Such Tweet sorrow: the pitfalls of corporate social media
By Giles Delaney*
Did you hear about the upcoming takeover offer for social media giant Twitter, as reported by the respected news outlet Bloomberg?
How about the one about a bidder preparing to knock on the door of the New York-listed cosmetics maker Avon Products Inc?
Or how about the report featuring ASX listed coal miner Whitehaven Coal, on their potential loss of $2.1 billion of bank funding because it owns a controversial coal project called Maules Creek?
The old catchcry that you can’t believe everything you read in the press certainly applies to the wild and unregulated realm of business social media. The only difference is that investors should increase their vigilance and scepticism levels tenfold, such is the prevalence and speed of scuttlebutt, baseless rumours and ‘pump and dump’ schemes that have proliferated in cyberspace’s version of the Wild West.
Twitter’s ability to amplify dubious messages, often repeated elsewhere online, means the damage is done before the dodgy information is discredited. In the case of the Twitter “takeover”, the “news” was Tweeted – ironically – and made to look like a Bloomberg news release. The report was quickly found to be as fake as a pair of Ray Bans from a Cairo bazaar – but not before it sparked an eight per cent, $1.3bn, surge in the listed US company’s shares.
As for Avon, its shares surged 20 per cent when reports emerged of the $8bn buyout proposal from PTG Capital Partners in 2015. The trouble is, no such firm ever existed and there was no truth to the report even at a cosmetic level.
And Whitehaven’s banking woes? It was a fake report propagated by an anti-coal activist, but still caused the stock to lose more than $300 million of market value.
The problem is not so much the musings of everyday retail investors and armchair analysts on market chat forums, which tend to be hyperbolic in terms of praising or condemning a stock. A random example from one long-standing Australian stock gossip forum: “SOOO OVERVALUED. IT’S ONLY A MATTER OF TIME WHEN THE MARKET WILL WAKE UP. I’VE ALREADY BACKED UP THE TRUCK.”
Reasonably intelligent readers would take such comments with a grain of salt. The problems arise when the authors are peddling untruths with a nefarious purpose, or are actually related to the company and not disclosing this fact. Sadly, we are not lacking in cases of this behaviour.
The ASX listed lithium explorer AVZ Minerals was recently subject to a Tweet describing its project in the Democratic Republic of Congo as the “world’s largest lithium and tin asset”.
The trouble is, the author – going by the handle of SuperNinja – was revealed as a paid adviser to the company, with suggestions he had released information in breach of its corporate disclosure obligations.
A medical cannabis stock, Creso Pharma, faced similar scrutiny over upbeat comments posted by a third party with 35,900 Twitter followers who also happened to have been issued shares for corporate work with the company.
The murky world of crypto currencies has also been subject to allegations that crypto influencers – of which are many – colluded to manipulate the price of a newer currency called HavenProtocol. The shenanigans reportedly took place on a specialist digital currency social media platform called Steemit.
Despite the potholes and pitfalls of the cyber world, social media is far from a destructive force for small or mid-cap companies struggling to tell their story. Mass staffing cuts across business news desks and stockbroking research departments mean that the vast majority of listed stocks are ignored – even some with $1 billion plus market valuations.
David Coe, of the social media consultancy Investor Torque, says an organised campaign can massively amplify a company’s audience beyond investors who read their standard announcements.
“Social media is a powerful tool that can impact the market, but it needs to be wielded with care and discipline” he says. Coe suggests that companies prevent making unsubstantiated claims by including links to their stock exchange announcements and other publicly-released material. He also urges companies to post all material in their own name, “not as a paid agent masquerading as an independent adviser.”
A key proviso is for information to already have been announced via the relevant exchange’s announcements platform.
As for information propagated by third parties, it’s a fine judgement call as to how companies react. A salient case is the Australian retailer David Jones, which in 2012 announced a takeover offer from a mysterious UK bidder called EB Private Equity. The shares surged, despite the retailer having no idea of EB’s financial capacity or the track record of management.
But the board’s hand was forced because the offer (which was soon withdrawn) was revealed by an anonymous UK blogger who contacted news outlets to ensure coverage. The whole saga made many question how markets can be so easily influenced, and what companies should do when confronted with questionable information.
In the case of ASX companies, the use of social media is regulated by the Corporations Act, the ASX listing rules and general requirement of continuous disclosure and misleading and deceptive conduct.
Unlike in Australia, US companies are allowed to make their primary announcements via social media – so long as the company tells investors which forums they intend to use.
We guess that if it’s good enough for Donald Trump to Tweet his foreign policy initiatives, it’s good enough for companies to disseminate their material news via these outlets. But sticking with the Trump theme, the cyber world is a murky swamp in need of draining before unsuspecting investors lose serious amounts of money.
In the case of Whitehaven Coal, the offender was identified as 26-year-old anti-coalprotester called Jonathan Moylan, who pleaded guilty to disseminating false information to the market. He received a suspended jail sentence.
However, more often than not, the fake news spruikers continue to roam the cyberswamp, far from the reach of corporate regulators. Company boards should be asking “are we next?”, especially in the case of struggling or controversial entities vulnerable to misinformation.
As for the regulators, in the US and UK they have already moved on consumer social influencers who shamelessly flog the latest fashions and cookware without any disclosure of the kickbacks and commissions they are receiving.
In the US the Federal Commerce Commission now requires influencers to explicitly disclose any advertorial relationships – which should go some way to putting the Kardashian empire out of business.
The problem lies not just with the influencers, but the companies themselves. According to a report in Forbes magazine, 78 per cent of followers of the hotel group Ritz Carlton’s social feeds were found to be fake. Other top-name consumer brands also fared less than well. Then there are the influencers a wholesome consumer brand would do best to steer well clear of.
Take the case of internet sensation and comedian PewDiePie – a.k.a. 27-year-old Swede Kjellberg – who lost a lucrative contract with Disney Studios and YouTube after inciting strangers to make anti-Semitic remarks. Kjellberg’s global YouTube following? 53 million people.
Given the temptation to stoop to low pranks or sleazy deals to gratify these mass audiences, the broader social clampdown is well overdue.
In the world of commerce, surely it’s time for corporate regulators globally to rise to the challenge with more prescriptive regulations and active policing. After all, a properly informed share market is kind of, like, important.
*This is the fourth column in a regular series about the big issues that affect CLINUVEL and the broader biopharmaceutical sector.
Giles Delaney is an experienced business journalist, having worked for newspapers and magazines in the Asia Pacific for more than three decades. As a guest writer, Delaney retains full editorial freedom and his views are his own. Delaney is happy to answer readers’ questions via firstname.lastname@example.org. Answers will be posted on the CLINUVEL website.