Fox Analyst Charles Payne Was Paid To Push Now Worthless Stocks
Last Week Fox Fired A Contributor For Similar Actions
Blog ››› ››› ERIC HANANOKI
Charles Payne, a contributor and frequent guest host for Fox News and Fox Business, was compensated to promote the stocks of at least three companies since joining Fox. The practice of compensated stock endorsements is currently prohibited by Fox rules, and resulted in the recent contract termination of contributor Tobin Smith.
According to a Media Matters review, Payne was paid $40,000 to promote The Brainy Brands Company, "$25,000 by a third party" to promote NXT Nutritionals Holdings, and an undisclosed amount for a "consulting arrangement" to promote Generex Biotechnology Corporate.
The share prices of the companies Payne was paid to tout are now essentially worthless.
Payne forecasted lofty gains for investors who bought those stocks. He projected in 2011 that Brainy Brands could hit $4.50 a share in three years. At the time of the pitch, Brainy Brands was trading at around $1.35 -- it's now below 1 cent. Payne claimed in 2009 that NXT could "turn $10,000 into $25,000." At the time, NXT was trading for $2.00 -- it's now below 1/10th of a cent. And Payne claimed in November 2007 that Generex, then at $1.58, was a long term "screaming buy" which could hit $7.00. It's now trading at roughly 4 cents.
Aside from rosy projections, Payne's sponsored stock pitches shared a common theme: using his cable news and Fox credentials to assure skeptical investors that his advice was trustworthy. A direct marketing company which worked with Payne stated it brandished Payne's Fox News connections "to build credibility" with his potential customers. The stock pitches were also used as a vehicle to entice readers to join Payne's subscription newsletter.
Fox policy prohibits contributors from receiving compensation to promote a stock. MarketWatch -- which, like Fox, is owned by News Corp. -- reported on June 18 that a spokesman said "no Contributor to FBN, nor his/her firm, and/or family members are allowed to accept financial consideration of any kind whatsoever to issue research, advertisements, or to otherwise promote individual stocks or securities." As a result of the rule, Fox News fired contributor Tobin Smith, who regularly releases sponsored research reports (Smith claimed his contract "did NOT include any exclusion from me or my company sponsored research").
While Fox currently prohibits financial arrangements like Payne's, it's not clear whether his actions specifically violated Fox rules. MarketWatch quoted Smith claiming that the rule was instituted in "late" 2012, or after the three Payne stock promotions studied in this report first occurred. It's also not clear if Payne has been compensated for stock promotions after 2011. Regardless, even if Payne's actions occurred before an official Fox policy, he still used Fox's brand to engage in practices that the network now thinks is problematic enough to prohibit and fire an employee.
Fox and Payne did not respond to requests for comment.
Payne and his company, Wall Street Strategies, have a problematic history related to the disclosure of paid stock endorsements. In 1999, the Securities and Exchange Commission (SEC) announced that while not "admitting or denying" wrongdoings, Payne "agreed to pay a civil penalty of $25,000." The SEC alleged of Payne:
The Complaint alleges that on at least eight occasions, Wall Street Strategies recommended that its clients purchase Members stock through recorded messages on its telephonic stock recommendation service. The Complaint also alleges that Payne failed to disclose that he received payments from Members to promote Members stock.
More about Payne's alleged actions are contained in this May 1997 SEC release.
In this report:
Charles Payne is frequently seen on Fox News and Fox Business as a contributor and guest host. He has a regular segment called "Making Money with Charles Payne" which airs throughout the day on Fox Business. His Fox biography states he joined Fox "in October 2007." He founded Wall Street Strategies, "an independent stock market research firm where he serves as chief executive officer and principal analyst," in 1991.
Payne's Fox News and Fox Business appearances are routinely filled with misinformation on topics like the unemployment rate, unemployment insurance, climate change, corporate tax breaks, disability benefits, and federal worker compensation. He has attacked antipoverty programs by claiming "it gets a little comfortable to be in poverty"; said that "the good part about the stigma [of food stamps] is it actually does serve as an impetus to get people off" them; claimed poor people are "indebted servants" who believe society "owes" them; and said wealth disparity "really doesn't" bother me -- "in fact, it inspires me." He's also spoken at Tea Party rallies in recent years.
Payne's Wall Street Strategies offers "a complete suite of superior stock selection services that meet the needs of professional traders, active investors and long-term investors with horizons of one day to six months or more." The company's advertised services (account required) include a monthly newsletter ($159/year), "Hotline" Reports ($4,000/year) and "Swing Strategies" Reports ($4,800/year).
