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Beware ‘The Wolf of Wall Street’

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Focusing on con artists and greedy hucksters selling dreams that rarely come true, “The Wolf of Wall Street” is an entertaining, well-acted, comedic, and sadly, reasonably accurate film.
 
Although intensely exaggerated, the highly successful Hollywood extravaganza epitomizes the classic bucket shop investment bank, selling mostly worthless penny stocks via high pressure telephone solicitations, principally to unsuspecting individual investors, and tantalizing entrepreneurs who want to take their very small companies public.
 
From Charles Ponzi to Bernie Madoff, there is a long history of questionable behavior on Wall Street. The wolf, or rather wolves, never really left. In fact, the sordid creatures may be creeping back into the hood with the stock market’s stellar performance. According to one law firm, DLA Piper, even though 2013 saw the lowest number of SEC enforcement actions (68) in the past decade, word has it that this year and beyond, the SEC plans to bring record numbers of sanctions using new tools and resources.
 
In a bulletin to its clients and prospects, the law firm noted that whistleblower bounties and tips are on the rise and that the Dodd-Frank whistleblower bounty program is gaining steam, with informants potentially receiving as much as 30 percent of any monetary recoveries. On October 1 last year, the SEC awarded its largest bounty to date, $14 million, which itself may drive the number of tips higher in 2014.
 
Mid last year, the SEC’s enforcement unit announced it had formed the Financial Reporting and Audit Task Force, comprised of lawyers and accountants throughout the United States tasked with identifying issuer violations. This august group has a tool in its arsenal, affectionately known as RoboCop, which allows it to determine whether an issuer’s financial statements stick out from the pack. Other tools are supposedly in the works that will analyze text portions of annual reports for potentially misleading disclosures.
 
According to the bulletin, with the amount of new resources and tools the SEC is devoting to detecting financial reporting violations, an expectation is growing that the agency will bring a greater number of enforcement actions in the future. In June of last year, SEC Chair Mary Jo White said that in certain cases, the SEC will not settle unless the defendants admitted wrongdoing, so more companies, officers and directors may be testing the SEC’s allegations and legal positions by litigating and going to trial.
 
The largest number of enforcement actions in any one year during the past decade was 219 in 2007. We’ll see what happens in 2014. But wolves everywhere, beware.
 
— Roger Pondel, rpondel@pondel.com

Social Securities

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The Securities and Exchange Commission’s recent decision allowing public companies to announce information via social media outlets like Facebook and Twitter is a logical next step for a government agency that has been relatively non-committal about new information channels.

Most public companies think in terms of 10-Ks, 10-Qs, 8-Ks and the like when it comes to disclosure, in addition to issuing news releases on wire services, such as Business Wire, PRNewswire, GlobeNewswire and Marketwire. But times are-a-changin’, indeed. When an executive can speak directly to his or her audience on Facebook or Twitter, it seems superfluous to shell out thousands of dollars a year to issue news releases.

Tweeting a link to financial results is, in many ways, a lot easier (and certainly less expensive) than uploading an eight-page news release to a wire service. So what if tweeting financial results will not reach Yahoo! Finance, Google News and other websites that are fed by wire services. Consider how liberating it might feel to spoon feed your messages directly to audiences who care the most about your news.

Not so fast.

To think that social media are a perfectly benign and convenient way to disclose information is about as naïve as believing that Dennis Rodman and Kim Jong-un are BFF. Consider the fact that thousands upon thousands of fictitious identities are created on Facebook and Twitter on a weekly, if not daily basis. Now add to the mix that companies are issuing market-moving information on these very same networks, and soon the powder keg doubles, triples and quadruples in size.

Don’t get me wrong. I love social media and believe that a plurality of channels begets a more well-informed public. But the SEC doesn’t (likely) have the bandwidth to police the myriad shenanigans that social media have the ability to perpetuate.

And so my question is this: Is the SEC saying OK to social media to save face(book) on the fact that it did not initiate an enforcement action on Netflix CEO Reed Hastings? Or is it due time for the SEC to embrace social media for what they really are: new information channels that have the potential to breed a hornet’s nest of Reg FD infractions.

 

— Evan Pondel, epondel@pondel.com

The Downside of Social Media

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While social media usage continues to grow here in the U.S. and globally, so do opportunities to reach key audiences on the Web, creating an oversaturation of content, we know all too well.

World Wide Web (Photo Credit: wikipedia.com)

 
Countless efficiency studies have been released on managing content, mirrored by just as many reports on tapping key audiences in a cluttered marketplace.  For instance, standing up in a packed movie theater yelling “Fire!” will certainly grab attention, but it’s probably not the kind of exposure that is sustainable over the long term.
 
Facebook and Google’s ad strategy of creating more personalized content based on user preferences may be the future of marketing.  The fact remains, however, that people turn off when the proverbial information flow goes on overload.
 
Walking a delicate balance is the right strategy.  Consider the following five tips when engaging
online audiences:
 

  1. Whether corporate, investor or marketing-related, make your message relevant. Know your audience’s wants and needs and develop messaging that resonates on a deeper level.  For example, time-strapped CEOs may be more inclined to listen to a vendor that understands the pressures of a “bottom line.”
     
  2. Don’t try to speak to the entire world. While having a video or tweet go viral is rare, most times less is more.  Try having more personalized online conversations and work on building deeper relationships with audiences.
     
  3. Start off slow. Don’t bombard your audiences with too many messages at once. Keep it simple. Start a conversation and then slowly move into other topic areas with time.
     
  4. Add value. Make sure you provide your audience with something they can’t get elsewhere. This is paramount.
     
  5. Try the post office.  May sound corny, but a nice follow up letter using old fashioned snail mail with an actual signed signature goes a long way in today’s fast-paced, digitized world. Think about how many personalized letters you receive these days.
     
  6. And finally, remember the old adage of selling the sizzle, not the steak. Keep in mind that there are millions of conversation threads each day. Why should anyone join yours?

 

— George Medici, gmedici@pondel.com