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An Open Letter

An Open Letter
from Martin D. Weiss of Weiss Research
Regarding the Settlement Agreement with the SEC
June 26, 2006

Dear Subscriber,

Weiss Research, Inc. and I have just signed a settlement agreement with the Securities and Exchange Commission (SEC).

I am dismayed and disappointed that we have had a disagreement with the SEC. But we will continue to publish our full roster of reports, newsletters and emails with no interruption whatsoever in your service. And I’m pleased to report that this matter has several positive aspects for you, the subscriber, and Weiss Research.

First, it has prompted us to undertake a healthy self-examination of our publishing business, making us even more committed to being one of the best in the country.

Second, the SEC has not disputed the accuracy of our economic data or the objectivity of our analysis. This is very important to me because ever since I founded Weiss Research 35 years ago, I have gone to great lengths to achieve a high level of accuracy and excellence for our readers.

Third, this matter is not about Weiss Research’s large-circulation publications such as our Money and Markets, my Safe Money or Larry Edelson’s Real Wealth Report. It is also unrelated to our sister companies such as Weiss Capital Management, Inc., Weiss Ratings, Inc., and the Weiss School. It’s exclusively about one division of Weiss Research, involving a small percentage of Weiss Research’s paid subscribers.

Fourth, and perhaps most important, this settlement clarifies the dividing line between (a) an investment publisher and (b) an investment adviser. I think that’s good — not only for Weiss Research but for other investment publishers as well.

As part of the settlement, we did not admit or deny any of the SEC’s findings. So please bear in mind that my message to you today has nothing to do with whether one side or the other is right or wrong. Rather, it’s to inform you about the issues and let you know what we’ve done about them.

Investment Publisher
Or Investment Adviser?

The first issue was whether Weiss Research was acting strictly as an investment publisher or also as an investment adviser. What are the differences between publishers and advisers? Here are three:

  • One-size-fits-all vs. customized. An investment newsletter publisher sends out the same information to all subscribers to a particular publication. In contrast, an investment adviser typically provides customized recommendations tailored to the individual goals and circumstances of each investor.
  • Reader or client? An investment newsletter publisher, like an author, has no information about the individual financial circumstances of its readers. In contrast, an investment adviser not only must have all the required information about his clients but also must assume certain responsibilities for each and every one of them.
  • FTC and SEC. The primary regulator of investment publishers is the Federal Trade Commission (FTC). The primary regulator of investment advisers is the SEC.

So whether we were acting as investment advisers was the first issue. Then, if we were acting as investment advisers, the second issue was whether our advertising complied with SEC regulations that apply exclusively to investment advisers:

  • The SEC has guidelines for the presentation of performance numbers. There was no dispute regarding the accuracy of our individual profit claims. Rather, the SEC questioned the balance and context of our presentations, something that’s not required by the FTC for ads by publishers but is required by the SEC for ads by advisers.
  • The SEC also has rules regarding the disclosure of precisely who is making the trading recommendations. Again, in this regard, we believe that our ads were in compliance with FTC regulations for publishers, but the SEC believed that the ads were not in compliance with the SEC’s requirements for advisers.

Autotrading

The issue of publisher vs. adviser came up because of auto-trading.

Auto-trading is a service that a few brokers started in the mid-1990s to help their customers trade their accounts based on investment newsletters.

For example, let’s say you had a favorite investment newsletter and you wanted your broker to buy or sell whatever the newsletter recommended. If your broker offered auto-trading, you could have given him the authority to do so. Then, as soon as the newsletter was published, he’d get a copy, read it and act on the recommendations in the newsletter.

We estimate that less than 2% of Weiss Research's paid subscribers used auto-trading. We didn’t charge our subscribers extra. And we did not accept compensation of any kind from the brokers. Our role was to let our subscribers know that the auto-trading service existed, give them a list of brokers that offered auto-trading, and send the auto-trading brokers copies of our newsletters at the same time as we sent them to all other subscribers.

The SEC alleged that our references to auto-trading made us investment advisers and that we should have registered as advisers with the SEC. By settling, we avoid a long court battle so we can continue to focus all of our efforts on providing you with the top-notch service that you’ve learned to rely upon.

Additional Steps
Weiss Research Has Taken

As publishers, we have always gone to great lengths to fully comply with FTC regulations. However, as I’ve explained, for advisers, the SEC has different requirements than the FTC. So here are the additional steps we have taken:

Additional Step 1. We have ceased mentioning auto-trading in our literature and stopped sending copies of our newsletters to brokers. This helps ensure we are acting exclusively as publishers.

Additional Step 2. Although not required for publishers, Weiss Research has established an internal Compliance Department to review the accuracy, balance and fairness of all marketing materials prior to publication.

Additional Step 3. For even better disclosure, we publish a trade-by-trade record for all our Premium Services.

Additional Step 4. To encourage improved performance results, we have established better procedures for monitoring and rewarding good performance by our analysts, resulting in substantially improved performance.

I’m proud to say these procedures have been in place for quite some time, and they are working well.

Please Come and Visit!

If you’d like more information, I recommend you explore this website. The site tells you a lot more about our business, some of which you may already know, a lot of which you may find new and interesting, including pages dedicated to Weiss Research’s Quality Controls and Standards of Practice, our Mission and Values, Company History, and Public Service.

I believe it will answer any additional questions you may have. If not, please call us at 800-291-8545 Monday through Friday, 9 am to 5pm.

Plus, I’d love to hear from you via email. My email address is martinw@weissinc.com.

I am proud to be the founder and President of Weiss Research and I take great pride in the consummate professionals who comprise this company. I’m firm in my commitment to provide you the highest level of excellence and customer service.

Best wishes,

Martin