[chart via Google Finance, accessed 6/21]
The Brainy Brands Company (ticker symbol: TBBC) is an education company which produces early education material such as DVDs, books, and games. Charles Payne pushed lofty investment goals for Brainy Brands, claiming it could turn "$10,000 into $33,300" and become "a market leader in the multibillion-dollar early education industry." Payne was paid $40,000 by a marketing group tied to Brainy Brands for the promotions.
Today, the company is virtually non-existent. Its website returns a hosting domain message stating, "This Site Is Under Construction and Coming Soon." Its stock is worthless, recently trading for $0.0028 a share with a market cap (total value of issued shares) of less than $130,000.
To promote Brainy Brands, Payne setup a website -- now offline -- called PaynesEarlyEducationStock.com. The website carried a copyright date of 2011, and is accessible via the Internet Archive, which cached the site between July and December 2011.
A message signed by Payne on PaynesEarlyEducationStock.com stated that Brainy Brands could "help you profit 233%, turning $10,000 into $33,300"; "this million dollar company will shatter its sales numbers by 5,800%!"; and the company "stands to become a market leader in the multibillion-dollar early education industry." A chart listed the stock's "recent price" as $1.35 and projected its share price to rise to $4.50 in three years.
Payne's company website, wstreet.com, still contains material touting Brainy Brands. A signup page for Charles Payne's Insights & Trends newsletter tells news subscribers they'll receive a "FREE 10-day Bonus Report--Spotlight on a Winner: How Brainy Brands Is Poised to Take Over the Multibillion-Dollar Early Education Industry (a $19 value)."
Both PaynesEarlyEducationStock.com and wstreet.com contain links to a disclaimer -- now offline -- which stated that Payne was paid $40,000 for the "paid promotional advertisement of The Brainy Brands Company":
Disclaimer: This online report is for general information purposes only. Do not base any investment decision on information in it. Any price targets are academic theory and should not be relied upon. Charles Payne's Common Sense Newsletter is an independent circulation newsletter. This online report is a solicitation for subscriptions and a paid promotional advertisement of The Brainy Brands Company Inc. (hereafter the "featured Company"). Charles Payne's Common Sense Newsletter received forty thousand dollars, as an editorial fee, from Creative Direct Marketing Group, Inc., which it received from the featured Company. This company was chosen to be profiled after Charles Payne's Common Sense Newsletter completed due diligence on the company. Charles Payne's Common Sense Newsletter expects to generate revenue and new newsletter subscribers and valuable exposure, the amount of which is unknown at this time, resulting from the distribution of this report. Creative Direct Marketing Group, Inc. received fifteen thousand, eight hundred dollars from the Company, for the costs of creating and distributing this report in an effort to build investor awareness.
Among Payne's claims on PaynesEarlyEducationStock.com about Brainy Brands:
- "My research shows its impressive 5-part plan could send its sales soaring to $59 million over the next 2 to 3 years. This 5,800% increase could help you profit 233%, turning $10,000 into $33,300."
- "Brainy Brands could be the key to tripling your money...but only if you get in soon!"
- "For the reasons illustrated in the details of the 5-part plan, I believe that investors who beat Wall Street to the punch by getting in now could very well see gains of 233% over the next 36 months. There's no question that 233% returns are aggressive. And as any good investor knows, risk and reward go hand in hand. So while I urge you to take advantage of what I believe is an incredible buying opportunity, I also urge you to do so cautiously by limiting the amount of money you invest."
- "In the pages of my newsletter, Common Sense, I regularly feature bargain stocks such as Brainy Brands (TBBC)--stocks that can double or triple your money in 2 to 3 years."
- "In as little as 36 months, The Brainy Brands Company (OTCBB: TBBC) stands to become a market leader in the multibillion-dollar early education industry. Investors who get in now could enjoy returns of 233% once the company begins profiting from its aggressive 5-part marketing plan."
Payne's paid promotion of Brainy Brands was picked up by several "penny stock newsletters" archived on the penny stock site hotStocked.com. The penny stock newsletters trumpeted Payne's connection to Fox Business in its promotions:
- In September 2011, a message appeared in numerous penny stock newsletters -- carrying names like WallStreetPennyStock Advisors, Stock Castle, Obscure Stocks, and ShamrockStocks.com -- promoting Brainy Brands because it was endorsed by a Fox personality. The message stated: "Charles Payne, a contributor to FOX Business Network believes that the failure of American education has created an opportunity for investors to see TBBC at $4.50 over the next 36 months!!" The newsletters contained a picture of Payne next to Fox News' logo.
