FROM time to time, I see shady investor relations firms using tenuous connections to well-known companies as a way to sell their services or plug their clients’ stock.
These firms get away with their dubious practices because well-meaning investor relations departments are not circumspect enough about who they deal with.
Not asking questions can have negative repercussions for companies that otherwise have good reputations.
“Cheap carnival barkers”
I raise this because of an interesting blog post I’ve just read by a San Francisco Bay Area investment advisor who writes under the pen name “Davis Freeberg.”
While I don’t put much weight in a blog by an anonymous writer, this post is well worth a read. In it, “Freeberg” questions why Netflix, a $2 billion company, is giving interviews to WallSt.net, a firm that charges small companies thousands of dollars to have their stock promoted to the site’s users.
He says WallSt.net “uses press releases as a tactic to tie legitimate companies to illiquid penny stocks that they have a financial interest in promoting.”
He mentions three companies that have been promoted using Netflix as a lure. Those companies have subsequently lost 51%, 80% and 91% of their value respectively.
“Why Netflix would allow their good corporate reputation to be sullied by these cheap carnival barkers is beyond me, but I find their continued support of the company to be truly disturbing,” says “Freeberg”.
I agree that there is something wrong with this picture. I’ve mentioned similar problems with a couple of companies that run IR competitions.
In one case, the company behind a competition claims to have a prestigious New York address when in fact it rents a virtual office and has its offices in an emerging market. Some very prominent blue chips have their names included in this firm’s news releases.
While I have nothing against reputable emerging market IR vendors, as you can clearly see, I do have a huge problem when they try to hide their true identity and use companies with perfectly good reputations to further their ruse.
It’s not my place to call out these folks, but it is the responsibility of investor relations or corporate communications professionals to protect their companies’ reputations from potential harm.
Check out firms carefully
Most investor relations firms and consultants are perfectly honorable. They would never lie or hide their identity and they wouldn’t abuse your company’s name in news releases.
It can be very difficult to tell the good operators from the bad, so I understand why companies fall into these traps. My best suggestion is to always look to see if the vendor’s people are members of an investor relations association such as the National Investor Relations Institute (NIRI).
That means checking NIRI’s who’s who membership list. I did that for WallSt.net and its owners Financial Media Group and found no listings.
In my experience, NIRI does a really good job of keeping its membership clean and dealing harshly with vendors who don’t keep on the straight and narrow.
Of course, now that I’ve said that every slimeball in the business will be applying for NIRI membership! (Sorry.) However, we can all do our part by reporting shady operators to NIRI and other associations.