SEC Issues Investor Alert on Investment Newsletters Used as Tools for Fraud

The SEC Office of Investor Education and Advocacy issued an investor alert to help investors avoid fraudulent schemes that may be carried out through investor newsletters.According to the SEC, investor newsletters come in many forms and some are legitimate; however, some are also used to carry out schemes designed to deceive investors, including:

• touting or promoting a stock without properly disclosing compensation received for promoting the stock;
• "pump-and-dump" schemes that pump up a company's stock price by making false and misleading statements to create a buying frenzy and then sell shares at the pumped-up price;
• scalping, or recommending a stock to drive up the stock price and then selling shares of the stock at inflated prices to generate profits;
• undisclosed conflicts of interest, or falsely claiming to provide independent analysis or failing to explain conflicts of interest (or biases), including financial incentives, that may influence the investment recommendations; and
• false performance claims.

The SEC suggests that, before making any investment based on the information in an investment newsletter, individuals should investigate thoroughly their investment opportunities. For more information about how to evaluate a potential investment, read the SEC's investment publication, Ask Questions.

See: SEC Investor Alert: Investment Newsletters Used as Tools for Fraud.