In a recently
published alert, the U.S. Security and Exchange Commission (SEC) provides
useful guidance to help investors avoid fraudulent schemes based upon
investment newsletters. It’s a common problem, with investors often getting
enticing information through online or hard copy newsletters. The alert points
out that, though many investment newsletters are legitimate, some have been
found to deceive investors.
The SEC alert lists
a number of things to watch out for, including:
• Touting – This is
when a newsletter promotes a stock without properly disclosing compensation
received for the promotion.
• “Pump and dump”
schemes – This involves pumping up a company’s stock price by making false and
misleading statements to create a buying frenzy, allowing the promoters to then
sell shares at the pumped up price.
• Scalping – This is
simple recommendation of 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 – This is falsely claiming to provide independent
analysis, or failing to explain conflicts of interest (or biases), including
financial incentives, that may influence the investment recommendations.
• False performance
claims – misrepresenting the track record of the newsletter’s investment
recommendations.
If a newsletter
promotes a particular stock, read carefully what the newsletter says about
compensation it receives and look for these red flags:
• No disclosures -
Be suspicious if the newsletter does not disclose having received any
compensation.
• Vague disclosures
- Be skeptical of newsletters that do not specifically disclose who paid them,
the amount, and the type of payment.
• Buried disclosures
- Be wary if the newsletter’s disclosures are difficult to find or appear in
tiny, hard-to-read print.
• Questions about
your stock purchases - Be careful if a newsletter representative asks you
detailed questions about your stock purchases like how many shares you bought,
when you purchased the shares, or which broker you used to buy the shares. The
newsletter publisher may make money based on the amount of shares its
subscribers buy.
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:
• Promises of high
investment returns – Be highly suspicious if the promoter guarantees you a high
rate of return on your investment.
• Pressure to buy
RIGHT NOW - Be skeptical if the promoter pitches the investment as a “limited
time only” opportunity, especially if the promoter claims to base the
recommendation on “inside” or confidential information.
• Sounds too good to
be true - Exercise caution if the investment sounds too good to be true.
Investments providing higher returns typically involve more risk.
For additional
information on the SEC’s recent investment alert, visit http://dtg.fm/q7JJ.
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QualityStocks is committed to connecting subscribers with companies that have huge potential to succeed in the short and long-term future. We offer several ways for investors to find, evaluate, and learn more about investing in these companies.
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