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Agoracom's OSC Fraud Charges

Agoracom is an investor relations firm that specializes in using social media for investor relations. They are currently the subject of OSC Proceedings which allege that Agoracom employees created posts for their investor forums under aliases. While Agoracom are vigorously defending themselves, Agoracom's Chief Commentator, Peter Grandich, has decided to resign and move his commentary back to his own website www.Grandich.com, at least until the dust settles. It appears that much of this mess was created by the rantings of a venomous ex-employee, the worst nightmare of any employer. I know Agoracom's founder, George Tsiolis, and he's a visionary when it comes to applying social media tools to investor relations. I'm troubled by the OSC allegations and the potential consequences to the extent that I've spent the better part of a day writing this post.

Lets face it, the Internet ecosystem is not without deceptive practices. Try looking for a truly unbiased product review for a consumer item that isn't being gamed by a manufacturer or reseller. Obviously IR representatives should be held to a higher standard than this. It is unfortunate that many people will put more value on a post from a completely anonymous stranger (who could have motives that are not in alignment with their own) than on information released directly from a public company.

Does anyone actually believe ANYTHING they read on the Internet, especially on a small cap chat board??? I suppose they do and there is no reason (apart from real-life experience) to expect any less from our fellow humans, even when money could be at stake. My thoughts on this investor hubbub are laid out below.

The OSC is alleging that Agoracom created more than 24,000 alias posts on client and non-client hubs. Vancouver Sun columnist, David Baines, writes "If proven, these allegations amount to a serious act of treachery." While the OSC allegations are just that for now, Agoracom does admit to the following...

Moreover, for the years 2008 – 2009, AGORACOM employees accounted for just 0.23%, or just under ¼ of 1% of total visits to the site.

During that time period they had  14.036 million visits. This means that Agoracom is freely admitting to the creation of over 30,000 posts over a two year time period. I suspect the majority were not high traffic commentary from George Tsiolis or Peter Grandich but posts made in the dusty low traffic corners of the Agoracom site where their small cap clients and investors would be checking for signs of life. Of course these allegations ignore the very real possibility that Agoracom's clients could be participating in hub discussions using aliases as well.

I have contributed to one of Agoracom's online conferences and I've also acted in an IR capacity for public companies in the past (and I'll be adding some small cap company advertising to my site in the near future). I  feel I know enough about the interwebs to see a couple of potential explanations for Agoracom's use of alias postings:

  1. Agoracom was using their knowledge of how social media works in an attempt to jump start dead forums for the benefit of their clients.

  2. Agoracom was creating fake forum traffic and investor inquiries to justify their fees to their clients.

I'm not sure which explanation is more likely but looking through the Agoracom alias postings in context will answer that question in due course.  If Agoracom was populating its hubs with corporate news then they were doing their job and most people could care less the ultimate source of the posting.  If Agoracom was peppering (or maybe salting is a better term) hubs with  "what do you think?" or "did you see the latest release?" style posts using aliases, then they may have some explaining to do but it probably doesn't warrant the involvement of the OSC. Agoracom isn't being sued by any of its clients so I'm assuming that they were all quite happy with Agoracom's services.

Not all small cap companies are going to create large social media followings no matter how much seed and fertilizer (cough cough) are thrown at them.  Agoracom's role was to distribute and amplify positive news from their clients and they performed that function with gusto. I don't think they were exercising options and selling shares based on their hub posts. Agoracom has stepped on toes and even burned bridges in their evangelical pursuit of clients and website traffic...  but they are not stupid. I see nothing that they have done that is not in the public interest.

Representatives of public companies need to communicate with their shareholders more directly using social media and Agoracom facilitates that function. More web savvy companies with a bit of a budget are starting to do this in-house. A recent example comes from Endeavour Silver's twitter posts that link to YouTube videos of company representatives. While I'm not currently a shareholder of Endeavour, I've met with their management, toured their Guanacevi operations a few years ago and quite like the company. Watching their videos strengthens that relationship.

The Agoracom OSC hearing on April 26th will be on the radar of many small cap companies looking for effective ways to communicate their corporate message. Self-directed investors get most of their information from the Internet (read Financial websites and blogs most influential with individual investors, study finds) and that is unlikely to change anytime soon. None of what is happening negates the utility of using social media to communicate with investors. Just be careful around the chatrooms, (along with blogs, company management, your gym buddies, barber, shoeshine boy, friends, brokers, analysts, in fact, EVERYBODY!) when picking stocks.