SEC Chairman Mary Jo White was the keynote at the Practising Law Institute 45th Annual Institute on Securities Regulation this week.
As with any keynote, she touched on many broad topics: Enforcement, International Affairs, Investor Education, Corporation Finance, Examinations, Municipal Underwriting and such.
Under the Corporation Finance topic, she spoke on social media. The SEC is watching social media – but not just for selective disclosure. They are sniffing out potential opportunities for fraud… a STRONG reoccurring theme with the White administration.
From Chairman White:
“As an example, in recent years, a number of technology companies have relied on unique financial or operational metrics to illustrate the size and growth of their businesses.
These metrics track numbers important to the company that often reflect their very fast pace of growth – like the number of users of the service, the number of players of an online game, or the number people who quote “liked” the company or something the company does. And these metrics usually total in the millions.
Our staff’s concern has been the impact on investors of the sheer magnitude of some of these metrics – investors for whom the true meaning of the metric (or more importantly the link from metric to income and eventual profitability) may not be clear or even identified. In the absence of a clear description, it can be hard not to think that these big numbers will inevitably translate into big profits for the company. But the connection may not necessarily be there.”
Certainly, this is the stuff of pump-n-dump stock promoters. Here is how it works in Facebook:
- A page is created. You may have seen these pages – “name a state with the letter E in it” or other such games.
- This page is pushed out publicly with a call to action to click, share or comment.
- These posts are initially shared by a big group of people all in the same network who have all built up their network over a period of time.
- These people share, like or comment which then spreads.
- Eventually a friend of yours hits that little thumbs up button.
- It’s in your newsfeed.
- Rinse and repeat.
And within 3 days a post can have 70,000 likes, and someone somewhere is about to make a nice little profit by selling the page – with all its built “pre-likes.” A pump-n-dump stock promoter merely edits some of the page details and ta-da… Amalgamated Fauxpharma Corp. has 50,000 people “liking” them. Must be a great company… poised to grow!
Note: Facebook has taken some great strides to curb this behavior – including locking down the title of a page, but as you see in the image above, selling Facebook pages is still a business.
There are safe paths for social media. This white paper offers one in detail.
Have a great day.