S.E.C. v. Suter

• Decision Date: 02 August 1984
• Docket Number: No. 83-1452,83-1452
• Citation: 732 F.2d 1294
• Parties: Fed. Sec. L. Rep. P 91,423, 10 Media L. Rep. 2159 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Richard W. SUTER and Richard W. Suter d/b/a National Investment Publishing Company, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1294

732 F.2d 1294

Fed. Sec. L. Rep. P 91,423, 10 Media L. Rep. 2159

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. Richard W. SUTER and Richard W. Suter d/b/a National

Investment Publishing Company, Defendants-Appellants.

No. 83-1452.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 30, 1983.

Decided April 13, 1984.

As Amended Aug. 2, 1984.

Gordon James Arnett, Chicago, Ill., for defendants-appellants.

Larry R. Lavoie, S.E.C., Washington, D.C., for plaintiff-appellee.

Before CUMMINGS, Chief Judge, WOOD, Circuit Judge, and GRANT, Senior District Judge. ^*

GRANT, Senior District Judge.

Defendant-Appellant, Suter, an investment adviser ¹ registered with the Plaintiff-Appellee, the Securities and Exchange Commission, appeals from the issuance of a preliminary injunction which enjoins him from engaging in fraud or deceit upon his clients or prospective clients and from selling unregistered securities. The injunction requires him to maintain proper records, to make an accounting regarding funds received from the sale of securities, and to provide the SEC with copies of all of his future investment advisory publications. Suter raises a plethora of issues on appeal:

I. Whether Suter's activities are subject to the Investment Advisers Act, 15 U.S.C. Secs. 80b-1 to 80b-21 (1976);

II. Whether the first amendment protects Suter's activities;

III. Whether the district court erred in its findings of fact, its conclusions of law, and the conditions of the Preliminary Injunction; and

IV. Whether the procedures followed during an SEC administrative action to revoke Suter's investment adviser registration or the district court's receipt of evidence from the SEC proceeding, violated Suter's constitutional right to:

A. Counsel of his own choice;

B. Have a jury determine the factual issues in the preliminary injunction hearing;

C. Protection from unreasonable search and seizure;

D. Due Process; and

E. Protection against being forced to witness against himself?

For the reasons stated below, we AFFIRM the issuance of the preliminary injunction.

Facts

Since 1969, Suter has provided investment advice through newsletters published by The National Investment Publishing Company [National], his sole proprietorship. From June 1974 to August 1982, Suter published the "National Portfolio Reporter," an investment newsletter containing his strategy for investing in the stock market and specific buy and sell recommendations. In August 1982, he included advice about commodities ² in the newsletter and changed its name to the "Profit Reporter."

Suter uses monthly mass mailings to obtain clients for his advisory services. He promotes his newsletters by referring to himself as "one of the very few investment advisers in the industry today who has accurately called every major turn in the economy since...." He indicates that his newsletters give "accurate, specific, in-depth buy and sell recommendations" to an "elite group of investors." Suter's advertisements extol his ability and success as an investment adviser by claiming that his investment advice regularly earns his followers "Profits of 200%, 300%, 400% and More." The advertisements contain testimonials from satisfied customers and emphasize Suter's twenty years of in-depth research and market experience. They stress Suter's "M.B.A. in the financial field from DePaul University, Chicago," the "large number of graduate seminars in economics [taken] at Cambridge University, England," and his investment adviser registration with the SEC. Finally, the advertisements guarantee a "no questions asked" refund to anyone not satisfied with Suter's investment advice.

The SEC brought an action to enjoin Suter pursuant to its authority under 15 U.S.C. Sec. 80b-9(e) (1976). At the preliminary injunction hearing, the district court found that Suter's advertisements violated SEC regulations, that many of the representations made in those advertisements were blatantly false, that Suter has systematically cheated his subscribers and that Suter has made unregistered offerings of securities.

Suter's advertisements failed to include a list of all buy or sell recommendations made by Suter during the preceding year and to disclose any difficulties or limitations in using his financial indicators. ³ During the course of the hearing, the evidence revealed that two of Suter's "satisfied" subscribers, to whom his advertisements attributed glowing testimonials, had never made the statements; and, in fact, one of the subscribers had demanded a retraction and the other had never subscribed to any of National's publications.

