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Extra, Extra, Read All About It: Guidance on Registration Requirement for Publishers of Newsletters

Oftentimes the question arises as to whether or not the publisher of an investment newsletter is required to register as an investment adviser.  Section 202(a)(11) of the Investment Advisers Act of 1940 (the "Act") broadly defines an investment adviser as "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."  On first reading this definition, it may appear as though a publisher would fall within this general definition.  However, specifically excluded from the definition is "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation."  This exemption is often referred to as the "publisher's exemption," and its purpose is to ensure First Amendment protection of financial and investment publications.   In Lowe v. Securities and Exchange Commission, the US Supreme Court allowed the petitioners to publish investment advice and commentary in newsletters without registering as investment advisers so long as:

  1. The publication only offers impersonal advice, not tailored to individual needs of a specific client or group;
  2. The publication is "bona fide," meaning it is a "genuine" publication in that it contains disinterested commentary and analysis as opposed to promotional materials disseminated by a "tout"; and
  3. The publication is published regularly, and not just in response to events affecting the securities industry.

While the Lowe case establishes the basis of the "publisher's exemption," other cases have further limited the scope of the exemption.  For instance, In the Matter of Weiss Research Inc., the SEC argued that Weiss Research was precluded from relying on the exclusion because they effectively had investment discretion on behalf of its auto-trading subscribers.  Furthermore, in SEC v Yun Soo Oh Park, the SEC alleged that a website operator was an adviser due to (1) his "touting" of stock in which he had an interest, (2) the defendant's use of individualized emails, and (3) the website being geared towards a particular category of individuals rather than the general public. As seen, while the publisher's exemption may allow certain publishers from having to register as advisers, each case is fact specific and requires scrutiny.  For further information about this, or other related topics, please contact us at (619) 298-2880, or at [email protected].

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