Can an investor relations firm’s efforts to create buzz for a client turn into securities fraud?
Brent J. Horton, an associate professor of law and ethics at the Gabelli School of Business, explored the issue in a recent article in IR Magazine. Horton laid out the court case against DreamTeamGroup, an IR firm, and Galena Biopharma, the firm’s client.
The DreamTeamGroup is accused in a class action complaint of posting anonymous blog entries that touted Galena, saying investors “will be handsomely rewarded in due time.”
“An investor reading the post (and many others like it) would have no idea the anonymous author was paid to make that statement,” wrote Horton, faculty director of the Gabelli School’s Master of Science in Investor Relations program.
The question, Horton writes, is if legal precedent has established whether the IR firm can be held responsible.
“The line between primary violaters (as opposed to aiders and abettors) is one of the murkiest areas of securities law practice,” Horton wrote. “Suffice to say that the issue will be heavily litigated.”
The case is cautionary for IR professionals who use social media to tell the story of clients, Horton concluded.