June 22 was a great day for Alfi, Inc, a tech company in Miami Beach, Florida, which sells facial recognition advertising software. After going public in early May at $3.75 per share and dipping to a low of $2.41, the stock had risen above $16.
On June 21, an article published on Yahoo! reported that Alfi’s stock was going “parabolic,” citing a bullish video interview conducted by Benzinga, a financial news outlet. “We’ve been given a big bat and we’re swinging,” Alfi’s chief executive, Paul Pereira, was quoted as saying. The original Benzinga video included air horn sound effects for emphasis.
What the Yahoo! story didn’t report was that, starting June 10, Alfi had paid Benzinga to promote the company with articles and videos. Benzinga, which is based in Detroit and employs an editorial staff of around 30 people, publishes hundreds of stories per day, including paid promotions written by a dedicated team, Luke Jacobi, Benzinga’s director of operations, told CJR. One sponsored content package, including videos and “review style press release article[s]” to be syndicated to websites including Yahoo!, costs $5,750, according to marketing materials shared with advertisers.
While some astute Yahoo! readers may have noticed the small Benzinga logo near the headline, few are likely to know what it means, or that Alfi had paid for the original story. The original and syndicated versions were nearly identical, down to the same lead image of a neon arrow pointing upwards. But there was one important difference. The Benzinga version included a small advertiser disclosure, while the syndicated version on Yahoo! did not.
This Alfi story was one of more than a hundred paid promotional articles originally published by Benzinga, then syndicated to better-known financial news websites like Yahoo!, Yahoo! Finance, and Markets Insider (from the website Insider) to appear without disclosures over the past six months, according to a review by CJR. It’s not clear how many readers saw them, but, in the company’s marketing materials, Benzinga says it has received 150 million monthly impressions through its syndication partnerships.
Representatives for Benzinga and Insider said the lack of disclosures on syndicated content was unintentional, the mistake of an algorithm. Jacobi, the Benzinga director of operations, said that Alfi’s shares had spiked in part because the company itself had bought back shares. Andy Serwer, editor-in-chief of Yahoo! Finance, said that its “contracts with content partners don’t allow sponsored content. Unfortunately this must have slipped into the partner’s feed.” When CJR pointed out this was not an isolated example Serwer did not reply further.
Yahoo! has been through a series of ownership and management changes in recent years. It was recently acquired from Verizon by private equity firm Apollo Global Management. In this latest iteration it publishes a variety of original news from its own sources, including Yahoo! Finance — run by Serwer, a former editor of Fortune — and Yahoo! News, where veteran journalist Michael Isikoff is chief investigative correspondent. But Yahoo! and its various verticals also republish reams of syndicated content from more and less trustworthy sources. A scroll through the yahoo.com homepage reveals a dizzying mix of articles culled from the Associated Press, Reuters, Benzinga, the Motley Fool and others.
Benzinga has begun to review stories and include more prominent disclosures since being contacted by CJR. Yahoo! and Insider have begun to remove sponsored syndicated stories. But for investors who bought at the stock’s peak in late June, it’s too late to matter. Alfi’s stock is parabolic no more, settled at around $6 per share by mid-October.
The Securities and Exchange Act of 1933 made it illegal to promote a stock in exchange for payment without disclosing that payment, a response to crooked tip sheets and newspaper items of the day. Joshua Mitts, a professor at Columbia Law School who advises the Department of Justice on market manipulation and securities fraud violation, says the act of digital syndication makes the enforcement of the rules more complicated.
“These duties apply to the speaker — to the one injecting the information into the market,” said Mitts. Initially, that speaker is Benzinga, with proper disclosure. Then, it’s a secondary site, without one. “Now you’re asking a different question, a very interesting one, which is, ‘what about a platform that’s rebroadcasting what is in effect — has now become — a materially misleading statement?’”
“It’s a difficult claim for a regulator to bring,” said Laura Posner, a lawyer specializing in securities litigation and investor protection.
In 2017, the SEC charged 27 firms and individuals for promoting stocks on news websites in exchange for undisclosed payments. The stories appeared on sites including Yahoo! Finance and Benzinga, according to the SEC — but the sites themselves weren’t named as defendants in the complaint. In an “investor alert” at the time, the SEC warned readers to look out for more undisclosed paid promotions in the future. “Even if articles on an investment research website appear to be an unbiased source of information or provide commentary on multiple stocks, they may be part of an undisclosed paid stock promotion,” the warning read.
An SEC spokesperson declined to comment for this story.
As it happens, this past Monday Benzinga had occasion to publish a bit of bullish news about itself. The private equity firm Beringer Capital had purchased a majority stake in the company, Benzinga reported, in a deal that valued it at $300 million, they said. A syndicated version of the story ran on Yahoo!.
Caleb Pershan was a CJR fellow.