The SEC’s Office of Investor Education and Advocacy is issuing this Investor Alert to help investors avoid fraudulent schemes that may be carried out through investment newsletters.
Investment newsletters come in many forms. They may be found online or in hard copy; they may be available for a fee or free of charge. Some newsletters address general securities topics, such as which types of stocks, bonds, or funds might make good investments. Others may provide commentary and analysis about particular companies, investment products, or financial trends.
While many investment newsletters are legitimate, some are used to carry out schemes designed to deceive investors. Such schemes can include:
Some investment newsletters claim to be sources of unbiased information, when in fact the newsletter publisher will make a lot of money if the newsletter convinces investors to buy or sell particular stocks. Do not take comfort because a newsletter encourages you to purchase or sell a stock through your own brokerage account. Even if you do not give the newsletter publisher any money to place trades for you, the newsletter publisher may profit from your trading activity. For example, you may purchase a stock (causing the stock price to rise) and then the newsletter publisher may sell its shares of that stock (profiting at your expense).
If a newsletter promotes a particular stock, read carefully what the newsletter says about compensation it receives and look for these red flags:
"From time to time, the Newsletter may receive compensation from companies we write about."
"From time to time, the Newsletter or its officers, directors, or staff may hold stock in some of the companies we write about."
"The Newsletter receives fees from the companies we write about."
Even if a newsletter makes specific disclosures about being compensated for promoting a stock, be aware that fraudsters may include such disclosures to create the false appearance that the newsletter is legitimate.
Fraudsters may also use newsletters as a way to get their foot in the door to pitch fraudulent investments by phone. Be careful if someone tries to get you to subscribe to a newsletter and then calls you with specific investment recommendations.
When considering any potential investment, watch out for these warning signs of investment fraud:
Use the SEC’s IAPD website or the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck website to check the background, including registration or license status and disciplinary history, of any individual or firm recommending a stock. Some entities that issue investment newsletters are registered with the SEC as investment advisers and have certain responsibilities and obligations. If a newsletter provides a disclaimer stating that it is not published by a registered investment adviser, keep in mind that the entity issuing the newsletter is disclaiming these responsibilities and obligations.
Before making any investment based on information in an investment newsletter, independently and thoroughly investigate the investment opportunity. For more information about how to evaluate a potential investment, read our publication Ask Questions.
Visit Investor.gov, the SEC's website for individual investors.
Follow OIEA on Twitter @SEC_Investor_Ed.
The Office of Investor Education and Advocacy has provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.