Scheme created fake news stories to manipulate stock prices, SEC alleges

The U.S. Securities and Exchange Commission headquarters in Washington.
The U.S. Securities and Exchange Commission headquarters in Washington.
(Andrew Harnik / Associated Press)
The Washington Post

Kamilla Bjorlin has appeared in movies with Al Pacino and Anthony Hopkins. She has played an “evil serpent” on the soap opera “Days of Our Lives” and a countess in the movie “The Princess Diaries 2: Royal Engagement.”

Acting “is the passion of my life,” Bjorlin — who is also known professionally as Milla Bjorn — said in a brief interview.

But even as she pursued her Hollywood career, court documents allege, the Encino woman was the mastermind behind another bit of make-believe: secretly paying writers — some of whom used pseudonyms such as the Swiss Trader and falsely claimed to have MBAs — to produce hundreds of positive articles, tweets and Facebook posts that attempted to pump up the stock prices of specific companies.


In one case, according to a Securities and Exchange Commission complaint, Bjorlin’s firm Lidingo Holdings helped drive up by 925% the stock price of Galena Biopharma, a small pharmaceutical company, after placing dozens of articles about the company in reputable online outlets.

Once, such hype might have targeted the uninitiated, but these days, an increasing number of stock trades are driven by computers making split-second decisions about when to buy or sell — often by using sophisticated algorithms to monitor price changes and the flow of news on mainstream outlets and social media. Some worry that strategically placed commentary can move markets before experienced humans have time to sniff out a con.

Florida-based DreamTeam marketed its ability to leverage its “extensive online social network” to potential clients and was paid $25,000 for 90 days of “social media relations” by one company, according to the SEC. (Michael McCarthy, who started DreamTeam, settled with the SEC for more than $100,000 this year.)

In 2015, the SEC filed fraud charges against a Scottish trader, saying he issued tweets that caused sharp drops in the stock prices of two companies so that he could profit from the swings. One company saw its stock price fall 28% after the tweet, while the stock price of the other fell 16%. The false tweets cost shareholders more than $1.6 million, according to court documents.

Companies are launching efforts to root out phony news, engaging in a kind of technological arms race. Hedge funds that rely on computer algorithms make up nearly 30% of U.S. stock trades, nearly double the amount from just a few years ago, according to the research firm Tabb Group.

“This is a modern take on what we call the old pump-and-dump schemes” of promoting a stock and then selling quickly to cash in on the price change, said Albert Dandridge, a partner with Philadelphia-based Schnader Harrison Segal & Lewis.


Bjorlin, who is expected to go to trial on civil charges as soon as this month, said she can’t tell her side of the story yet. “This has ruined my life,” she said. “No one has any idea what really happened.” She could face millions of dollars in fines if convicted.

In the meantime, her case is buzzing around financial circles and has become a reminder that allegations of fake news are hardly confined to the political world.

The coordinated campaigns across many different websites have ratcheted up the possibility of duping the market, a modern twist on the days when the unscrupulous tried to trick investors with hallway whispers or direct-mail campaigns.

So worrisome is the trend, the SEC recently filed complaints against more than a dozen companies and people, including Bjorlin, alleging that they pretended to provide independent analysis on financial websites such as Seeking Alpha, Forbes, the Motley Fool and Benzinga that were actually paid for by companies.

“There are so many ways that people can reach investors now, we want people to be critical,” said Melissa Hodgman, associate director of the SEC’s enforcement division. “Even if it appears to be an independent site, we want people to take a breath and do some research. We can’t always rely on what something looks like on its face.”

At a time when investment firms are increasingly experimenting with artificial intelligence and technology that can make trading decisions in a fraction of a second, identifying disreputable sources has become a bigger challenge. In a recent research report, JPMorgan Chase estimated that just 10% of daily trading is done by human stock pickers.

“The majority of equity investors today don’t buy or sell stocks based on stock-specific fundamentals,” the report said. “Big Data strategies are increasingly challenging traditional fundamental investing and will be a catalyst for changes in the years to come.”

Social Market Analytics, for instance, culls millions of tweets a day to give “quantitative” traders a sense of what direction a stock may be moving, said Joe Gits, the company’s chief executive. He said the firm is on the lookout for false leads and avoids tracking small companies with little following, known as penny stocks.

