One of the more venerable online trading newsletters is BuySellShort.net, run by Ciaran Thornton (@buysellshort on Twitter). I’ve been aware of him for over a decade (though I never subscribed). He has 60,000 followers on Twitter (compared to my 30,000) and has written for TheStreet.com (although his last article was in 2014). He also wrote articles on SeekingAlpha.com (which have since been removed).
Evidently not content to make money running a stock trading newsletter, Ciaran Thornton was paid for positive articles that he wrote about some stocks, without disclosing that compensation. He was sued along with 26 others by the SEC last week. See the SEC’s order against Thornton (PDF). Following are quotes from that order. Thornton settled with the SEC, neither admitting nor denying the allegations.
On the basis of this Order and Respondent’s Offer, the Commission finds:
Between April 2013 and February 2014, Ciaran Thornton violated the anti-fraud and antitouting provisions of the federal securities laws by publishing various communications describing issuer securities on investment websites that purported to be independent when, in fact, they were paid promotions.
Here are the SEC’s findings of fact (emphasis mine):
Between April 2013 and February 2014, Thornton published 15 articles and one blog entry on investment websites SeekingAlpha.com, Benzinga.com and SmallCapNetwork.com, using the pseudonyms Stock Investor, Itradethebios, and BuySellShort. Thornton’s publications positively described the securities of the following six issuers that were clients of Lidingo, or another stock promotion firm affiliated with Lidingo: Arch Therapeutics, Inc., Assured Pharmacy, Inc., Galena Biopharma, Inc., NeoStem, Inc. (now Caladrius Biosciences, Inc.), OncoSec Medical Incorporated, and Stevia First Corporation (now Vitality Biopharma, Inc.). Lidingo paid Thornton $600 for each publication, for a total of $9,600.
4. Thornton did not disclose that these articles were paid-for promotions or the amount of the compensation he received. Moreover, in nine articles, Thornton misrepresented that he was “not receiving compensation” for the article. These nine articles were published on Seeking Alpha’s website. Thornton falsely stated that he was not receiving compensation because, at the time, Seeking Alpha had a policy that expressly prohibited compensated articles. Thornton’s misstatements regarding his compensation were material.
5. Thornton’s articles included positive descriptions of publicly-traded stocks. Seeking Alpha held itself out as a “platform for investment research, with broad coverage of stocks, asset classes, ETFs and investment strategy” where “articles frequently move stocks, due to a large and influential readership which includes money managers, business leaders, journalists and bloggers.”
Thornton was fined as follows:
Respondent shall, within 14 days of the entry of this Order, pay disgorgement of $9,600, prejudgment interest of $858.65, and a civil monetary penalty in the amount of $20,000 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury
While this seems like a slap on the wrist, it is still nice that the SEC caught him (and other people listed in the press release that I will discuss in a following blog post). One of the most basic things you learn when blogging about stocks is that you must not lie about conflicts of interest. While it is legal (though not ethical) to receive payment to tout a stock, that payment must be disclosed. Also, if a trader writes about a stock they have a position in, they should disclose it (and failing to disclose it lead to an SEC suit if the trader is prominent enough).
Perhaps the most important lesson is one that I hope my blog readers have learned long ago: never trust other people’s analysis of stocks (no matter where you see that analysis appear) — many people lie or they may just be stupid and their analysis wrong.