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As long as the communications between investment newsletter publishers and their subscribers remain entirely impersonal and do not develop into the kind of fiduciary, person-to-person relationships that were discussed at length in the legislative history of the Investment Advisers Act of 1940 (Act), and that are characteristic of investment adviser-client relationships, the publications are, at least presumptively, within the exclusion to § 203(c) of the Act, 15 U.S.C.S. § 80b-3(c) and thus not subject to registration under the Act.
The Securities and Exchange Commission (SEC), after a hearing, ordered the revocation of a corporation's registration as an investment adviser, after the corporation's president and principal shareholder was convicted of various criminal offenses involving investments. The SEC also ordered the corporation's president not to associate with any investment adviser. Subsequently, the SEC brought an action in the United States District Court for the Eastern District of New York, alleging that the corporation's president and the corporation were violating the Investment Advisers Act of 1940 (15 USCS 80b-1 et seq.), and the SEC's order, by publishing, for paid subscribers, securities newsletters containing investment advice and commentary. The District Court denied for the most part the SEC's requested injunctive relief and held that the Act must be construed to allow the corporation and its president to register for the limited purpose of publishing the newsletters. The United States Court of Appeals for the Second Circuit reversed, holding that the corporation and its president were engaged in business as "investment advisers" within the meaning of the Investment Advisers Act of 1940 (725 F2d 892). Certiorari was granted.
The Court held that petitioners’ publications fell within the statutory exclusion for bona fide publications, none of the petitioners was an "investment adviser" as defined in the Act, and therefore neither petitioners' unregistered status nor the SEC order against the president provided a justification for restraining the future publication of their newsletters. Because the content of petitioners' newsletters was completely disinterested and because they were offered to the general public on a regular schedule, they were described by the plain language of § 202(a)(11)(D)'s exclusion. The Court held that the mere fact that a publication contained advice and comment about specific securities did not give it the personalized character that identified a professional investment adviser. Thus, petitioners' newsletters did not fit with the Act’s central purpose because they did not offer individualized advice attuned to any specific portfolio or to any client's particular needs.