5 Easy Tips to Identify Fraudulent Investment Newsletters

Investment newsletters come in various formats and under many names.. Learn the top 5 tips to identify fraudulent investment newsletters

Updated on April 10, 2024
5 Easy Tips to Identify Fraudulent Investment Newsletters

If you are considering getting into self-directed investing, you know you will have to start with research and understanding the world of investment in stocks and bonds. You will come across several newsletters and investment advice material in your quest for that research. Investment newsletters come in various formats and under many names. They are usually online, and some charge a fee to access their newsletter, and others will offer it for free. However, the intent of putting these investment advice newsletters out can be sketchy. In this article, you’ll learn the top 5 tips to identify fraudulent investment newsletters

Like in any business, plenty of players will try to make a quick buck out of unsuspecting customers. It is essential to decipher the newsletters and advice and determine which ones are authentic, genuine, and fraudulent.

The US Securities and Exchange Commission heavily regulates the investment and stock market sector and alerts consumers to be vigilant against fraudulent investment newsletters.

That begs the question: how does one determine which newsletters are authentic and which are fraudulent?

In this article, we have put together five tips to identify fraudulent newsletters. To explore a legitimate newsletter and stocks review site.

Tip # 1: Look out for Schemes

Our first tip is to understand the intent of fraudulent newsletters. Once you know why they do what they do, you can pick out the fraudulent ones from the good ones.

Fraudulent newsletters generally intend to create hype about a particular set of stocks to drive buying so they can sell those stocks and shares and make a profit. Generally, fraudulent newsletters have specific schemes specifically crafted to deceive investors. The schemes are:

Schemes To Identify Fraudulent Investment Newsletters

  • False Promoting: Some newsletters falsely promote stocks in which the writer has a vested interest. They will ‘tout’ shares and stocks to create hype and buzz, hoping to create a buying frenzy.
  • Pump up the Price and Dump Shares: Some players in the industry would first hoard some stocks and shares and then create hype to pump up the shares’ price. If they are successful, there will be a huge buying frenzy that will drive up the price so they can dump the shares to profit. In actuality, the hype they create are inaccurate and leaves the buyers with junk stocks that have been overinflated due to the frenzy.
  • Scalping Shares: The other scheme to deceive is to talk up a particular company and its stocks and then sell shares to followers at an artificially inflated price—like scalping tickets.
  • Dishonest about Conflicts of Interest: Genuine newsletters will be upfront and honest about their disclosures and conflicts of interest. The fraudulent ones will be dishonest about their conflict of interest to get you to buy into the frenzy they hope to create. Some investment gurus will claim to be unbiased in their opinion when the reality is that they stand to make a huge profit if their readers buy the stocks they recommend.
  • Inaccurate Fabricated Claims: Fraudulent newsletters can be easily identified by their false claims that their recommendations have earned people thousands of dollars in profits in just a short few days. They don’t hesitate to present inaccurate information and fabricated claims to give them credibility.

Tip #2: Understand their Disclosures

If a newsletter promotes and recommends a particular stock, research carefully what its disclosure is regarding what it gains from making these recommendations. By law, newsletters must provide full disclosure of their potential gains.

Short of direct and complete disclosures, be suspicious to identify fraudulent investment newsletters of the following:

  • Disclosures: Firstly, look out for how much effort the newsletter has made to make it very difficult for you to uncover its disclosure statements. Tiny fonts or those hidden from plain sight are all reasons to be suspicious.
  • No Disclosure: Secondly, beware if a newsletter provides no information whatsoever about how they gain from providing recommendations. Nobody does this type of work for a charity or as philanthropy. There is nothing wrong with receiving financial incentives to recommend certain stocks. Claiming the newsletter writer does not gain anything from their recommendation is a red flag.
  • Vague Disclosure: Finally, if the disclosure details are inadequate regarding how much the writer gains and what types of compensation they receive, that is also a red flag.

Tip #3: Unrealistic Promises To Identify Fraudulent Investment Newsletters

Look out for unrealistic promises made by newsletters. Follow the golden rule of “If it is too good to be true, it certainly is NOT true.” If newsletters claim that their advice has provided a 300% return in just a short period, that is a red flag!

Tip#4: Urgency and Pressure

Look out for urgency and pressure to buy in the recommendations of newsletters. If anything makes you feel like you are about to lose the opportunity to become a millionaire overnight. If you don’t buy the stocks these newsletters recommend, then run away from that newsletter!

Tip #5: Intrusive Questions

Some fraudulent newsletters will try to gain legitimacy. By asking you to buy through your brokerage firm to prove they are not gaining anything from their advice. However, they will then make a phone call to you to solicit you directly.

They will then ask you intrusive questions about your trade. How many shares have you bought when you buy them? Which broker are you using? They are trying to identify your trade to claim their commission. Moreover, if you are experiencing intrusive questions from such a newsletter publisher. That should be a clue that the newsletter cannot be trusted.

Identify Fraudulent Investment Newsletters Final Thoughts

Investing is complicated and involves scrutiny every step of the way. Yes, it is true; a lot of profit is made by investing in the right stocks and buying at the right time. Finally, there is tremendous value to solid sage advice from newsletter publishers in the investing space. It is educational to read about how the publisher came to the recommendation they are advising.

In conclusion, keep a keen eye out for fraudulent publishers and always be vigilant. If you ever doubt a publisher, you can look them up on the SEC IAPD website to see their background, history, and track record. Good luck with your investment journey!