When Investor Websites Get Duped; Seeking Alpha’s policy of granting anonymity to writers of stock stories can have troubling consequence

THURSDAY, FEBRUARY 13, 2014

When Investor Websites Get Duped

By JOHN KIMELMAN | MORE ARTICLES BY AUTHOR

Seeking Alpha’s policy of granting anonymity to writers of stock stories can have troubling consequences.

In recent years, Website Seeking Alpha has emerged as a watering hole for both positive and negative stories about stocks.

Unlike traditional journalistic enterprises like Barron’s, Seeking Alpha allows writers the protection of anonymity. Many of its writers use quirky pseudonyms instead of real bylines with proper professional affiliations.

Defenders of the policy say that anonymity has given Seeking Alpha writers the freedom to expose wrongdoing in the corporate world without fear of retribution, including job loss or even violence.

“We feel that anonymity is the basis of everything we do,” said Eli Hoffmann, Seeking Alpha’s editor-in-chief, in an interview Thursday. “A policy of disallowing anonymity would give a bias to the bull side.”

But from time to time, Seeking Alpha, which publishes at least 200 investment articles each trading day by an army of freelancers, is admittedly duped by some of its writers with an agenda to manipulate a stock. The site is then forced to pull questionable stories after readers or members of the press expose a problem.

The latest case involves articles that touted Galena Biopharma (ticker: GALE), a $458 million market-cap biotech that is developing a breast-cancer vaccine.

On Wednesday afternoon, The Street, the financial Website co-founded by market pundit Jim Cramer, reported that Seeking Alpha on Monday removed two articles from its site which were, it turns out, written by the same person using two different aliases.

As The Street’s Adam Feuerstein reports, this is the second time Seeking Alpha has been forced to take action against individuals using multiple aliases to tout Galena. In January 2013, the investor Website removed five articles promoting Galena written by the same individual under three different pseudonyms.

Writes Feuerstein, “the most recent incident is more serious and potentially damaging because of evidence linking Galena to a stock-promotions firm which wrote and published the articles on Seeking Alpha. The articles were part of a broader, coordinated ‘brand awareness campaign’ designed to boost Galena’s stock price, according to a document obtained by The Street.”

He added that “aided by this promotional campaign, Galena shares tripled in value from this summer. Coincidence or not, Galena insiders have made millions of dollars by selling company stock in January.”

Shares of Galena were little changed on Thursday, gaining just 0.35% while most ETFs tracking biotechs were up by more than a percentage point.

I reached out by phone and e-mail today to Remy Bernarda, Galena’s vice president for marketing and communications, giving her several hours to respond. I wanted to hear the company’s side of the story.

But by press time, she hadn’t returned my messages. (The Street also reported that Galena didn’t respond to its phone calls and e-mails.)

Seeking Alpha’s Hoffmann confirmed that it pulled two articles about Galena off of its Website earlier this week because the site determined that they were written by the same person using different aliases. He also confirmed that the site pulled five other articles last January.

He added that the site kills roughly one to two stories each month because of questions about the articles’ facts or authenticity.

When Hoffmann was asked why his site would have allowed two anonymous articles about Galena to appear a year after removing three other questionable articles, Hoffmann replied, “Since last January, we have published thousands of articles on pharmaceuticals. We don’t have a blanket policy on publishing either positive or negative articles on any stock.”

Hoffmann said the latest incident involving Galena articles has caused him to revisit Seeking Alpha’s policy of validating the identities of writers and to determine how this specific case “slipped through our fingers.”

But he was quick to say that the incident “doesn’t give me pause regarding the actual policy of allowing anonymous sources.”

Hoffmann is the first to tell you that he doesn’t play by the rules of traditional journalism. Instead, he is an advocate of the “crowd-source” model, in which Seeking Alpha pays modest fees to hundreds of freelance writers in the broader business world rather than paying salaries to a tightly-controlled staff of professional journalists.

“But one of the challenges of the crowd-source model is verifying the identity of writers,” he said. “You are working with a much larger group of contributors. We have had 2700 contributors writing in the last six months.”

We’re glad that we don’t face that challenge here at Barron’s.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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