Many investors are attracted to small cap investments because of the opportunity of making a large, quick profit. Unfortunately, most sophisticated investors also know that with the hope of a great profit comes tremendous risk. In trying to reduce the amount of risk with any investment, investors seek out and rely on research, information and professional reports.

With the advent of internet, investors now have at the touch of a button and click of a mouse, research from the four corners of the investment world. This is especially important for the small cap investor who feels with all the available information now more than ever armed with the tools and analysis to invest in such small cap stocks.

However, among the information that is available is information which falls under the category of promotion in the form of investment letters and analysis. The unsophisticated and even more experienced investor will sometimes be fooled by what appears to be a professional report, when in fact they are faced with unadulterated advertisement. The wolf dressed in sheep’s clothing is no other than a paid promoter pushing a stock under the guise of independent research called the investment newsletter.

Many investment newsletter writers are being paid to write positive reports for the company’s that have paid them. In a world where many investors have to rely on professional reports to make important investment decisions, such biased and paid newsletters can lead the unwary down a path of misfortune.

Section 17(b) of the Securities Act of 1993 makes it unlawful for any person to publish or circulate any letter, investment service, or communication which describes a security without disclosing that the publisher is receiving compensation and the amount of such comopensation. The disclosure is not only required when the publisher is promoting the stock positively, but merely describing or discussing the stock.

So how does this section help the investor?. All investment newsletters must disclose any compensation that the publisher is receiving. Accordingly, you as the investor should be on the lookout for statements in newsletters which fail to fully disclose any compensation or disclose compensation paid to the publisher by the company he or she is recommending.