“There is absolutely pump-and-dump in social-media mentions for penny stocks. That’s why we don’t cover them,” he said.

Indexer, a Houston start-up, is developing technology that would rate the reliability of news stories before a stock trader decides how to use the information, company founder Anton Gordon said. Someone who posts “fake news” about a company needs the stock price to move for only a short period to make a profit, said Gordon, a former research analyst.

“Even if the story is killed that same day, they are in and out and already made their profit,” he said. The company’s technology should be ready to launch soon, he said

The problem is potentially more dangerous for retail investors who are attempting to make investment decisions on their own, said Ajay Patel, a finance professor at the Wake Forest University School of Business.

“I don’t believe institutional buyers are relying on these sites, but the retail investor clearly is getting fooled,” Patel said. “Now, instead of somebody calling 1,500 people [to try to push a stock], you just have someone write the same story using 10 different pseudonyms. It is going to be more widespread now. Now that everybody relies on the Internet for news, it is potentially a bigger problem.”

Financial news sites say they are also on the lookout for such scams. Benzinga closed down its external blog allegedly used by Bjorlin’s company to post paid articles about companies. “We are victims as well, as we were unaware that the writers had been compensated for these stories, which also appeared on multiple, well-respected financial websites,” the company said in a statement.

Seeking Alpha said it has had to beef up the processes it uses to validate the identities of the people posting articles. “It is something we have constantly been working on and improving,” said George Moriarty, the site’s executive editor.

Bjorlin seems to be preparing for a fight

Bjorlin founded Lidingo Holdings in 2011, according to court documents. The company is accused of paying writers to generate hundreds of “bullish” online articles about companies that hired Lidingo to promote their stock. The company monitored Web traffic and “used message boards” to stoke interest, according to court documents.

The SEC alleges that the writers often used false names and repeatedly were reminded not to disclose that they were being paid by the companies. If potential authors indicated that they felt compelled to disclose how they were being paid, they weren’t hired, the SEC says. After one writer did disclose the relationship, Bjorlin referred to the writer as an “idiot” in an email, according to the SEC complaint.

The SEC complaint alleges that those who did sign on could earn bonuses if their stories helped boost the price of a company’s stock. To make the authors more believable, they created fake online profiles, claiming that they had an “MBA in finance” or a degree in physics, according to the SEC complaint. One writer allegedly created a profile for “Amy Baldwin” that claimed that she was working for a “Fortune 20 company” and that “in any given day I am assessing risk management and the financial health of various companies.”

That person did not exist, according to the SEC.

According to the SEC complaint, a man named Brian Nichols used various pseudonyms, including Arthur Rhodes, Trading Maven, Teresa Dawn and Leopold Epstein, and wrote at least 90 stories for Lidingo without disclosing the arrangement. In one case, “Nichols contacted Bjorlin about his next ... article, which he was in the process of drafting but wanted to revise because he did not think it would move [the company’s] stock price,” according to court documents.

Nichols, who did not respond to emails or phone messages seeking comment, runs BNL Finance, a news site. Nichols was also charged in the SEC complaint.

Galena Biopharma, one of Lidingo’s clients, paid Bjorlin’s firm $20,000 a month plus expenses, according to court documents. At one point, the documents allege, Bjorlin promised to raise Galena’s stock price 25% or it would get its money back.

Bjorlin requested stock options as well as cash from clients “to ensure we are appropriately compensated for the hard work and the risks, as well as performance,” according to allegations in one subsequent shareholders’ lawsuit.

She threatened to punish the company if it did not follow through, according to the SEC complaint. Her company could “let GALE’s stock price drop if they did not receive stock options immediately,” she told a Lidingo colleague, according to the SEC complaint.

Galena settled SEC charges against it, but Bjorlin appears to be preparing for a fight. Her attorney did not return emails seeking comment.

In an email exchange with the Washington Post, Bjorlin said: “No matter what story you publish, it won’t be the truth. There is an iceberg beneath the surface, that no one is paying attention to. I was targeted.”

Bjorlin said she is writing a book to clear her name.

Merle writes for the Washington Post.