Most stock promoters will have a disclaimer stating how much they were paid and how they were paid. Typically, they are paid with one or a combination of the following:
- Stock options, warrants
Normally, the 10-K of the promoted company will mention the phrase “investor relations” or “investor awareness”. In some cases however, neither of the two phrases will appear. Instead, the 10-K will mention “consultants” that were paid in stock or stock options. This is a red flag. While it is possible that legitimate consultants to a company are willing to take payment in stock or stock options, such a practice is fairly unusual in the business world.
Suppose on the other hand that the vendor, supplier, or consultant does not provide stock promotion services. Unusual forms of payment still deserve some scrutiny. It is likely that the vendor preferred to be paid in cash. You should ask why the company wanted to give some form of equity to the vendor. It could very well be the case that the company knows that the equity is overvalued. Or, the company may be running out of cash and is paying out equity simply because it is depressed. Before ATPG (ATP Oil and Gas) blew up, it was paying some of its vendors in royalties on its oil and gas assets. This was certainly a sign of distress.