth the hit to their credibility.
Investors Business Daily on the other hand, did not seem to think that there was anything wrong with advertising a penny stock, in order to increase “awareness” of the company.
“Thank you for your email regarding the advertising from GrowthStockGuru. Investor’s Business Daily does have a policy in of rejecting display advertising that promotes penny stocks. Display advertising refers to the ads that are placed throughout the newspaper.
The ad you referred to ran in our Corporate News section. This is classified advertising section designed as a forum for public companies to increase awareness of their stock. Most of the ads that run in Corporate News are penny stocks. Many of our readers regularly read this advertising feature searching for new and interesting investment opportunities. The section is labeled as advertising and in no way is an endorsement by Investor’s Business Daily. We also run a small disclaimer in the section stating that we can not guarantee the accuracy of the information in the ads.
Thank you for taking the time to share your concerns with us. We value your input and take all suggestions and comments very seriously.”
After reading IBD’s email, I was really surprised to learn that advertising “classifieds” of penny stocks is part of their business model. I’ve always thought of them, as being one of the top five business publications for Wall St. investors. Unfortunately, I didn’t get to see the print ad personally, so I don’t know about the disclaimers there, but on their website, they are still running the growthstockguru ads and I don’t see any disclaimers. In order to get to this ad, you click “corporate news” from their home page and then you see a summary of the stocks being advertised. If you click through to the third page, you finally see an “advertising” logo, identifying the piece as pay for post content.
Since IBD seemed to feel that the stocks being advertised were “new and interesting investment opportunities”, I decided to take a closer look at some of the opportunities, that they were showing their readers. In order to find out how good these picks have turned out, I picked a semi-random sample of companies and took a look at the performance of their stock price, after the ads. Thanks to the magic of Archive.org, it was pretty easy to find the past advertisements, but tracking down the prices was a different story.
The methodology I used for my study was to take any stock under $100 million that was advertised in IBD’s “announcements” section of their “corporate news” service. I then found seven stocks that actually had historical prices and figured out what long term “INVESTORS” would have made, had they bought and held the stocks, at the time they were being advertised. For the stocks that I couldn’t find pricing on, I think it’s fair to call them a failure, but I’ll leave it up to my readers to decide, what they think those returns would have been, if investors had access to historical information.
You Can Get Better Odds In Vegas
On March 1st, 2005, Investor’s Business Daily ran “classifieds” for BSDM, IGTN (now IGTG), AHCKF, GMED and TNSX.
BSDM was a bio-tech play, the company’s seems to think that they have microwaves that can cure diseases. When IBD readers were being tempted to buy in, the stock was at .14 a share, today it closed at .055. A loss of 60%. I couldn’t get pricing on IGTN, but typically when a company changes their symbol, that’s not a good sign. Since being listed as IGTG, the company has gone from 0.15 to .0525, a loss of 65%. AHCKF was another stock that did not have historical information. Currently, the company is priced at .01 per share. After the ads ran in IBD, their auditor started raising questions about insider compensation and the company was issued a cease trade order by the British Columbia Securities Commission.
GMED, I was able to find pricing on. They trade on the pink sheets and on the day the ad ran, they opened at $0.083 per share, today they are at .01, a loss of 88%. TNSX is also a healthcare play, but they use software instead of microwaves. They closed at .14 on the day the ad ran and finished at .055 today, a loss of 60%.
In 2005, this section wasn’t called “corporate news” yet, it was called “investor newswire” and to be fair to IBD, it was listed under the advertising section on the main page. Sometime later, they changed the site and made it so that you have to click to the third page, before you know that you are reading an ad.
On 01/01/06, they ran ads for three companies that I could locate. TLPE, LNXGF and ANSW. TLPE is a “wireless telecommunications provider”. On the day the ad ran, the stock was at .27, today it’s worth .028, a loss of 89%. LNXGF was a mining play, but I’m not sure why they picked their name. Less tech savvy investors may have thought that there was a connection, but Linux Gold Corp. had nothing to do with Richard Stallman. They just look for mines. Things weren’t so golden though, after IBD’s ad. The stock has gone from .35 to .18, a loss of 48%.
