A National Securities Arbitration & Investment Fraud Law Firm

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Securities Arbitration Attorneys Our FINRA arbitration lawyers work with investors to recover losses caused by securities fraud, investment fraud, and other kinds of stockbroker misconduct.

Be Cautious of Investment Newsletters

Fraudulent schemes can cost investors significant amounts of money. One type of investment fraud involves the use of newsletters distributed to investors. These schemes, as well as the individuals who commit them, are closely monitored by both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Investors Beware

The use of investment newsletters to begin fraudulent schemes has become so prevalent that the SEC Office of Investor Education and Advocacy issued an Investor Alert related to the subject. Newsletters may be distributed in print form or entirely online. Some of them are made available completely free of charge, while others are only available through payment. Additionally, the topics they discuss range from general topics to very specific issues related to the securities industry.

In certain cases, investment newsletters are used to perpetrate fraudulent schemes or to deceive investors. Some of these fraudulent schemes include:

  1. Touting or promoting stock without disclosing the compensation or payment received for providing such promotion;
  2. Making false and misleading statements to initiate increased buying that leads to an artificial increase in the price of the stock. Once the price is high enough for the person committing this scheme, he or she sells their shares and the statements end, causing the price of the stock to drop. This is known as a “pump and dump” scheme.
  3. Failing to disclose conflicts of interest, including not providing independent analysis, despite claims to the contrary. Authors and publishers of newsletters should disclose any financial incentives that they are receiving that may influence their recommendations. For example, a publisher may enjoy significant monetary benefits if the newsletter is successful in encouraging buyers to buy or sell particular stocks.

If a newsletter discusses a particular stock, there are red flags that investors should be aware of, such as insufficient disclosures. This includes when nothing is mentioned about compensation received by the publisher or author. But, it also includes not specifically stating who is being paid, what amount is being paid, and what form the payment is in. Additionally, even if information is given, it may be a red flag if that information is difficult to find or in very small print.

Even when disclosures are sufficiently made, investors should still be cautious. This is because the newsletter may still be part of a fraudulent scheme. In some cases, disclosures are intentionally made in an effort to give the newsletter an air of legitimacy. However, these newsletters may be part of a scheme intended to entice the investor to enter into a phone conversation that allows for a fraudulent scheme to be pitched.

Investors are encouraged to check the SEC’s Investment Adviser Public Disclosure website and FINRA’s BrokerCheck for information about the individuals or entities publishing or writing investment newsletters.

Helping Investors

If you have suffered financial loss due to a fraudulent scheme, it may be possible for you to recover against those responsible for your losses. For more information, contact an experienced securities law attorney today. At the Silver Law Group, we provide legal representation for investors harmed by the misconduct of investment professionals.

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