how a promoter works
investment promoters bring information about a specified investment to the attention of potential investors they may target domestic or foreign investors depending on the investment in question the goal is to locate capital that may have otherwise been invested elsewhere based on the limited knowledge available about the promoted investment opportunity the goal of stock promoters is to locate capital information is distributed to attract potential investors to the stock however that information is often misleading types of promotersthe use of stock promoters is fairly common in the penny stock market promoting activity can include positive testimonials or other information provided for free via a website or newsletter as well as more personal sales attempts by increasing excitement surrounding the particular investment the demand for the shares is likely to increase pushing up the share price this generates additional revenue for the business by allowing certain shareholders an opportunity to sell their shares at a higher price certain government entities such as the international trade administration ita part of the u s department of commerce assist u s companies with issues regarding foreign markets this can include assistance with promotional activities and issues surrounding the exportation of goods a business s customers can become casual promoters if a customer has a good experience with a product or service that customer may share that information with other potential customers or investors the investments promoted by individual promoters or promotion firms are not formally registered with the securities and exchange commission sec and many are linked to investment scams criticism of promoterspromoters may give the false impression that investing in the represented opportunity is more likely to succeed than others even to the point of suggesting that it cannot fail the same risks exist with promoted investment opportunities as with any similar style of investment because the investments promoted by individual promoters or promotion firms are not formally registered with the securities and exchange commission sec some promoters have been linked to an inordinately high number of investment scams and litigation thus not all stock promotion activities are considered legal for example in 2015 a stock promoter jason wynn and the chief executive officer ceo of the promoted company martin cantu of connect a jet were found guilty of securities fraud 1 this was related to the willful deceit of potential investors through the use of false information in a variety of advertising that led to increased interest in the company s shares further risks exist where certain writers are compensated for promoting a particular investment in situations where a person is compensated to review a particular stock there are concerns that the information provided is skewed and is more positive about the investment than may be appropriate stock promoter vs stockbrokerstock promoters are not required to have licensing or educational credentials stockbrokers on the other hand require at least a bachelor s degree and must be licensed to obtain a license stockbrokers must pass a series of exams administered by the financial industry regulatory authority finra penny stock companies are less tightly regulated than big companies and they are traded less often which encourages market manipulation the sec and department of justice investigate and prosecute stock promoters for criminal and civil violations every year promoter faqsa promoter is an individual or organization that helps raise money for some investment activity such as penny stocks stock promoters are individuals or companies hired to create media buzz and increase the demand for a stock investment promoters bring information about a specified investment to the attention of potential investors this artificially inflates the share price and the company gains capital an example of a promoter is a penny stock promoter this type of promoter may engage in pump and dump activities here a promoter might spur a buying spree for a stock by procuring a huge equity stake themselves implying that the stock is expected to grow then as share prices peak the stock promoter will dump or resell their shares which drives down the market buyers of the penny stock stand to lose huge amounts through resale in the secondary market promoting a stock is not illegal as long as the required disclosures are made section 17 b of the securities act requires that promoters disclose the fact that they re compensated and state the kind and amount of that compensation 2 however promoters are often untruthful about the amount of the compensation promoters are paid in company stock or they receive a percentage of the capital raised the bottom lineunlike stockbrokers who must be licensed by finra stock promoters are not required to have licensing or educational credentials therefore the information provided by promoters may serve simply to raise money for some investment activity and is unlikely to reflect a balanced perspective investors should pay attention to who is paying the promoter for their efforts and conduct their own research and due diligence before investing 