When the Ontario Securities Commission sits down behind closed doors on July 7 with an online investor relations firm it has accused of fraud, the issue under discussion will be just how far an Internet bulletin board can go in promoting a stock.
The OSC alleges that Agoracom Investor Relations Corp. made hundreds of fraudulent postings on its Internet forum to boost its own business and inflate the value of stocks it owned. Between September, 2006, and July, 2009, the firm used fake names to manufacture online chatter about stocks and boost their prices, according to the regulator.
The outcome of the allegations, which were first made public three months ago, could have wide-ranging implications for Canada's online discussion forums. None of the accusations is proven and Toronto-based Agoracom says they are unfounded.
George Tsiolis, Agoracom's founder and president, maintains his firm was "blackballed by the big boys on Bay Street" for giving retail investors a platform to complain about unpopular deals.
But some rival sites that have watched traffic to Agoracom's site swell are skeptical of the firm's protests. Dennis Bremner, who runs an investor discussion site called TradingChief.com, said he thinks there are far too many positive posts on Agoracom's board to be useful to investors.
"I was warning people off Agoracom in 2008," he says.
Mr. Bremner says one of the hardest challenges in operating a discussion site is getting informed commentators. His site has about 6,000 registered users and a stated policy of quelling "any overexuberance on boards."
TradingChief says it generates revenue through banner ads and doesn't receive any options, warrants or favours from listed companies.
In contrast, Agoracom charges small-capitalization companies a monthly fee and stock options equalling the greater of 250,000 shares or 0.5 per cent of a firm's outstanding shares, the OSC says. In return, Agoracom offers the companies exposure to investors through webcasts, podcasts and blogs. Under an advertising relationship, one such webcast runs each weekday on The Globe and Mail's site.
Agoracom combines advanced software that allows users to rate content, with a populist swagger that steers clear of Bay Street's buttoned-down style for a more gregarious approach that includes live events such as regular poker nights with cash prizes and Playmate-style hostesses. Mr. Tsiolis and his partner, Paul Kondakos, say they have built the largest online investor relations community in North America, attracting more than one million unique visitors a year.
The OSC, though, says that a large part of Agoracom's apparent online buzz was self-generated.
"The representatives created fictitious usernames and posed as investors blending in with other users, investors and interested persons," the OSC alleged in a filing made on April 1. "On occasion, Agoracom staff conversed with themselves on the forums using different aliases."
"You never want to get these kinds of allegations," Mr. Tsiolis said in an interview. But in a blog posting, he admitted that the firm "initiated conversation on some client hubs to simply act as a catalyst to spark conversation amongst members and forum users."
He declined to discuss how the allegations may be affecting his business, or the nature of the discussions with the OSC.
Almost immediately after the OSC announced its allegations. Peter Grandich, a U.S.-based financial consultant, quit as Agoracom's chief commentator. Mr. Tsiolis says the departure was like a hockey team losing one of its best players during the playoffs. For his part, Mr. Grandich said in a series of e-mail exchanges that it was a tough decision to leave, adding that he had had no concerns before the OSC charges became public.
One of the most-discussed companies on Agoracom's boards is San Gold Corp., a gold producer based in Winnipeg. About two years ago, Agoracom approached San Gold offering to help with its investor relations, says chief executive officer Dale Ginn. The mining firm declined.
"We just have a policy that we don't conduct business with those sites," Mr. Ginn said. "Information tends to get twisted."
One of the problems with investor-relations firms using discussion boards to highlight a small-cap stock is the anonymity of comments, he said. Discussion boards operate far outside of the disclosure rules that listed companies have to abide by, he added.
Mr. Ginn describes stock bulletin boards as "a make-believe world" and says San Gold has noticed no effect on its stock price as a result of discussions on Agoracom.