- A September 2011 message in "DAMN GOOD PENNY PICKS" stated: "TBBC has garnered endorsements from Charles Payne, a contributor to Fox Business Network, and from Bob Flaherty, a former senior editor at Forbes. Not bad at all."
- In July 2011, a message appeared in a penny stock newsletter promoting Brainy Brands and recommending readers "download financial guru Charles Payne's Insights and Trends" newsletter about Brainy Brands.
[chart via Yahoo! Finance, accessed 6/21]
NXT Nutritionals Holdings (ticker symbol: NXTH) was billed by Charles Payne in 2009 as a company producing a sweetener that could soon rival Splenda and whose stock could be a "400% winner" for investors.
Today, the company's website "is currently unavailable." Its stock is worthless, trading at around $.0006 -- 6/100s of a penny.
NXT issued a July 24, 2009, press release announcing Payne wrote a research report supporting their efforts. The headline of the release was: "Wall Street Veteran and FOX News Business Contributor, Charles Payne, Discusses NXT Nutritionals` SUSTA Product and Future Growth Opportunities."
The release touted Payne's Fox News credentials and quoted the CEO of the company saying, "As a veteran stock analyst and leading contributor to several business shows, we are pleased to relay Charles Payne's report to investors. Not only does the report examine the potential of NXT Nutritionals, it also provides timely analysis of the food and alternative sugar markets as well."
The last paragraph of the release stated: "Charles Payne has been paid $25,000 by a third party for this Research Report on NXT Nutritionals Holdings, Inc."
In addition to his sponsored research report, a Payne-authored pitch for NXT appeared on at least three separate websites: Afterthecrashwinners.com, Investafterthecrash.com, and Postcrashgains.com. The websites are now offline, but the Internet Archive cached the sites starting in 2009. The websites carried a 2013 copyright.
In the pitch, Payne claimed that the company stock "could hand you 150% gains in 18 to 24 months," "could be my next 400% winner" and "turn $10,000 into $25,000."
Among Payne's claims about NXT on the websites:
- "Invest in the next-generation sweetener that has the makers of Splenda® running scared."
- "Read on for 7 irresistible forces that have already doubled this stock and that could hand you 150% gains in 18 to 24 months!"
- "Get in now to turn $10,000 into $25,000."
- "For more on why I'm so confident that NXT Nutritionals Holdings, Inc. (NXTH.OB) could be my next 400% winner, claim your FREE copy of my new Special Report, How NXT Nutritionals Is Poised to Take Over the Multibillion-Dollar Sweetener Industry (a $39 value). It's yours FREE when you subscribe to Common Sense within the next 10 days."
- "I believe NXT Nutritionals (NXTH.OB) could be one of the fastest-rising stocks in 2009 and 2010. This is the kind of stock that once it gets moving could rally fast, so there's a sense of urgency to beat the crowds. Especially since I think this stock will skyrocket in the next few months."
A chart on the website claims that Payne originally recommended the stock at $1.00 on July 16, 2009, the "current stock price" is $2.00, and the "high projection" price is $5.00. The chart includes a note stating: "This is an aggressive recommendation with strong potential for rich returns. To minimize your risk, I recommend limiting your investment to no more than 5% of your portfolio."
In contrast to the press release disclaimer about Payne receiving "$25,000 by a third party," a disclaimer on Postcrashgains.com claimed that Payne "did not receive any direct compensation with respect to the writing of this online report" but hoped to receive "new subscriber revenue" for his newsletter:
Charles Payne's Common Sense Newsletter did not receive any direct compensation with respect to the writing of this online report. This stock was chosen to be profiled after Charles Payne's Common Sense Newsletter completed due diligence on the stock. Charles Payne's Common Sense Newsletter expects to generate new subscriber revenue, the amount of which is unknown at this time, to its newsletter through the distribution of this online report.
A user of the SiliconInvestor.com message board posted screenshots of a paper mailer he received of Payne's NXT pitch, which echoes the language used on Payne's pro-NXT sites. The poster said he received it on October 13, 2009.
Payne's endorsement is touted in an apparent ad for NXT posted online by an account called "nxthpr": "read what Wall Street researcher Charles Payne has discovered about NXT Nutritionals!"
[chart via Yahoo! Finance, accessed 6/21]
In November 2007, Charles Payne recommended Generex (ticker symbol: GNBT), a company involved in drug delivery systems and technology, as a long term "screaming buy" at $1.58 a share. When Payne made his recommendation, he was a consultant to the company for an undisclosed amount.
