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September 3, 2013 - Harry Eagar
I found this while wearing my other blogger hat (kamaainaloan.blogspot.com), and I have a few questions:
"Investing fine print: Fox News analyst Tobin Smith was dropped by the network last week on the same day Marketwatch's Chuck Jaffe reported that Smith's company was getting paid to tout individual stocks via paid research. According to Jaffe: " 'The people who contacted me considered buying the stock entirely based on Smith’s say-so, and the credibility he exudes in his Fox appearances. They didn’t appear to read the disclaimers of the campaign; had they bothered, they would have quickly found it was paid advertising for which Smith’s company pocketed $50,000.' "Smith's research called one company, Petrosonic, 'the investment opportunity of your lifetime,' according to Jaffe. Unfortunately the company has no profits, negative cash flow and a 'going-concern letter' from auditors who think there is 'substantial doubt' about its ability to stay in business. "The lesson: Do your own research, folks."
Good advice. And you know who should have taken it? Fox News. While at first blush, it seems to Fox's credit that it canned the tout once he was exposed, where was the network's vetting before putting him on in the first place?
Is Smith's behavior actionable by the regulators? After all, we are constantly being told (by Fox News, among others) that the regulators are too much with us.
I suspect Smith's behavior (assuming Jaffe reported it correctly) is not sanctionable. You can pretty much get away with financial murder as long as you disclose it in proxy material. (See "New meaning of 'stock market crash,' Aug. 22) Whether those disclosure rules extend to TV touting, I'm not sure. I would never, ever pay attention to financial advice I heard over the TV, so I've never thought about it.
Is a company sanctionable if it uses corporate funds to hire TV flacks to lie about its prospects on a show aimed at investors? How about if it also tells the truth in its SEC filings? I've never heard of such a prosecution. It's stories like this that make me skeptical that over-regulation is the real source of our problems.
The other takeaway from this little story, though, applies to anybody planning to retire on his investments. The market is rigged to screw you. Not everybody, but you.. (I hope to find time to expand on this soon.)
Stock touting is only a minor aspect of that.
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