Petrosonic Energy, Inc (OTC:PSON) shares plummeted more than 22 percent after it was revealed that well-known and reputed Fox commentator Tobin Smith was paid to promote them. MarketWatch’s Chuck Jaffe wrote a column revealing this information.

Petrosonic energy

Sponsored Investment Research Vs. Independent Analysis

Jaffe points out that it’s difficult for the majority of investors to discern which bits of stock news are sponsored investment research (a.k.a., paid for by the company the news is about) and which are independent analysis by an outside expert who didn’t receive compensation for touting the stock. The line is blurred even further when the sponsored stock news comes from a well-known commentator who is known for providing independent analysis.

Tobin Smith’s Sponsored Campaign For Petrosonic Energy

Last week Tobin Smith apparently ran an email campaign featuring a 20-page report on Petrosonic Energy, Inc (OTC:PSON). Since he is a well-known contributing market analyst who appears often on Fox News Channel, investors paid attention to that campaign, even though emails like it from unknowns would be considered junk mail.

Jaffe said people contacted him and said they were thinking about buying the penny stock simply because Smith said they should and because of how credible he is when he appears on Fox News Channel. Unfortunately however, Smith’s campaign came with a disclaimer which revealed that his firm had received $50,000 in exchange for promoting the stock.

Fox’s Response To The PetroSonic Energy Campaign

According to Jaffe, Fox News Channel has a policy barring its contributors, their firm and their family members from accepting financial compensation in exchange for research, promotion or advertisements. He contacted the network and asked it about Smith’s paid campaign for Petrosonic Energy, Inc (OTC:PSON). The network said it was unaware of the campaign.

Fox wouldn’t comment on the situation, but Jaffe heard that Fox terminated Smith’s contract based on the policy. Smith confirmed it but said that since the policy was added late last year, his contract wasn’t subject to it.

Petrosonic’s Financial Position

Smith’s campaign last week apparently pumped up shares of Petrosonic by about 20 percent, so today’s fall erases those gains. In realty though, Jaffe said there are indications that Petrosonic may not even survive much longer. The company has negative cash flow and zero revenue. Its auditors even doubt whether it can survive.

So Petrosonic was clearly counting on its plan using Smith as a spokesperson to work. It said in its regulatory filings recently that if it can’t generate enough financing, then it will fail.