Tips for Checking Out Newsletters
October 1998
Find out whether the newsletter received payment to
"tout" or recommend the stock and, if so, what it
received and from whom.
Because the U.S. Constitution's First Amendment protects freedom of speech, the
SEC cannot simply prohibit newsletters from recommending or touting particular
stocks. But when newsletters receive payment for touting, the securities laws
require them to disclose specifically who paid them, the amount, and the type of
payment (cash, stock, or some other thing of value).
Read carefully what the newsletter says about
payments it receives.
Be suspicious of newsletters that do not specifically disclose these items: who paid
them, the amount, and the type of payment. The following examples raise red flags
because they do not contain specific information:
"From time to time, XYZ Newsletter may receive compensation from
companies we write about."
"From time to time, XYZ Newsletter or its officers, directors, or staff may
hold stock in some of the companies we write about."
"XYZ Newsletter receives fees from the companies we write about in our
newsletter."
Think twice about newsletters that bury their disclosures or put them in tiny,
hard-to-read typeface. Legitimate online newsletters that have been paid to tout
stocks will clearly and specifically tell investors who paid them, the amount, and the
type of payment. Look for their disclosure statements in articles about particular
companies or in a list or chart on their websites.
Independently investigate the company or
investment opportunity.
Be wary of anyone who encourages you to invest in small, thinly-traded stocks that
aren't well known and don't file reports with the SEC. Assume that everything you
read about those companies in an online bulletin board, newsletter, or chat room is
untrue until you prove by your own independent research that it isn't. Read our tips
for assessing any investment opportunity, and be sure to download a copy of Ask
Questions.
Don't invest in small, thinly-traded companies unless
you're prepared to lose every penny.
Because small, thinly-traded companies are usually the most risky investments that
you can make, you should always get as much written information as you can from
the company and other independent sources. The SEC and your state's securities
regulator should always be your first stops, but you may also want to visit your
local library and talk with the librarian about other sources of information. There
are also a number of commercial services that provide a constant stream of
information about the financial condition of companies.
Check with the SEC or your state securities
regulator to see if the newsletter has ever been in
trouble.
Whenever the SEC sues a newsletter or stock promoter, we issue a "litigation
release" and post it on our web site. Check the Enforcement Division's home page
to see whether we've brought action against a newsletter or stock promoter who's
touting a stock. You can also search the SEC's non-EDGAR database for this
information.
Your state securities regulator can tell you whether the broker pushing the stock or
the broker's firm has a disciplinary history by checking the Central Registration
Depository (CRD). You can also obtain a partial disciplinary history by contacting
the National Association of Securities Dealers' toll-free public disclosure hot-line at
(800) 289-9999 or visiting their website at nasdr.com.
sec.gov
Last update: 12/17/98 |
