This story used to be about a company called NexOptic. Then stuff happened…

One of the big knocks on the Venture Exchange, and the various industries that swirl around it, is that the average investor finds it tough to figure out where to source good information.

In a perfect world, there’d be a place where all company filings were easy to go through, track, and research, with high tech email updates when something changes and easy cross-referencing and the ability to follow people from company to company, to see their wins and losses, their fines and exits.

sedarInstead, we have SEDAR.com, which is so hard to use and, frankly, prehistoric, you’d be forgiven for assuming the intent of the thing is to dissuade folks from actually doing their due diligence. I mean, have you seen this thing? Nothing about it appears to have been coded this century – literally. You half expect to see an animated gif of a mailbox and flashing text. It’s the Myspace of public markets tools. It’s what happens when the government says you need to put public company documents online, and the organization tasked with doing so would prefer that doesn’t happen.

So the average investor either has to leaf through PDFs and captcha challenges trying to find actionable information, or find something easier. Many go to websites like SeekingAlpha.com, which was just last week hauled into the the SEC, when it was determined people were writing stories there promoting (and otherwise) companies without disclosing they had a conflict in doing so.

From Bloomberg:

SeekingAlpha.com tries to ensure that research published on its popular investing website is unbiased by requiring writers to disclose whether they’ve been paid for touting stocks. But U.S. regulators say there’s an easy work around: lying.

On Monday, the Securities and Exchange Commission sued 27 individuals and companies for their involvement in hundreds of conflicted articles that appeared on SeekingAlpha and other sites. The authors checked a box that said they hadn’t been compensated, concealing the payments they’d received from stock promoters, the SEC said in a statement.

To hide their identities, writers used multiple pseudonyms, even creating separate personas who claimed to have 20 years of investing experience. At one promotion company, writers even signed a contract forbidding them from disclosing their compensation. SeekingAlpha wasn’t accused of any wrongdoing.

“These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analysis,” Stephanie Avakian, acting head of SEC enforcement said in the statement.

When this story came out, a few of us around the office had a good old chuckle that anyone still used SeekingAlpha for research, because the place is a shorters’ paradise. It’s renowned as a place where shortsellers do their trashing of companies they have a stake in.

There are other places as bad – newsletters run by folks who have to run multi-page disclosures warning they can’t be trusted, news sites run by people behind the deals they’re writing about, Twitter touts who’ll tell tens of thousands a lie and wait for tens of hundreds to retweet it. The Google Finance page for any public company has a ‘news’ section, and about half of that section is filled with fake financial sites filled with robot written garbage. When a company drops 10% in a day, those sites will pound out auto-written ‘Has company X imploded?’ headlines.

The market is not properly set up for honest news to be up front and foremost. So the average investor has to dig deeper to find trustworthy sources.

We like to think we’re beyond that morass of bullshit. We’re better. It’s our brand. Honesty above all else, even if a marketing client gets caught in the crossfire. Trash those that need to be trashed, praise those that deserve praise, and verify before you brand someone one thing or another.

Today we slipped up on that front.

One of our guys wrote and published a story without putting it to review, and it turned out that the majority of his take on the deal was a SeekingAlpha piece that, upon analysis by a few of us in the back office later in the day, we think is part of a short attack.

Some of the points in that original piece are valid. Questions over the likelihood of that company’s tech to get to monetization that warrants a $150 million market cap are valid. There’s been insider selling. Patents are still pending. All fair.

But the harder you’re about to swing, the more you need to properly line up your shot, and this story was swinging like Tyson from the first few lines.

I’ve worked at some of this city’s finest journalism institutions and I’ve seen it happen before at all of them, including to guys who are legends in the industry. The sniff of a story with some blood around the edges can see a writer rush to publish without that one extra step to double- or triple-confirm. It can be boring, this factchecking thing, but it’s as important in a story about a cat stuck up a tree as it is in a story about companies with nine figures of value attached.

It’s happened to me. It’s happened to people I consider far superior to me. If you don’t inspire anger in your audience as a journalist some times, you’re not trying hard enough, but you need to know, when that anger hits, that you’re bulletproof. You have your sources, and you know those sources are straight.

Today we ran a story in which the prime source was a SeekingAlpha piece that the editorial staff don’t trust to be straight.

That’s fine – we’ll often take a ‘there’s smoke, let’s see if there’s fire’ approach to third party articles that claim bad goings on at a public company. It’s our job to take them seriously, until we find they shouldn’t be. God knows we’ve spent a lot of time starting a story based on what some rando has said, only to call it quits on that story before it gets published because it doesn’t part the El Stinkerino test.

To that, the story published today was a fast and furious beatdown that we just couldn’t hang with. And so we – at first – edited it down to things we figured were justified, before finally just deciding the better option was to step back and start afresh. When your cheesecake recipe is going wrong, adding more cheese will never really get you back to square.

