SEC Sues Newsletter Publisher


Violations of 17(b) Alleged for Failing to Disclose Compensation

By Mark J. Astarita, Esq.

September 24, 1998 – the SEC announced the filing of a civil action involving a fraudulent touting scheme engaged in by individuals and the corporate publisher of a Newsletter. The Complaint alleges that the individuals accepted cash and stock payments from issuers of microcap and smallcap securities in exchange for favorable reviews in their purportedly independent newsletter.

The Commission’s Complaint, filed in the United States District Court for the District of Colorado, alleges that, from June 1996 though July 1997, the individuals, through their company, wrote, published and distributed the Newsletter and mailed it to as many as 60,000 investors a month.The Newsletter touted the stocks of a total of 50 microcap and smallcap issuers who paid total consideration of almost $400,000 in stock and cash to the individuals for this service.

The Complaint further alleges that Each of Newsletter failed to disclose, or disclosed inadequately, that the individuals had received consideration in exchange for promoting the featured securities, under Section 17(b) of the Securities Act. Further, SEC alleged that the inviduals violated Section 10(b) of the Exchange Act by presenting the Newsletter as an objective research report drafted by qualified analysts, when, in fact, the newsletter was simply a paid tout sheet.

Section 17(b) requires that whoever gives publicity to a security in return for compensation from an issuer or underwriter must disclose the receipt and the amount of the compensation.

The Commission’s Complaint seeks an injunction against the Halls and Arrowhead to prevent further violations of the federal securities laws, disgorgement of the undisclosed compensation, prejudgment interest, and civil penalties.

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.



Need help with a securities law issue? Call New York Securities Lawyer at 212-509-6544 or visit the website. Representing investors and advisers across the country for over 30 years.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.