October 27, 1998 – The SEC announced the filing of a complaint in the U.S. District Court for the Northern District of Texas seeking a permanent injunction and civil penalty against the author of an investment newsletter which was published on the Internet. The complaint alleges that the author violated Section 17(b) of the Securities Act of 1933 by publishing and circulating at least three newsletters touting the stock of an issuer without disclosing that he anticipated and received compensation from this issuer.
According to the SEC, beginning in or around July 1997, the author was negotiating with this issuer to provide consulting services for eighteen months in exchange for compensation of $2,500 per month. One element of the services to be provided was to heighten public awareness of the existence and merits of this issuer. The complaint further alleges that after the author began negotiating with this issuer, he touted the stock of this issuer in an untitled newsletter without any disclosure that he anticipated receiving compensation from this issuer. According to the SEC, after the author entered into a written agreement with this issuer and this issuer began compensating him on a monthly basis, he touted the stock of this issuer in two separate issues of the newsletter without disclosing that he had received compensation and anticipated additional compensation from this issuer. The newsletter contained only a general disclaimer that The Equity Journal and/or its affiliates “may receive compensation” from some of the profiled companies.
Without admitting or denying the allegations of the complaint, the author consented to the entry of a permanent injunction prohibiting him from committing violations of Section 17(b) of the Securities Act of 1933. He also agreed to pay a civil penalty of $5,000.
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.
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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 - SECLaw.com, 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.