7

Without plagiarizing, I found the following article interesting:

http://www.ibtimes.com/articles/99665/20110111/50-cent-hustler-entrepreneur-innovator.htm#

Essentially, 50 Cent tweeted about a company that he owns stock in urging people to buy it. The market responded, and now he's tripled his money. Are there any security or legal issues with this? Is he even treading a thin line?

  • 2
    Great question. I was about to write "treading a thin line" and did some research and now I'm not sure. Since he doesn't work for the company and presumably has no insider information, he may be held to lower standards and as long as he didn't spout off lies, it may just be free speech. Not sure... – Michael Pryor Jan 11 '11 at 18:18
  • Interesting - thanks for the information. I guess I aligned it with insider info because he's a major holder. – Nic Jan 11 '11 at 19:13
  • I'm sure the SEC is aware by now. We'll see what happens, hmm? – user296 Jan 11 '11 at 20:15
5

There are obviously lots of complexities here, and there are rules against price or market manipulation that are somewhat interpretive due to the rules' inclusion of the manipulator's intent, but:

Generally speaking, you can publicly promote the value of a company whose stock you own provided that you:

  • Don't have any material, non-public information (which would be insider trading)
  • Don't materially misstate facts or mislead the public
  • Disclose your ownership, and as such, your conflict

Now, if you extol the value of a company publicly, and sell it immediately thereafter, "pump and dump," the regulators might suggest that your actions imply that you didn't believe it was so wonderful, and were misleading the public to move the price. That said, a fair retort might be that you loved it for all the reasons you said at [lower price], but thought it had run its course once it got to [higher price]. Again, if it can be demonstrated that your reason for praising it was to push the price higher, your intent may land you in hot water.

This isn't legal advice or a full analysis, but if Fitty essentially declared his honest reasons for loving a stock in which he is invested, and discloses that investment, letting others know he is biased, he's probably ok, especially if he intends to hold it long term.

4

Yes, there are legal problems with what he did.

To prevent fraud, the US government regulates who can give public investment advice and how they can do it. If you're getting paid to advise an individual, you have to pass certain examinations and maintain ongoing government certification. If you hold a position in a stock you're touting, you legally have to disclose it using particular language. And if you're a corporate insider or hold a significant position in a company, you're restricted on what you can say about the company and when you can say it.

Mr. Jackson, aka 50 Cent, held a significant position in the company he tweeted about. My guess is the guys in the suits came to visit Mr. Cent, because if you go to the article the OP links to, at the bottom they mention Mr. Cent's tweet has been deleted and replaced with "go talk to your investment advisor".

  • So anybody answering a topic like this one: money.stackexchange.com/questions/5311/… is a criminal because he's giving a public advice about specific investment to people he doesn't know? – StasM Jan 11 '11 at 23:25
  • They could be FINRA qualified advisors, you know. It's not that hard. – jldugger Jan 11 '11 at 23:54
  • @stasm So far, no one has made such advice in their answers to that question. Note duffbeer703's discussion of buying Apple versus buying the sector is not advice about a specific investment, but rather a strategy/approach/opinion. – George Marian Jan 12 '11 at 2:00
  • @jidugger Could be, but if they are not? – StasM Jan 12 '11 at 2:01
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    The rule generally requires compensation and client-specific advice. So if Tommy tells you that based on your life goals, you should buy XYZ, & you pay him, he needs to be registered. But Jim Cramer doesn't. Section 401(f) of the Uniform Securities Act excludes "a publisher of any bona fide newspaper, news column, newsletter, news magazine, or business or financial publication or service, whether communicated in hard copy form, or by electronic means, or otherwise, that does not consist of the rendering of advice on the basis of the specific investment situation of each client." – Jaydles Jan 12 '11 at 2:36
1

"pump and dump" is a common Illegal practice of boiler room operations. It refers to the talking a stock up, both through word of mouth as well as selling shares to unwitting buyers. I fail to see much difference between that practice and this.

  • I thought pump and dump was illegal? Is that what you're implying? – Nic Jan 11 '11 at 19:58
  • Yes, I will edit my post to make more clear. Thank you. – JoeTaxpayer Jan 11 '11 at 21:34
  • One difference is that boiler rooms specifically suggest particular people buy the stock right now, which is getting a lot closer to advice rather than public comment. – poolie Jan 16 '11 at 20:13
  • Let me offer a hypothetical - a star with 1M+ tweeps decides to tweet a positive note on a stock he owns and sell right after the volume hits. How many times would this have to happen before you decide there's something wrong with this? My post said "I fail to see the difference," you've not convinced me otherwise. – JoeTaxpayer Jan 17 '11 at 18:14
  • tinyurl.com/4qvn7y4 - an article on MSNBC questioning this as well. – JoeTaxpayer Jan 18 '11 at 2:13
0

If he didn't lie, I don't see the issue. He did not force anyone to buy anything. His opinion was stock X is good, he publicized it and it turned out to be true (at least temporary) - what's wrong with it? It is customary for people who have either fiduciary duty towards the clients or are perceived as independent analysts to disclose their interest and potential conflict of interest, lest they lose the respect of the public as independent and trustworthy sources of financial information. Jackson never had that, express or implied, and never had the duty to provide anybody with impartial financial analysis, so he can say anything he wants. He can invest into the company and promote it and make money from it - isn't it what was called "business" once? Why is it even being questioned?

  • It is being questioned because I'm not fully aware of the regulations on the subject. Do I have the wrong site? – Nic Jan 11 '11 at 20:38
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    @melee This is the right site to ask such a question. Don't worry. ;-) – Chris W. Rea Jan 11 '11 at 21:08
  • 1
    No, the regulations aspect is OK, I just saw some equating it with frauds like pump-n-dump, IMO it's not the same at all. – StasM Jan 11 '11 at 21:08
  • Oh ok. I thought you were scrutinizing my question. I see the points in both, sounds like a hot topic? – Nic Jan 11 '11 at 22:05
  • It's being questioned because when this guy publicly stated, "Buy this specific stock, it's really great!" that is investment advice, and the US government closely regulates that. He's now retracted his previous statement and replaced it with a "talk to your investment advisor" tweet. – Bob Murphy Jan 11 '11 at 23:00

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