Pumping penny stocks on CNBC

Posted Nov 26th 2007 5:30PM by Zac Bissonnette
Filed under: Law, Newspapers, Scandals

The New York Post's Roddy Boyd reports on Hear at Last, a tiny penny stock company that's taking out ads on CNBC -- and promoting its stock in those ads.

See for yourself: Someone was kind enough to upload the commercial onto YouTube.

According to Boyd, "Pink-sheet companies ConnectAJet and Hear At Last have seen their stock prices jump after their commercials ran, despite having threadbare operating histories....An ad purchase on CNBC can cost a pink-sheet company as little as $20,000 but offers an audience of thousands of well-heeled investors and traders."

It's easy to question the ethics and judgment of a network with CNBC's reputation allowing itself to be used to hype penny stocks. But there's also an argument to be made that, in running the ads, CNBC is playing chicken with Section 17b of the Securities Act:

It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.

CNBC was paid for the advertisement and anyone watching it would be able to see pretty clearly that the commercial is promoting the stock -- Should CNBC have disclosed "the amount thereof" that it received for running the commercial?

I'm not a securities lawyer but it seems like the commercial that ran on CNBC described a security for a consideration received.

Tags: CNBC, Penny Stocks, PennyStocks, Roddy Boyd, RoddyBoyd, SEC