Stock Forums and Chat Sites

Use of Stock Forums and Chat Sites________________________________________

Every security we can think of gets commented on in stock chat sites. Rarely if ever is the position or bias of the person posting a comment on the stock revealed.

If the person doing the commenting is receiving remuneration for the comment, they would be violating 17(b) not to reveal the fact, source, and the amount and type of the consideration.

It seems obvious to us that many, probably most, of the posters on these sites are actually paid shills with no personal interest in the stock. Why do we surmise this? At least as to those making negative comments, if they were bona fide holders of the stock, they would presumably sell and go away. Yet most of them continue making negative remarks for years, often with wild accusations without any proof. Who else but a paid shill would have an incentive to do this?

While it is less easy to deduce, we presume that the longs also hire shills to post favorable remarks.

There are reports out there of college students being paid per post to make comments.

Now this conduct is so prevalent and so seldom hit by the regulators that some presume it is exempt from 17(b).

This is not the case. The SEC in the past has brought cases against people posting comments on stock chat sites for violating 17(b).

For examples of 17(b) violations in stock chat sites, see below under The 1998 SEC Crack Down, and In the Matter of John Black. As you will see, 17(b) does apply to stock forums.