SEC v. Wall Street Pub. Institute, Inc.
| Decision Date | 12 July 1984 |
| Docket Number | Civ. A. No. 82-2000. |
| Citation | 591 F. Supp. 1070 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. WALL STREET PUBLISHING INSTITUTE, INC., Defendant. |
| Court | U.S. District Court — District of Columbia |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Joseph H. Sharlitt, Washington, D.C., for defendant.
Linda B. Bridgman, Jay B. Dorsey, Washington, D.C., for plaintiff.
Plaintiff, the Securities and Exchange Commission, brings this action against Defendant, Wall Street Publishing Institute, Inc., alleging that it has been operating as an unregistered investment adviser and engaging in certain fraudulent practices relating to material misrepresentations published in "Stock Market Magazine" from January 1977 to July 1982. Plaintiff seeks an injunction restraining Defendant from further violations of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-3, 80b-6, § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and § 17(b) of the Securities Act of 1933, 15 U.S.C. § 77q(b).
Presently before the Court are cross-motions for summary judgment. Plaintiff moves for summary judgment on each of the five counts contained in the complaint. Defendant also moves for summary judgment contending that it is not an investment adviser within the meaning of the Act. It contends further that if the Court finds that it is not an investment adviser, judgment must also be entered for Defendant on counts two through four. With respect to count five, Defendant contends that there are genuine issues of material fact and therefore, summary judgment is inappropriate. For the reasons set forth below, Plaintiff's Motion for Summary Judgment is granted and Defendant's Motion for Summary Judgment is denied.
The Investment Advisers Act of 1940, 15 U.S.C. § 80b-3(a), makes it unlawful for any investment adviser, unless registered under the Act, to make use of the mails or any means or instrumentality of interstate commerce in connection with his or its business as an investment adviser. The Act defines an investment adviser as:
15 U.S.C. § 80b-2(a)(11). The Act excludes from the definition of investment adviser "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation." 15 U.S.C. § 80b-2(a)(11)(D).
Count I of Plaintiff's complaint alleges that Defendant is in violation of § 80b-3(a) of the Investment Advisers Act because it has used means or instrumentalities of interstate commerce in connection with its operation as an unregistered investment adviser. Plaintiff moves for summary judgment on this count contending that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law with respect to the issue of whether Defendant is an investment adviser and therefore, required to register under the Act.
Defendant also moves for summary judgment on Count I of the complaint contending that it is not an investment adviser within the meaning of the Act. According to Defendant, Stock Market Magazine is a "bona fide business or financial publication of general and regular circulation." Defendant contends further that the SEC has acted unconstitutionally in denying Defendant status within the exclusion.
The following material facts are not in dispute. Defendant is the publisher of a monthly magazine entitled "Stock Market Magazine." Stock Market Magazine is not registered with the SEC as an investment adviser. During the period of this law suit Defendant has been wholly owned and operated by Angelo R. Martinelli. Martinelli has delegated total responsibility regarding the editorial-side of Stock Market Magazine, that is, the management and content of the magazine, to Bernard D. Brown, Editor. During the period of this law suit, Brown has performed all editorial functions for Stock Market Magazine. His duties as Managing Editor include selection, placement and editing of six-to-eight feature stories and approximately five columns published in Stock Market Magazine per issue. He also writes three columns and responds to reader inquiries. As Acting Publisher he is responsible for business inquiries and decisions and maintains overall supervision for circulation and advertising.
Brown handles all editing of copy published in Stock Market Magazine. He edits the draft articles received from feature companies, public relations firms, and contributing editors for such things as typesetting, grammar, spelling, and space requirements. He also writes the story captions and headlines.
In addition to Brown, Defendant identified as Stock Market Magazine personnel a list of six "contributing editors." All of these "contributing editors" have either (a) been employed by public relations firms for whom they write company feature stories published in Stock Market Magazine, or (b) free-lanced company feature stories directly from the companies or public relations firms for publication in Stock Market Magazine. Editors Brennan and Gropman are employees of public relations firms for whose clients they write stories. Brown also occasionally free-lances company stories for publication in Stock Market Magazine. When an individual free-lances a company story, he writes the story for publication in Stock Market Magazine and in turn receives a fee from the company's public relations firm. None of the contributing editors is registered with the SEC as an investment adviser.