On November 15, 2007, Payne issued a report through Wall Street Strategies recommending Generex as a "long idea" for investors at $1.58. Payne claimed that the company recently received approval for a drug delivery system and "since then, the stock has drifted lower and in our estimation makes it a screaming buy." Payne added: "Currently, Oral-lyn is in phase III testing in North America. We expect that approval would automatically make this a $5.00 stock, but once sales begin we think the stock could move even higher (our 17 page institutional report has a share price target of $7.00."
In his report, Payne acknowledged that he was being compensated by the company, but didn't specify how much he was receiving: "We must note that after the last time we recommended the stock we heard from the company and have since entered into a consulting arrangement."
Generex released a November 15, 2007, press release highlighting Payne's report. The release stated that Payne "is a frequent guest on several well-respected finance-oriented radio and television programs." The release also acknowledged that "Generex has entered into a consulting agreement with Wall Street Strategies to provide this report and ongoing investor relations services" but did not note the amount.
Generex's Form S-3 filed with the SEC on April 30, 2008, lists Wall Street Strategies as a "selling shareholder," having sold 140,000 shares.
A common theme among Payne's paid stock promotions is how his cable news and Fox credentials were used in an attempt to gain the trust of skeptical investors. A direct marketing company that says it did work for Payne wrote that it used Payne's Fox News connections "to build credibility" with potential Payne customers.
Creative Direct Marketing Group president Craig Huey wrote in a February 23, 2011, post that it made an advertising campaign for Payne partly based around his "great exposure as a regular commentator on the FOX Business Network and FOX News." The campaign aimed to "play up and expand on Charles Payne's credibility by positioning him as a trusted stock commentator who has dispensed profitable advice to millions on television, radio and through his Common Sense newsletter" and "created an envelope with a photo of Charles on TV to build credibility." A disclosure statement on PaynesEarlyEducationStock.com stated that Payne "received forty thousand dollars, as an editorial fee, from Creative Direct Marketing Group, Inc., which it received from" Brainy Brands. A screenshot on the firm's site also suggested the company helped with Payne's NXT work.
Payne's Fox credentials factored heavily in his paid pitch for NXT. The first line of Payne's pro-NXT website states: "Dear Cautious Investor, You may have seen me on FOX TV or heard me on the radio, commenting on the economy and giving my investment recommendations."
The top right hand corner of website promoting NXT has a picture of "TV personality" Payne on what appears to be Fox Business. Below the image reads: "Charles is a contributor to the FOX Business Network."
Payne also stated on the website: "My name is Charles Payne. I'm the CEO of Wall Street Strategies, Inc., an independent stock research company and editor of the investment newsletter Common Sense. I also appear frequently on the FOX Business Network and host my own radio show."
He later suggested that readers are getting advice that's too hot for TV, writing: "But when I'm on TV or radio, I have very little time to get into details of just a single stock idea, especially one that is meant to be a longer-term investment. ... because of limited air time, I can't tell viewers everything they need to know about hidden gems like this. ... Now you have a taste of the type of stocks I typically recommend...the ones I generally don't have time to mention on my radio show or when I'm appearing in a segment for the FOX Business Network."
Payne's cable news credentials were also used to sell Brainy Brands. As noted above, numerous penny stock newsletters touting the stock noted that it was recommended by a Fox analyst. Payne also referenced his "TV appearances" in explaining why he was enthusiastic about the stock: "Many investors believe that stocks like Brainy Brands are hard to come by, or reserved for a different class of investor. But that's not the case at all--I find great bargain stocks all the time. And while I cover some of these gems during my limited TV appearances, I simply can't talk about all of them."
Generex did not directly reference Fox in its November 2007 press release touting Payne's research report, but did note that he "is a frequent guest on several well-respected finance-oriented radio and television programs" and "is routinely sought after for his market opinions by several prestigious news organizations." Payne's Generex research report was issued through Wall Street Strategies, and the firm prominently plays up his Fox ties.
The front of Wall Street Strategies' website (accessed 6/21/13) features a Fox News banner logo and video of Payne on Fox:
The company's about page states that "Charles is featured throughout the day on the Fox Business Network" and "is a member and occasional host of 'Varney & Co'. In addition, he guest-host several shows including 'Cavuto on Business' and 'Your World'." Its media page features a sidebar of clips of Payne on Fox. A banner advertisement for Payne's Hotline newsletter contains a quote from Fox News host and senior vice president Neil Cavuto:
A customer testimonials page includes a quote from a customer saying, "my wife and I religiously follow you on the FBN and thoroughly enjoyed your recent book. Betwixt your online market commentary, FBN appearances and reading your book a couple (to 6 times...) these two Bostonians are finally gaining more confidence in our investments and long-term wealth creation strategies."
Wall Street Strategies is regularly mentioned when Payne appears on Fox News and Fox Business.