Over the last month or two, we’ve delivered some cracking destructions of companies we thought – justifiably – were doing bad things, and the writer of this piece was a part of both of all of them. We called Saint Jean Carbon (SJL.V) liars for claiming they had an offtake deal with Panasonic, drawing much heat from investors as the share price plummeted, but we were proved right when the company was told to tell the truth, and insiders were investigated by regulators for insider trading.

Then we tore into Imagination Park (IP.C) for throwing so much helium into their news releases that you could ride them to Montreal and, again, insider trading allegations. Again, this came with much annoyance from investors, and once again we were proved right when the company admitted it was taking a moment to let its insiders know exactly what insider selling was and that it’s a bad thing.

We can go deeper into a whole raft of companies we’ve lit on fire before that, and we’ve never yet been in a position where we weren’t prepared to stand in front of a corporate lawyer and dare them to sue us. When you’re equipped with the unassailable truth, your balls grow to a fine size.

Today, a few things happened. A story went up too early, the story wasn’t sourced the way it should have been, and from what we can see upon spending a day digging deeper, the story was based far too much on bad source material.

Short sellers have an easy game. They can say what they want, largely anonymously, without disclosing their position, and investors will often jump on that, either because they believe the beatdown to be true, or because they figure enough other investors will believe it that the stock will drop accordingly.

I’ve found many a good story on Seeking Alpha, but it’s a dangerous game, like the first guy who shucked an oyster, or a whistleblower in the US military. You really want to be sure you know where your upside is.

At first, we considered taking the story down, but as another short seller piece landed on SeekingAlpha shortly after, presumably noting our piece and deciding to capitalize on it, we realized that would be seen as ‘fishy’. While we wanted to correct the situation, we were cognizant of the fact that the perception from many would be that the company had got to us somehow, which would put the shorter sellers in an even better position to continue hurting their target.

So we edited the piece, doing some more due diligence and finding both positive and negative points to add to it. But then you’re faced with the ‘they’re changing the story’ crowd, which again read more into the changes and began feeding the conspiracy theorists.

So I called someone loosely connected to the company (the company proper had gone to radio silence, on legal advice) and had a chat. That discussion backed our suspicions – indeed, the company was being short-attacked, and not in a small way, and while we were told by this arms length party ‘there are things the company could tell you that would legitimize their tech, but they’re not public yet’, for mine, it was time to just yank the thing.

We’ve never mea culpaed on this site yet, because of our track record of getting it right, even when we’re punching downwards, even when we’re faced with a storm of abuse from true believers. We’re journalists. Our job is to put bums on seats, but with scandal we can stand behind, not manufactured bullshit.

Today’s story slipped up. It was the writer’s fault, but also our fault. It was the system’s fault, but also our fault. It was the short seller’s fault, but also our fault.

It’s easy to pick a company to pieces. We’ve seen no end of good companies that have strong due diligence and real business, get destroyed by sometimes months of sustained short selling. We’ve seen companies with great news releases have those news releases ignored because they’re drowned out by flaming hype in the other direction.

We don’t short companies and never have. It’s a stated position of the company that we don’t short anything, whether we’re writing about it or not, because though shorting helps bring liquidity to the market, it’s bad juju. When you bet against a company, you’re betting against a lot of innocent people who stand to lose money – and you’re bringing that loss about at an accelerated rate.

So any time we unwittingly become a tool of short sellers, we’re going to shut that shit down.

Legally, it’d be in our best interests to just kill the story and move on. From a PR standpoint, likewise. If we did, by Monday, the short sellers would be claiming that we’d been ‘got at’ by the company – ‘paid off to continue the pump.’

We don’t play that way. We have nothing to hide and we’ll take our lumps when we get it wrong. We’ll also offer a forum to get the other side out, so we’ve offered the company the right of reply, and that offer will stand long after the short sellers are gone.

If any of this pisses you off, fair play. We honestly can’t possibly do what we do without sometimes having to take a stance that’s unpopular, and no journalist worth their salt can avoid sometimes finding himself on the wrong side, even when they think they’re god’s messenger. On the markets, there are way too many people with conflicts of interest, conflicts of morality, and conflicts of law to not get stung by relying on one occasionally.

We like to think we’re the good guys. So we’re playing this one like good guys.

Our bad.

— Chris Parry

Founder, Equity.Guru

Written By:

Chris Parry

A multi-Webster Award winner for excellence in BC journalism, Parry is the founder and publisher of Equity.Guru, which he built with the specific plan to blend old school reporting with stock promotion, in a way that puts the emphasis on truth, high standards, and ethics. Parry is a veteran of TV, radio, and print, and consults with public companies to help them figure out their storylines, lay down achievable milestones, and improve their communication with shareholders, while also posting regular deep dive analysis of companies in the public spotlight.

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