A more thorough explanation:

Investment newsletters are online publications that recommend stocks of certain companies. Some companies pay people to write these newsletters. Federal securities laws require the newsletters to disclose who paid for their product, the amount, and the type of payment. However, some fraudsters fail to do so and instead pretend that their newsletters are unbiased sources of information. They stand to profit if investors follow their advice and purchase or sell certain stocks.

Investment newsletters are often used as part of “pump and dump” schemes. This means that fraudsters try to attract investors to purchase the securities they are trying to sell. They send these newsletters by email or fax. Investors should be skeptical and investigate the assertions made in investment newsletters.

For example, a company may pay someone to write a newsletter recommending their stock. The newsletter may not disclose that the company paid for it. The writer may pretend that the newsletter is unbiased and that they have no financial interest in the company. However, if investors follow their advice and buy the stock, the writer and the company will profit.

Investors should check whether the SEC has brought legal action against a newsletter and whether the newsletter has a disciplinary history in their state and with the Financial Industry Regulatory Authority.

Overall, investors should be careful when reading investment newsletters and should investigate the claims made in them.