Tips for Checking Out Newsletters
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:
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, which can be found at the website of the North American Securities Administrators Association, 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). To check the disciplinary history of the broker or firm that's touting the stock, use NASD's BrokerCheck website, or call NASD's BrokerCheck Program hotline at (800) 289-9999.