Of all the microcap stocks that I found, ANSW has been the only one to actually finish in the black. Had you gotten in on their ad, you would have paid $11 and today it’s at $14.50, a positive return of 31%, albeit for a considerable amount of risk. Even though, ANSW has finished positive, it’s also been a very volatile ride. Earlier this month, Eric Savitz’s at Tech Trader Daily, wanted answers on why ANSW was seeing such wild trading, it wasn’t their fundamentals, it was advertisements. A few days after ANSW hit $12.50, WallSt.net announced a partnership with them and the stock took off. WallSt.net specializes in providing “promotional” help to small stocks in exchange for cash or shares. There were no details about any advertising relationship mentioned by Answer.com or WallSt.net, but over the next few weeks, Answer.com mysteriously saw it’s stock price run to $17.15, before crashing on heavy volume. Today it’s back at $12.54. Three days after the sell off, WallSt.net ran a second press release announcing the integration of their bookmarking tools into ANSW’s site.
On March 1st, 2006, IBD advertised “classifieds” for BGES, PTGC and a company named Plasticon International. BGES is another bio-tech play. On the day it was advertised, the price was $1.80 and today it’s at $1.00, a loss of 45%. PTGC was tougher to track down. I knew it’s starting price, but like many stocks that take severe nose dives, they changed their ticker symbol to reflect “a different direction” for their business. In this case they used PEYG. When companies do this, Yahoo! finance and other sites drop the past pricing and hit reset on the historical pricing. It puts the regular investor at a huge disadvantage because they don’t know the trading history on the stock. One way that the SEC could help to prevent these things, is to require that historical pricing be available, if a company wants to change symbols.
I did a little digging and luckily, I was able to track down the SEC document where they report a 5 for 1 reverse split. From there, I was able to figure out that on a split adjusted basis PEYG was at $1.95 on the day the ad ran and today it’s at $0.43, a loss of 78%.
Unfortunately, I could not get historical pricing on Plasticon, but of all the companies, it was by far my favorite. Their CEO should be writing a blog, instead of trying to replace steel with plastic. I would subscribe just for the entertainment value. One of ads featured the CEO wearing a superman suit, it was a hysterical read, even though I would never have invested in his company. It’s hard to believe that even cheesy copy ads seem to work. Unfortunately, for Plasticon though, they weren’t able to leap over creditors in a single bound and filed bankruptcy on May 25th of this year. Their stock is currently worth $0.0001 per share.
Had you gone out and invested $1,000, into just the seven companies that I could find pricing for, your $7,000 investment would now be worth $3,630. You would have taken a 49% loss from buying these stocks, that you saw advertised as a “corporate news” on IBD’s website.
Now I realize that my sample size is too small for this to be a scientific study, but I feel fairly confident, that if you take a closer at the other ads that have run, you will find a similar failure rate, among the businesses being advertised. Maybe I was naive for not knowing that the business press was selling out their readers for penny stock ad money, but I find it outrageous that these “respected” business tabloids run ads, that are very likely, hurting their readers financially.
To make matters worse, this problem appears to be more widespread than just Business Week, Forbes, IBD, & Smart Money. It also appears that Reuters runs ads for microcap companies too. Right now they are featuring an ad from a company, named “lil stock investors”. I took a closer look at the companies that they are advertising and sure enough, GrowthStockGuru’s hot stock pick is one of them.
The business press is very quick to get lathered up about the latest stock scam convictions, but they refuse to acknowledge the role that they are playing in some of these very promotions. When your ads can influence the price of a security, the media owes it to their readers to do their due diligence. When someone knows that a stock will fall, after an ad ends, it might just be insider trading. Why won’t Business Week and “Smart” money return my emails about their relationship with GrowthStockGuru? What is it that they are afraid of? There is clearly a conflict of interest here and if people don’t speak up, the press will bury this, because they have a financial stake in making sure that people don’t know about the cesspool advertisements.
