What Is a Promoter?

A stock promoter is an individual or organization that helps raise money for some type of investment activity. Stock promoters may raise money for a company by offering investment vehicles other than traditional stocks and bonds, such as limited partnerships and direct investment activities. Often, promoters are paid in company stock or a percentage of the capital raised.

How a Promoter Works

Investment promoters look to bring information about the specified investments to the attention of potential investors. They may target domestic or foreign investors, depending on the investment in question. The goal is to locate capital that may have otherwise been invested elsewhere based on the limited knowledge available about the promoted investment opportunity.

Stock promoters are often used in promoting penny stocks, which has led to a rise in promoting scams

Types of Promoters

Penny Stock Promoter

The use of stock promoters is fairly common in the penny stock market. This can include positive testimonials or other information provided for free via a website or newsletter, as well as more personal sales attempts.

By increasing excitement surrounding the particular investment, shares are likely to increase in price, providing additional revenue for the business or allowing certain shareholders an opportunity to sell their shares at higher prices.

Government-Based Trade Promoter

Certain government entities, such as the International Trade Administration (ITA)—part of the U.S. Department of Commerce—assist US companies with issues regarding foreign markets. This can include assistance with promotional activities, as well as issues surrounding the exportation of goods.

Casual Promoters

A business's customers can become casual promoters. If a customer has a good experience with a product or service, that customer may share that information with other potential customers or investors.

Key Takeaways

  • A promoter is an individual or organization that helps raise money for some type of investment activity.
  • Promoters are often used for penny stocks, where false promises and misrepresentation of the company or its prospects have become commonplace.
  • Promoters can also be used as writers, offering to review or write about a company for compensation, which can lead to skewed analyses.

Criticism of Promoters

Promoters may give a false impression that investing in the represented opportunity is more likely to succeed than others, even to the point of suggesting that it cannot fail. The same risks exist with promoted investment opportunities as in any similar style of investment. Because the investments promoted by individual promoters or promotion firms are not formally registered with the Securities and Exchange Commission (SEC), some promoters have been linked to an inordinately high number of investment scams and litigation.

Thus, not all stock promotion activities are considered legal. For example, in 2015, a stock promoter, Jason Wynn, and the chief executive officer (CEO) of the promoted company, Martin Cantu of Connect-a-Jet, were found guilty of securities fraud. This was related to the willful deceit of potential investors through the use of false information in a variety of advertising that led to increased interest in the company’s shares.

Further risks exist in the arena of compensating certain writers to promote a particular investment. In situations where a person is compensated to review a particular stock, there are concerns that the information provided is skewed, speaking more positively about the investment than may be appropriate.