What is a promoter?
A promoter is a person or organization that helps raise funds for a certain type of investment activity. Promoters can raise funds for a business by offering investment vehicles other than traditional stocks and bonds, such as limited partnerships and direct investment activities. Often, promoters are paid in company shares or as a percentage of the capital raised.
How a promoter works
Investment promoters seek to bring the information on specified investments to the attention of potential investors. Promoters can target domestic or foreign investors, depending on the investment in question. The objective is to locate capital that would otherwise have been invested elsewhere, based on the limited knowledge available on the investment opportunity being promoted.
Stock market promoters are often used in the promotion of penny stocks, which has led to an increase in the promotion of scams
Types of promoters
Penny Stock promoter
The use of stock promoters is quite common in the penny stock market. This may include positive testimonials or other information provided free of charge via a website or newsletter, as well as more personal sales attempts.
By increasing the enthusiasm surrounding the particular investment, the stocks are likely to raise the price, providing additional income for the business or allowing certain shareholders to sell their shares at higher prices.
Government commercial developer
Some government entities, such as the International Trade Administration (ITA), which is part of the United States Department of Commerce, help American companies solve problems related to foreign markets. This may include assistance with promotional activities as well as problems related to the export of goods.
Customers of a business can become occasional promoters. If a customer has a good experience with a product or service, that customer can share this information with other customers or potential investors.
Key points to remember
- A promoter is a person or organization that helps raise funds for a certain type of investment activity.
- Promoters are often used for penny stocks, where false promises and misrepresentations of the company or its prospects have become commonplace.
- Promoters can also be used as copywriters, offering to revise or write about a business for a fee, which can lead to biased analysis.
Promoters may give the false impression that investing in the opportunity represented is more likely to succeed than others, even to the point of suggesting that it cannot fail. The same risks exist with the investment opportunities promoted as in any similar investment style. Since investments promoted by individual promoters or promotion companies are not officially registered with the Securities and Exchange Commission (SEC), some promoters have been linked to an excessively high number of scams and ‘investment.
Thus, not all inventory promotion activities are considered legal. For example, in 2020, 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 linked to the deliberate deception of potential investors by the use of false information in various advertisements, which sparked increased interest in the company’s actions.
Other risks exist in the area of the remuneration of certain writers to promote a particular investment. In situations where a person is paid to examine a particular stock, there is a fear that the information provided will be skewed, which speaks more positively of the investment that may be appropriate.