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The SEC View On What Journalists Can and Can't Say

The ability of commentators to influence stock prices raises legal questions. To get some answers, Monitor business writer Ron Scherer interviewed the Securities and Exchange Commission's Colleen Mahoney, deputy director of enforcement, and Gary Sundick, associate director:

What is the press's responsibilty regarding stock manipulation?

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Mahoney: The media's responsibilities are the same as anyone elses. They have the obligation not to commit fraud in connection with the purchase or sale of securities, and, other than that, there are no special rules with respect to the media. Like anyone else who makes statements about securities in the marketplace, they have an obligation not to make false and misleading statements in connection with the purchase of securities.

What is defined as fraud?

Mahoney: We define fraud as any false or misleading statement which is in connection with the purchase or sale of securities.

What if someone says something bad about a stock and is short the stock?

Sundick: It would be fair to say that we would be concerned about a situation where a reporter was being used as part of a manipulation or was getting information in a way that might facilitate a manipulation. Whether we would bring a case would depend on the facts and circumstances.

Is there a need to protect the market from this type of activity?

Sundick: If we had a situation where someone was feeding false information to the press to hype a stock, we could make a case using existing anti-fraud provisions. Whether there might be any liability on the part of the newspaper reporter would depend on what precise facts he knew.

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Should a money manager or columnist disclose if they have a position in a stock they are hyping?

Sundick: There are concerns about hyping a security when the interest of the writer is not disclosed. But without a specific case we can't comment on that.The penalty for civil fraud depends on the nature of the violations. The maximum fine for [some] civil violations can be up to $100,000 per violation.

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