We have covered the problem of fake news, media bias, and the declining quality of many of the best print publications in the past (see How to invest in an age of compromised and biased information for example), but much of the coverage on this topic from the mainstream media has been focused on political news. Politics isn’t the only topic where fake news and bias are a problem.
As the FT reports, fake news has infiltrated the financial markets. And why wouldn’t it? The proliferation of free “investment analysis” on the internet has made the job of the fraudsters, hucksters, and other unscrupulous promoters–who have always been a problem–that much easier. Anybody with a keyboard and access to an internet connection is suddenly an investment expert.
The problem of fake news in the financial markets isn’t going to take down free aggregation sites like Seekingalpha.com, but investors who want trustworthy, independent analysis where the interests of readers are aligned with those of the editors should be looking to niche premium publications.
The FT has more (emphasis is ours):
The article was one of at least 200 that appeared without appropriate disclosure of payment on the Seeking Alpha website between August 2011 and March 2014, according to the US Securities and Exchange Commission.
A spokesperson for ImmunoCellular Therapeutics said it “co-operated fully” with the SEC’s investigation. A spokesperson for Seeking Alpha says the company also co-operated fully with the SEC, and that it supported the regulator’s efforts to put unethical stock promoters out of business.
The court documents show the regulator identified articles published without the appropriate disclosure of payment across a wide range of investment websites including Benzinga, Wall Street Cheat Sheet, TheStreet, MarketPlayground, Investor Village, Investing.com and Forbes, as well as Seeking Alpha….
The SEC continues to pursue action against 10 other individuals after this latest alleged attempt to manipulate stock prices through the dissemination of so-called fake news.
Regulators are now increasingly concerned that fake news is affecting investment decisions. The scale of the latest scandal prompted the SEC to issue a fresh warning that seemingly independent commentary on investment research websites might in fact be part of a paid stock-promotion campaign.
“Keep in mind that fraudsters may generate articles promoting a company’s stock to drive up the stock price and to profit at your expense,” the SEC said.
Andrew Clare, professor of asset management at Cass Business School in London, says fake news stories can distort the efficient allocation of capital across the stock market by attracting unwary investors to fraudulent companies.
Mr McCaughan adds that the growth of fake news is an issue that could affect professional money managers, especially those that rely on computer-driven strategies, as well as retail investors.
“Fake news is potentially a problem for quantitative managers. Quants are increasingly making use of big data and complex new data sources and they will have to be aware of the distortions that fake news could introduce,” he says.
The SEC’s investigation centered on a stock promotion company called Lindingo that was owned and operated by Kamilla Bjorlin, an actress who performs under the stage name of Milla Bjorn. She appeared in Misconduct, a 2016 movie starring Al Pacino and Anthony Hopkins.
Lindingo allegedly orchestrated the publication of more than 400 articles about 11 publicly traded companies across investment websites, and received at least $1m in cash and equity for its services, according to documents filed by the SEC with a court in New York in April….
“Fake news is now becoming a serious problem for financial markets,” says Mr Dwarshuis, who has built an in-house news service with more than 1,500 sources over the past decade in an effort to assemble more reliable information.
“I can now filter news and trace the real background of information sources. Even so, I feel increasingly vulnerable to fake news,” he says, adding that more regulatory scrutiny of the media might be required to tackle this problem.
Read more here.
Jeremy Jones, CFA
Latest posts by Jeremy Jones, CFA (see all)
- Can China Restore Confidence in the Heat of a Trade War? - October 19, 2018
- A Story of Retail Dominance Ends - October 18, 2018
- The Four Stocks Propping up Global Equity Markets - October 16, 2018