Red Flag Warning: SEC Warns Investors Against Questionable Investment Research

Estimated reading time: 1 minutes, 34 seconds

In a recent press release, The Securities and Exchange Commission (SEC) announced enforcement action against 27 individuals and entities. The action is a result of alleged stock promotion schemes appearing as independent, unbiased analyses on investing websites.

The SEC advises investors to use multiple sources and never make investments based solely on a single piece of investment research.

In its press release, the SEC revealed it uncovered misdeeds by public companies. First, the companies hired promotors to generate publicity for their stocks. Second, the companies hired writers to publish bullish articles about the companies without disclosing any payment from those companies. According to the SEC, the articles appeared to be impartial but “were nothing more than paid advertisements.”

SECAs aforementioned, the SEC filed fraud charges against 27 individuals and entities. The list included three public companies and seven stock promotion or communications firms. Some of the charged individuals settled, while litigation continues against others.

In a separate investor alert, the SEC states definitively that investment research website articles “may not be objective and independent.” It also warns against stock promotion schemes via the following sources:

  • social media,
  • investment newsletters,
  • online advertisements,
  • email,
  • Internet chat rooms,
  • direct mail,
  • newspapers,
  • magazines,
  • television and
  • radion.

The SEC also warns against stock promotions from someone you don’t know. It adds, “If a company’s stock is promoted more heavily than its products or services, this may be a red flag of investment fraud.” It also mentions microcap stocks, a topic upon which a similar investor alert was released in March 2016.

The same logic applies in both cases, though: doing the proper due diligence prior to executing an investment can save you a great deal of heartache down the road. Look for the red flags of fraud and do extensive research before pulling the trigger on any investment.

Please consider spending a few moments to view the full SEC investor alert. And for more information on investor alerts and investment safety, visit our Before You Invest page.

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