The financial world is buzzing with the recent revelations regarding Moko Social Media (NASDAQ: MOKO). Moko, once an enticing global social media platform tailored towards niche interests like college sports, running and progress politics, has become a high-risk investment nightmare. Investigations are now underway to determine if recommending this investment to customers may have violated securities laws.
Unveiling Moko Social Media
Starting in Australia, Moko Social Media sought to carve a unique place in the overcrowded social media market. Its strategy? Cater to special-interest groups within areas such as local college sports, running communities, and progressive politics. This rather unconventional approach enabled the company to expand its operations, gradually spreading to the U.S., the U.K., and parts of Southeast Asia. However, the glitz and glamour that surrounded its ambitious start soon started to fade, leading to serious financial problems.
The Risky Underbelly of Moko’s Endeavor
Back in its heyday, Moko Social Media carried out an initial public offering of American Depository Shares (ADS), which essentially are equity shares of a foreign company. But here’s the kicker. Even with this fundraising effort, Moko was not exactly on stable footing. As the company’s prospectus made clear, this was a highly risky investment that came with a slew of caveats.
In its filing with the Securities and Exchange Commission (SEC), the company explicitly stated, “Investing in the ADSs involves a high degree of risk.” Here are a few stark examples:
- ‘Our auditors have issued a ‘going concern’ emphasis of matter qualification regarding their opinion on our financial statements.’ This suggested doubts over Moko’s ability to continue its operations over the coming year.
- ‘There can be no assurance that our current cash reserves and anticipated revenues will be sufficient to enable us to reach a cash-flow positive position or fully finance our business plan.’
- ‘If we cannot continue as a viable entity, our shareholders may lose some or all of their investment in us.’
The writing was undoubtedly on the wall. Yet, despite these warnings, some financial professionals still chose to recommend Moko shares to their clients.
FINRA Violation: When Risky Gets TOO Risky
Regulation Best Interest stipulates that brokerage firms must exercise reasonable care and skill when they approve securities for recommendation to clients. They also owe these clients due diligence – a responsibility to be aware of and inform about the risks associated with such investments.
However, the risk associated with Moko’s shares was evidently out in the open. So, should investors – especially those who expressly stated their preference for moderate or conservative investments or those whose age or retirement status made risky investments unsuitable – have to bear such losses?
This begs the question: Did these financial professionals act in violation of the Financial Industry Regulatory Authority (FINRA) regulations in recommending Moko shares, knowing the extreme risk associated with them?
What’s Next for Moko Investors?
Fast forward to today, and Moko has succumbed to its impending doom. In 2016, the company announced losses of $16 million, a sequel to similar losses suffered in 2015. It was subsequently delisted from NASDAQ after the total value of its securities plunged below the stock exchange’s $50,000,000 minimum. Later that year, it entered administration, and restructuring specialists from Deloitte took over the sell-off process.
Investors who were lured into this investment are highly encouraged to seek professional guidance from a securities attorney. If a financial professional recommended Moko shares without full disclosure or in disregard of an investor’s stated preferences, the affected parties may have a valid case for securities fraud.
Moko’s story serves as a stark reminder of the role of due diligence and transparency in financial investments. While the allure of high returns often comes hand in hand with increased risk, it is critical that investors are in the know about these risks. It is equally crucial that financial advisors act within their regulatory obligations, ensuring their clients’ best interests are always the driving force of their recommendations. But as the Moko debacle clearly illustrates, this does not always happen. For now, all eyes will be on the ongoing investigations into whether securities laws were indeed violated in the recommendations of Moko shares.