Agoracom — a popular online investor relations firm — says it will "vigorously defend" itself against allegations that its employees tried to drive up share prices in small firms it represents by generating thousands of fake postings in the company's online investor forums.
The Ontario Securities Commission levelled fraud allegations Thursday and ordered the firm and two of its senior managers to appear for a hearing April 26.
In its complaint, the OSC alleges that Agoracom founder George Tsiolis and Agoracom director Paul Kondakos breached Ontario's securities laws by orchestrating fraudulent online postings.
The allegation is that the two required Agoracom staff to post anonymously to client forums using aliases.
The OSC says Agoracom staff used more than 670 aliases to post more than 24,000 messages from September 2006 to July 2009.
The statement of allegations says Agoracom staff had to post a certain number of fake messages each day or face a dock in their pay.
"On occasion, Agoracom staff conversed with themselves on the forums using different aliases," the OSC complaint says.
The regulator says these posts were promotional in nature, urging readers of the particular forum to buy or hold stock in that company.
"Neither the public users nor Agoracom’s clients were aware that representatives of Agoracom were posting on their hubs using aliases," says the OSC complaint. "In fact, the respondents knowingly deceived clients about the traffic and activity generated on their hubs."
Postings designed to mislead: OSC
The OSC says the fake postings were designed "to create a misleading appearance of greater interest and trading activity in the securities of Agoracom’s clients to induce clients to contract or continue to contract with Agoracom and increase the value of Agoracom’s stock option."
The commission said Agoracom charged clients a monthly fee and got stock options — the greater of 250,000 shares or half a per cent of the company’s outstanding share total.
"It is an understatement to say that we are all shocked to receive the allegations made by the OSC," said a statement by Agoracom founder Tsiolis posted on the firm's blog late Thursday.
Agoracom said the allegation of fraud relating to traffic and activity on client hubs is "unfounded and without merit."
Agoracom acknowledged that it "initiated conversation" in some chatrooms but said it did that "to simply act as a catalyst to spark conversation amongst members and forum users."
Agoracom said in 2008 and 2009, its employees accounted for "just" 0.23 of one per cent of total visits to the site. The company's statement does not say what percentage of messages in that time were left by staff.
"We at Agoracom … outright disagree with allegations made by the OSC and look forward to vigorously defending them at any future proceeding," Tsiolis said.
Agoracom also denied that "posts were intended to be promotional and promoted purchasing or holding of stock in order to increase the value of stock options in our clients."
In March 2009, when an Agoracom employee revealed that he was an Agoracom representative posting with an alias, the OSC said Tsiolis and Kondakos issued a statement saying the company would be taking steps within next 60 days to ensure that this would never happen again.
The commission says both men knew that statement was false.
Conviction carries the possibility of sanctions against individuals, as well as fines of up to $1 million for each violation of Ontario securities law, along with the disgorgement of any illegally obtained gains.