June 15th, 2007 at 12:53 pm
Okay - this is my take on the whole thing. Print media has been detached from reality for quite a long time. Now they positively have a giant wedgie. They are willing to do anything to keep sets of eyes. Which means promoting anything - no matter how questionable. Its hard to get anyone to look at their magazine consistently when everything they write is covered on a million blogs and stock groups.
I actually canceled my subs to many of the magazines you list. Not because of any stock investing moralities. I won’t subscribe to them because they started threatening me.
When I moved to the new place I couldn’t handle all my subs, so I didn’t renew. It was then the problem started. Forbes was actually the worst. They started threatening to send me to collections. Sent constant letters saying I owed them money. Finally I had to call and put the harsh down. Basically what I said is - when I stop re-subbing - it is their responsibility to stop sending me magazines. Because of their irritating policy - I would cancel every single sub from their company. And I wouldn’t give them anymore money. I canceled about 10 subs before the magazine companies started acting like they cared at all.
There were some publishing companies that were very good at stopping my subs when I didn’t re-up. Those people I will give money to when I have more time. I won’t give money to Forbes at all though. I can tell you though they are feeling the pain from the Internet. The magazines are much thinner than even a year ago.
Anyway - this is getting long - but…the market swings too wildly now for most of the investment mags to be very relevant at all. Most peole won’t watch their porfolio, and for those that do.. they are more savy than ever before. Causing those mags to be in a constant fight for life.
June 19th, 2007 at 11:00 am
I was actually very happy to see Mr. Freeberg’s posts regarding the advertisements in Forbes for penny stocks. In my opinion, the posts alerted the major financial publications that they too can be a party to a penny stock promotion. In fact, we need to give a few points to the promoters who placed the ad in Forbes for creativity.
After thinking about the ads and the attack on Forbes and IBD, I thought that maybe we’re being a little unfair. That comes from a guy who’s not a big fan of Forbes. The fact is, “Doesn’t all media exist to sell advertisements.”
In fact, I found your original post on Seeking Alpha, a great site that is one of the best aggregators of financial content on the web today. To the right, I saw Google ads being served and the first ad was a link to a site called The Bull Run report. On the front page of The Bull Report, they are promoting a stock with something more valuable than all the Fort Knox gold and Saudi Arabian oil combined. That’s their words, not mine. Does David Jackson and the rest of the team at Seeking Alpha have an obligation to investigate the claims of The Bull Run Report? Absolutely not!! What is the difference between that link ad and the ad in Forbes. In fact, a media organization has a very limited obligation to investigate these claims. If they did, then would News Corp have an obligation to investigate the validity of acne creams being hawked on late night infomercials. Let’s face it, very little of the massage that is displayed in an advertising campaign is accurate. If it was, then I would be able to jump as high as Michael Jordan when I wear a pair of sneakers or smile everytime I eat at a fast food restaurant. Fortunately, I don’t.
In the end, I think you wrote series of extremely valuable articles that will aid in protecting investors. However, Forbes and IBD have as much obligation to investigate the claims of advertisements as websites do in terms of investigating the message of Google adwords being served on their websites.
Thank you for your posts.
June 19th, 2007 at 12:50 pm
Hi -
It is the responsibility of investors to manage their risk. Getting stock tips from advertising pages does not sound like a good idea to me, but do we really want a world where only the few can advertise?
June 19th, 2007 at 4:15 pm
Hi Ken - Thanks for the comment, you raise an excellent point and one that is not easy to dismiss. If the main goal of these publications is to sell ads, than how can I criticize them for trying to make a living in a tough newspaper environment. I’m not sure how you solve this issue, because I do see a need for large and small companies to be able to advertise their services. At the same time though, if an ad can influence a company’s share price, then BW and IBD should be doing extra homework, if they care about the products they put in front of their customers.
