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You are here: Information Center >> Consumer Protection >> Investments

Investments

Are online investment newsletters legitimate?

There are many online investment newsletters that offer investors unbiased information, free of charge, about featured companies or recommend stock picks of the month. However, while legitimate online newsletters help investors gather valuable information, others are tools for fraud.

Some fraudulent online newsletters claim to independently research the stocks they profile, while they are actually being paid by the profiled company. Others spread false information or promote worthless stocks. Still others drive up the price of the stock with baseless recommendations and then sell their own holdings at high prices and high profits.

How can I tell if an online investment newsletter is fraudulent?

Be cautious of any investment newsletter that promises quick profits, offers to share inside information and pressures you to invest before you have an opportunity to investigate.

Remember that no financial investment is risk free. Therefore, no investment newsletter can "guarantee" a high return on your investment. Also remember that a high rate of return means a greater risk.

Think twice before investing in investment opportunities in other countries. When you send your money abroad, if something goes wrong, it will be more difficult to find out what happened and to locate your money than if you invested locally.

I keep receiving e-mails telling me about a hot stock. Because I have gotten so many, I assume that the investment company is here to stay and that the offer is legitimateódo you?

Because junk e-mail is cheap and easy to create, it is increasingly used by con artists to find investors for bogus investment schemes or to spread false information about a company. By using a bulk e-mail program, a con artist can send personalized messages to thousands of Internet users at one time.

The simple answer to this question is "no." If you are solicited through e-mail, remember this: no one does legitimate business though unsolicited e-mail.

What is a "Ponzi scheme"?

A Ponzi (or pyramid) scheme is an investment fraud in which the fraudulent operator promises incredible returns on nontraditional investments. Investors are strongly urged to bring family and friends into the investment group. The problem is that the dividends paid to the initial investors are comprised of the money invested by new victims of the scamósometimes your friends and relatives. The scheme goes south when the scammer takes off with all the money, or when new investors cannot be brought into the scheme. Without the money from new investors to pay for the older members, the cash flow will dry up.

What does "pump and dump" mean?

Pump and dump refers to investment schemes (often found on Internet bulletin boards) that urge investors to buy a stock quickly or tell investors to sell before the price goes down. Quite often, the proponents of this information will claim to have "inside" information about an upcoming development with the company in question. However, they are most often paid promoters who stand to gain by selling their shares after the stock price is pumped up by gullible investors. Once these promoters sell their shares and stop hyping the stock, the price falls and investors lose their money.

How do I know whether or not it is safe to invest in a company?

Although the information in this section has dealt with Internet investment frauds, it is important to recognize that online investment fraud mirrors frauds which are perpetrated over the phone or through the mail. Therefore, the following information should be taken into consideration when thinking about any investment óregardless of how you received the information.

Before investing in any company, ask the following questions:

  • Is the investment registered with the Securities and Exchange Commission and the state securities agency in the state where you live, or is it subject to an exemption?
  • Is the person recommending this investment registered with your state securities agency? Is there a record of any complaints about this person?
  • How does the investment match your investment objectives?
  • What are the costs to buy, hold and sell this investment? How easily will you be able to sell?
  • Who is managing the investment? What experience do they have?
  • How great is the risk of losing money?
  • What return can be expected on your investment? When can you expect to receive a return?
  • How long has the company been in business? Are they making money? What other companies are in the same business, and how are they doing financially?
  • How can you get more information about the investment, such as audited financial statements?

What can I do if I have fallen for an investment scam?

If you have reason to believe that you have been the victim of a securities-related fraud, whether through the Internet or otherwise, or if you believe that any person or entity may have violated or is currently violating the federal securities laws, you can submit a complaint using the SECís online complaint form found at: www.sec.gov/complaint.shtml or e-mail the SEC at enforcement@sec.gov.