Shining a Light on Stock Promotion… New Policy + Best Practices = Enhanced Market Transparency

The increased proliferation of digital platforms, social media and online investment newsletters can offer today’s public companies and investor relations professionals more immediate access to engage with a broader universe of potential investors. However, this technology-driven environment can also create additional channels for abuse by anonymous market manipulators.

Ramifications of Fraudulent Stock Promotion

Fraudulent stock promotion is an industry-wide problem.  Such deceitful promotion campaigns mislead investors, harm market dynamics, impede the capital formation process and tarnish the reputation of small companies.  It is incumbent upon regulators and those of us who operate financial markets to take a closer look at fraud and manipulation as it relates to stock promotion, trading and investments.

Earlier this year, regulators took a proactive step when the SEC’s Office of Investor Education and Advocacy issued an Investor Alert: Beware of Stock Recommendations on Investment Research Websites  to “warn investors that seemingly independent commentary on investment research websites may in fact be part of paid stock promotion campaigns.”  Perhaps we will see the SEC shift toward increased regulatory intervention, led by new Chairman Jay Clayton. In September testimony before the Senate Committee on Banking, Housing and Urban Affairs, Mr. Clayton cited a focus on protecting all investors among the SEC’s key initiatives.

OTC Markets’ Proactive Approach Against Manipulative Stock Promotion

OTC Markets Group recognizes the leadership role we must take to maintain the integrity of our public markets, establish market standards and educate our issuers and investors about the risks associated with manipulative stock promotion.    Our Issuer Compliance team has published a stock promotion policy that describes how we identify potentially fraudulent promotion and the steps we take to alert the community.  We’ve also developed best practices for public companies, which provide guidance for limiting risk of fraudulent promotion and ensuring adequate disclosures in company-sponsored investor relations materials.

The goal is to apply the framework of our disclosure-based standards to improve overall market transparency and better address the problem of fraudulent stock promotion.

The policy and best practices guidelines reinforce OTC Markets Group’s disclosure-based philosophy and the OTCQX Rules (U.S., International, Banks) and OTCQB Standards. They clarify the obligations and responsibilities of reputable public companies to make adequate current information available and provide timely disclosure of any news or information that might reasonably be expected to materially affect the market for their securities. Combating manipulative stock promotion and preventing disruption of our public markets requires a concerted effort to quickly correct any false statements or materially misleading information spread by promoters.

Our policy discusses the common characteristics of fraudulent promotion, the ways in which death-spiral financings use stock promotion campaigns, and more, including:

  • Identifying Fraudulent Promotional Campaigns
  • Responsibilities of Companies with Promoted Securities
  • Impact on OTCQX or OTCQB Designation
  • Caveat Emptor Policy and Stock Promotion
  • Regulatory Referrals
  • Best Practices for Issuers

Ways of Enhancing Market Transparency and Investor Protection

OTC Markets Group uses market designations to identify which issuers are making adequate current disclosure available to the public.  Our Caveat Emptor flag warns investors of public interest concerns, including fraudulent promotion.  Distinguishing our issuers through the creation of market tiers and the addition of Caveat Emptor designations has been widely-accepted in the industry, and many brokers now use our designations as a basis for making compliance determinations.  Furthering our objective to pursue innovative ways of enhancing market transparency and investor protection, OTC Markets Group will soon implement a new “promotion risk flag” to publicly identify securities that are the subject of an active stock promotion campaign. In early 2018, this designation will be introduced to, as well as our market data feeds.

We believe that this new policy and our best practice guidelines, along with the promotion risk flag and caveat emptor designations, are valuable tools that will drive better disclosure and appropriately inform investors about potential risks.

We support regulators employing a thoughtful, constructive approach to addressing fraudulent promotion.  We believe regulators can take action that will lower barriers to small company public offerings, utilize the vast amounts of available data to identify bad actors hiding among the private financing markets, and accelerate real-time enforcement, regulatory intervention and change.  We recognize the need to advance this dialogue and advocate for modernization of SEC promotion regulations to ban anonymous, paid stock promotion and require clear disclosure when there is promotion paid for by third-parties.

We will continue our discussion around various components of our Best Practices in a series of upcoming blogs. We encourage our community of issuers and stakeholders to email us at to provide feedback on this very important issue.

Lisabeth (Liz) Heese joined OTC Markets Group in 2004 as the Executive Vice President of Issuer and Information Services. Since then she has built a team responsible for: collecting and maintaining market data for over 5,000 issuers; development, sales and support of issuer-related products and services; and, monitoring issuer compliance with Company policies and procedures. Prior to joining OTC Markets, Liz spent 11 years at NASDAQ, serving as a Product Manager in the Trading and Market Services Division. Liz received a BA degree from American University.

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