# Understanding Stock Promoters: How They Operate and Their Controversies

## What Is a Stock Promoter?

A stock promoter is an individual or organization that raises money for investment activities. For example, stock promoters may raise money for a company by offering [investment vehicles](https://www.investopedia.com/terms/i/investmentvehicle.asp) other than traditional stocks and bonds, such as limited partnerships and direct investment activities. Stock promoters are not required to have official licensing, which may lead to potential misinformation. Engaging in activities heralded by stock promoters involves risk, such as false promises and investment scams, especially in unregulated markets. Investors should be sure to conduct their own due diligence to avoid falling victim to misleading promotion tactics.

### Key Takeaways

*   Stock promoters are individuals or organizations that raise investment capital, often through penny stock promotions, but they don't require any specific licensing or qualifications.
*   While stock promoting is legal if compensation is disclosed, the lack of regulation often leads to misleading information and potential investment scams.
*   Promoters may engage in "pump and dump" schemes, where they artificially inflate stock prices to sell for profit, leaving investors with losses.
*   Differences between stock promoters and stockbrokers highlight the lack of regulation in promotion activities; stockbrokers must be licensed and regulated by FINRA.
*   Investors should conduct thorough research and due diligence, especially about who is compensating promoters, given the high potential for biased or inaccurate information.

## Understanding the Functionality of Promoters

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. Their goal is to find capital that might otherwise go elsewhere due to limited information about the investment.

> **Important**
>
> The goal of stock promoters is to locate capital. They distribute information to attract investors, but it is often misleading.

## Exploring Various Promoter Roles and Their Impact

### Penny Stock Promoter

The use of stock promoters is fairly common in the [penny stock market](https://www.investopedia.com/terms/p/pennystock.asp). Promotion can include free testimonials or information on websites, newsletters, and personal sales efforts.

Increasing excitement for an investment can raise demand and push up its share price. This generates additional revenue for the business by allowing certain shareholders an opportunity to sell their shares at a higher price.

### Government-Based Trade Promoter

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.

### Casual Promoters

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.

> **Warning**
>
> 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.

## Evaluating the Controversies Surrounding Promoters

Promoters 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](https://www.investopedia.com/terms/s/sec.asp) (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](https://www.investopedia.com/terms/s/securities-fraud.asp). This involved deceiving investors with false advertising, which boosted interest in the company's shares.

Additional risks arise when writers are paid to promote an 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.

## Comparing Stock Promoters and Stockbrokers: Key Differences

Stock promoters are not required to have licensing or educational credentials. Stockbrokers, on the other hand, are required to have at least a bachelor's degree and they 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 FAQs

### What Defines a Promoter?

A promoter is an individual or organization that helps raise money for some investment activity, such as penny stocks.

### What Is the Role of the Promoter?

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](https://www.investopedia.com/terms/c/capital.asp).

### What Is an Example of a Promoter?

An example of a promoter is a penny stock promoter. This type of promoter may engage in "[pump and dump](https://www.investopedia.com/terms/p/pumpanddump.asp)" activities. Here, a promoter might spur a buying spree for a stock by procuring a huge [equity](https://www.investopedia.com/terms/e/equity.asp) 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.

### Is Stock Promoting Illegal?

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. However, promoters are often untruthful about the amount of the compensation.

### How Do Stock Promoters Get Paid?

Promoters are paid in company stock, or they receive a percentage of the capital raised.

## The Bottom Line

Unlike 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 the promoters) and may not provide a balanced perspective of an investment opportunity. Investors should look for transparency of promoter compensation and conduct their own research and due diligence before investing. Be especially wary of investing in unregistered securities and the potential for scams.

> **Article Sources**
>
> 1.  United States Attorney's Office. "[Attorney and Stock Promoter Sentenced for Roles in Securities Fraud Conspiracy Involving ConnectAJet.com](https://www.justice.gov/usao-ndtx/pr/attorney-and-stock-promoter-sentenced-roles-securities-fraud-conspiracy-involving)."
>     
> 2.  U.S. Securities and Exchange Commission. "[Securities Act of 1933](https://www.sec.gov/litigation/admin/33-7885.htm#:~:text=Section%2017%28b%29%20of%20the%20Securities%20Act%20makes%20it%20unlawful,an%20issuer%2C%20underwriter%20or%20dealer.)."