Considering how important journalistic integrity is to these publications, it would seem to me that if an ad had the potential to hurt your customers, that you’d want to think very carefully about who you take on as business partners. In the case of Google ads, it seems less controversial because there isn’t necessarily a level of financial trust between Google’s adsense program and the publication that is running them. IBD on the other hand is a place where readers do go to get investment analysis, so in my view their research should be more diligent. If the ads are in fact correlated to the penny stock prices (which would be a great research project for a bright MBA student) than IBD needs to take a closer look at this issue and determine whether it’s appropriate to show these stocks to their customers, if they know that by running the ad, it will cause prices to spike and if their customers end up with terrible execution prices. At the end of the day, maybe whoever pays the most wins, but I think that the damage that is being done to their readers, isn’t worth extra money that can be earned from the “classifieds”
It’s up to each individual publication to set their own standards and for readers to determine how important the issue is to them. It’s easy for me to speak out when I don’t run ads on my own site, but when I see sites pass up this easy money, so that they err on the side of caution, it makes me respect those publications all that much more. If at the end of the day, you end up losing readers over bad stock tips, then no matter how may ads you can sell, the cost doesn’t seem worth. Other’s may not share the same convictions, but by raising the issue, hopefully these firms will re-evaluate their policies and can find a hapy medium where they can pay for good journalists and show their readers interesting ideas.
As far as Doug’s comment goes, you are absolutely correct, it’s up to each individual investor to determine the appropriateness of an investment and what they think it should be worth. No one is making IBD readers buy the stock, even if these frothy ads seem to be having an impact. At the end of the day, it’s easy to say that the responsiblity lies in the hands of the reader, but if you know that even a small percentage of your readers will react to the ad, than I think it’s an issue that the business press should be addressing, even if they are not the ones putting in the buy orders for the stock.
June 20th, 2007 at 5:10 am
Mr. Freeberg:
Thank you for your response. I believe that Forbes and most media organizations know that there is a disconnect between them and the blame that a consumer would place upon a defective product discovered through an advertisement. They are simply creating the advertising forum and the content that they produce is produced to create the forum. Consumers would probably place more blame on Forbes for misleading or inaccurate conclusions in their content rather than misleading messages in their advertising programs.
Think about this for just a moment. You read an ad in the Wall Street Journal in which an investment newsletter is advertising for subscriptions based on a 12 year track record of 26% gains on average annually. After subscribing and reading the newsletter for a year, you unequivocally conclude that the newsletter publishes a fraudulent track record. Would you think for a moment to blame the Wall Street Journal or would your anger be directed at the newsletter? If a consumer decided to alert the Wall Street Journal, then their role would be the same role that you played in contacting Forbes. That role is well respected and appreciated.
Yes, the Wall Street Journal in that case would have some sense of responsibility to at least pull the ad. However, I’m not sure what sense of responsibility they would have to investigate the claims of the newsletter.
Once again, thank you for bringing this to the public’s attention.
June 27th, 2007 at 6:33 pm
hey thanks for the article
i was wondering if you have Yahoo IM ,,, if so please give me your screenname or contact me TIA
June 29th, 2007 at 1:40 pm
Personally, I have made money on such recommendations… I remember when I was doing very well with TASR stun-gun util Money Fool printed things bad about the company. It never recovered. And now, as it is recover-
ing, Money Fool is plugging how good it is????????????
June 29th, 2007 at 1:44 pm
Dear Sir or Madam: Please correct the time you placed on my statement.
I just called you two minutes ago, at 5:50… Thanks…
June 29th, 2007 at 2:38 pm
Mr. Bell, it’s not a question of whether or not people can make money. I’m am sure that there are people who look for the ads and try to play the pop. The issue involves whether the people who saw the ads, knew that they could be influencing the stock’s price? My money says that they wouldn’t know, but certainly people choose all kinds of ways to make high risk investments. If you feel comfortable trading companies like these, than that is Ok, but I would guess that most people who invested in the companies listed above, haven’t made anything.
I’m not sure what to do about your time discrepancy, except to note it in the comment thread. I wouldn’t worry too much about it though, a couple of hours doesn’t make a difference in the long run.