Some companies pay people to write online newsletters recommending their stocks, which are referred to as investment newsletters. Federal securities laws require the newsletters to disclose who paid for their product, the amount, and the type of payment. Many fraudsters fail to do so and instead masquerade their newsletters as sources of unbiased information, when in fact they stand to profit if investors follow their advice and purchase or sell certain stocks.
Investment newsletters are often used as part of “pump and dump” schemes in order to attract investors to purchase the securities the fraudsters are trying to sell. These newsletters are commonly sent by e-mail or fax. It is important for investors to remain skeptical and to investigate on their own the assertions that are being made in investment newsletters. Investors should check to see whether the Securities and Exchange Commission (SEC) has brought legal action against a newsletter and whether the newsletter has a disciplinary history in their state and with the Financial Industry Regulatory Authority.
For more information, see:
- Securities and Exchange Commission (SEC):
- http://www.sec.gov/investor/pubs/cyberfraud.htm
- http://www.sec.gov/investor/pubs/cyberfraud/newsletter.htm.
- The SEC warns investors about online investment newsletters that offer seemingly unbiased information free of charge, but are actually tools for fraud.
- https://www.sec.gov/oiea/investor-alerts-and-bulletins/social-media-and-investment-fraud-investor-alert
Illustrative Cases: Lowe v. SEC, 472 U.S. 181 (1985) and United States v. Marsh, 820 F. Supp. 2d 320 (E.D.N.Y. 2011)
[Last updated in March of 2023 by the Wex Definitions Team]
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