Suter's advertisements not only misrepresented what others said about him, but also, they exaggerated his experience and falsified his educational background. Suter is a thirty-five year old man, not the man of twenty years experience depicted in his advertisements. The registrar from DePaul University, Chicago, Illinois, testified at the preliminary injunction hearing that Suter has no M.B.A. degree from the University. The advertisements failed to note that the Commodities Futures Trading Commission has revoked Suter's adviser registration, and that the SEC has initiated a proceeding to revoke his investment adviser's registration. Finally, Suter consistently refused to honor his money-back guarantees.

National allowed subscribers to pay for their subscriptions with a check or by authorizing National or Suter to bill the subscriber's credit cards. Suter developed a scheme by which he billed, and received credit for, at least 178 credit card subscriptions which were never ordered. In an effort to conceal his bilking, Suter either destroyed the records related to those billings or completely neglected to keep records. Both practices violate the Investment Advisers Act. ⁴

In December 1981, Suter solicited investments in National's subscription list revenues through advertisements and letters. Each investment unit of $6,750 would pay for the mailing of 25,000 advertisements to known buyers of newsletters. Suter promised to use part of the resulting subscription receipts to fill the new subscriptions and to use the remaining revenue for additional mailings, until the end of 1981. In 1982, investors would receive the income from subscription renewals from the subscriptions attributed to their mailings.

Suter's solicitation material failed to inform investors and prospective investors that his tax shelter had not been registered with the SEC. He did not disclose to buyers and possible buyers that his registration with the Commodity Futures Trading Commission had been revoked, thus jeopardizing, if not eliminating, prospective revenues from National's investment newsletter on commodities which had the largest subscription base of any of National's publications. Suter concealed National's 1979 mailing list income, National's 1980 income from subscription renewals, all financial information about both himself and National, and the degree of risk involved in the tax shelter. In addition to denying potential investors material information about the tax shelter, Suter never registered the tax shelter with the SEC as a security.

In January 1982, Suter made a solicitation similar to the December 1981 solicitation. The 1982 offering had the same defects and deficiencies as the 1981 offering.

After reviewing the evidence and the testimony, the district court found that Suter had violated the anti-fraud provisions of the Investment Advisers Act, 15 U.S.C. Sec. 80b-6 (1976) and the registration and anti-fraud provisions of the Securities Act, 15 U.S.C. Secs. 77e, 77g (1976), and the Securities Exchange Act, 15 U.S.C. Sec. 78j (1976). Since the district court found good cause to believe that Suter would continue his illegal practices, it issued a preliminary injunction enjoining Suter from employing fraud or deceit in the sale of his or National's materials, from advertising his or National's publications unless the advertisements comply with regulations promulgated by the SEC, from offering for sale and from selling unregistered securities, from offering for sale and selling securities by deceptive means. The preliminary injunction requires that, during the course of this litigation, Suter and National allow the SEC to inspect the books and records which investment advisers are required to keep, and that he and National maintain the proper records. The preliminary injunction also required Suter to make a detailed accounting of all funds received by him and National from the sale of securities and to provide the SEC with copies of all of his future investment advisory publications.

I. Whether Suter's activities are subject to the Investment Advisers Act?

15 U.S.C. Sec. 80b-2(a)(11) (1976) defines "investment adviser":

(11) "Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities....

Id. (emphasis added). Suter's activities clearly fall within this definition. His investment letters contain investment advice about the stock market and through those letters he gives particular buy and sell recommendations. Suter even promotes his publications as vehicles for providing investment advice.

Suter asserts that he is not an investment adviser by virtue of 15 U.S.C. Sec. 80b-2(a)(11)(D) (1976) which excludes "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation" from the definition. The two Federal Election Commission cases offered by Suter to support his position, Federal Election Commission v. Phillips Publishing, Inc., 517 F.Supp. 1308 (D.D.C.1981) and Reader's...