Stock Market Magazine's total revenues are based on subscriptions, newsstand sales, sale of reprints, advertising, and rental of its mailing list. Stock Market Magazine is currently delivered to approximately 12,000 paid subscribers and has some newsstand sales. The subscription price for Stock Market Magazine is $15.00 per year. An individual issue sells for $1.50.
In 1977, a major portion of Defendant's total revenue was based on the sale of feature article reprints and advertising to the featured companies. Some of the public relations agents of the featured companies as well as some of Defendant's contributing editors testified during depositions that there was a generally understood quid pro quo arrangement whereby the company or its agent agrees to purchase reprints of the company feature article for publication in Stock Market Magazine. Further, according to Brown, the featured companies purchase ads for publication in Stock Market Magazine at the rate of $250 to $960 because they are "so grateful at having obtained exposure through favorable stories in the magazine."
Until April 1983, the following objective of Stock Market Magazine appeared in its masthead: "The Stock Market Magazine is published to inform the individual investor at every economic level." The masthead further noted that
Brown admits, however, that in some instances he conducted no interviews regarding the article drafts supplied by the featured companies, their public relations agents, and the contributing editors other than to telephone company officials to verify company figures. He also admits that in some instances he conducted no research for these articles other than to check the annual report and other background material supplied by the featured company. In many instances, Stock Market Magazine publishes the drafts received from the featured companies or public relations firms verbatim. In deposition, Brown stated that he assumes the public relations firm or contributing editor does the research and interviewing described in the masthead.
According to Brown the purpose of the masthead statement is to reassure Stock Market Magazine readers that its feature stories are authentic, objective and in keeping with high standards of journalism. Prior to July 1980 the masthead also stated that its objective was "to help him the investor to make intelligent investment decisions." Until April 1983 the masthead also announced the magazine as the "Voice of the Small Investor."
Stock Market Magazine is 36 pages in length. Articles in each issue are characterized as "Features" or "Departments." There are usually six-to-eight feature stories and eight-to-nine departments. Interspersed among the features and departments to fill out page space are general news items and ads.
During the period covered by this action, the following columns have appeared regularly as "Departments" in Stock Market Magazine: The Wall Street Scene, Green Chips, Low Priced Stock of the Month, Technical Viewpoint, Market Mirror, Ray Dirks on Stocks, and Off Wall Street. According to Brown all of these columns give (a) advice and/or recommendations regarding the value of certain securities; (b) advice and/or recommendations as to the advisability of investing in certain securities, and (c) an analysis of certain stocks and the market in general. The feature articles in each issue of Stock Market Magazine consist of (a) specific company features devoted to a single publicly held company, (b) general features devoted to a number of publicly held companies in an industry or to general investment information and (c) guest articles. Many of the feature stories published profiling specific companies are written and supplied by the companies or their public relations agents.
In a subscriber profile published in 1982, Stock Market Magazine...
To continue reading
Request your trial
-
Oliver v. Black Knight Asset Mgmt., LLC, Civil Action No. 10–1443 (EGS).
...examples of the types of behavior that will suffice to establish claims for violations of section 206. See, e.g., Wall Street Publ'g Inst., 591 F.Supp. at 1081–87 (involving violations arising out of false and misleading statements published in defendant's magazine and defendant's failure t......
-
Tustin v. Heckler
... ... Eli Lilly & Co. v. Premo Pharmaceutical Laboratories, Inc., 630 F.2d 120, 136 (3rd Cir.), cert. denied, 449 U.S ... ...
-
Foltz v. US News & World Report, Inc.
...(1979); Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930, 943 & n. 23 (2d Cir.1984); Securities and Exchange Commission v. Wall Street Pub. Instit., Inc., 591 F.Supp. 1070, 1088 (D.D.C.1984); Coons v. Kidder, Peabody & Co., Inc., 539 F.Supp. 1145, 1147 (S.D.N.Y. 1982). Defendants argue ......
-
SEC v. Moran
...of negligence will satisfy a finding of liability under Section 206(2). SEC v. Steadman, 967 F.2d at 643; SEC v. Wall Street Publishing Institute, Inc., 591 F.Supp. at 1083 (under section 206(2) there is no required showing of scienter); see also, SEC v. Capital Gains, 375 U.S. at 195, 84 S......