# Amicus Curiae Brief — Lowe v. SEC

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1985
- **Citation:** 472 U.S. 181

## Text

No. 83-1911 NOV 15 1984

CHRISTOPHER L. LOWE ET AL.,
7 Petitioners,
SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Writ of Certiorari to the United States Court of Appeals
for the Second Circuit

BRIEF IN SUPPORT OF PETITIONERS
FOR AMICI CURIAE
THE REPORTERS COMMITTEE FOR FREEDOM
OF THE PRESS
AMERICAN SOCIETY OF MAGAZINE EDITORS
AMERICAN SOCIETY OF NEWSPAPER EDITORS
ASSOCIATED PRESS MANAGING EDITORS
THE MEDIA INSTITUTE
NATIONAL NEWSPAPER ASSOCIATION
THE NEWSLETTER ASSOCIATION
NEWSPAPER GUILD
NEW YORK FINANCIAL WRITERS ASSOCIATION
SOCIETY OF PROFESSIONAL JOURNALISTS,

SIGMA DELTA CHI
Of Counsel: NANCY J. BREGSTEIN
BENJAMIN W. BOLEY (Counsel of Record)
SHEA & GARDNER RICHARD M. WYNER
1800 Massachusetts Ave., N. W. SHEA & GARDNER
Washington, D.C. 20036 1800 Massachusetts Ave., N.W.
(202) 828-2000 Washington, D.C. 20036
Jack C. LANDAU (202) 828-2000
Ropert S. BECKER Counsel for Amici Curiae
THE REPORTERS COM MITTEE

FOR FREEDOM OF THE PRESS
800 18th Street, N.W.
Washington, D.C. 20006 [List of counsel continued
(202) 466-6318 on inside cover.]

November 15, 1984
— DTD —

WILSON - Eres PRINTING Co.. INC. - 789-0096 - WASHINGTON, C. 20001

P

Of Counsel:

RICHARD M. SCHMIDT
Conn & MARKS
1333 New Hampshire
Ave., N.W.
Washington, D.C. 20086

Counsel for American Society of
Newspaper Editors

RICHARD N. WINFIELD
Rocers & WELLS
200 Park Ave.
New York, N.Y. 10017

Counsel for Associated Press
Managing Editors

RoBertT J. BRINKMANN
NATIONAL NEWSPAPER
ASSOCIATION
1627 K St., N.W.
Washington, D.C. 20006

Davip BARR
Barr & TEER
1899 L St., N.W.
Washington, D.C. 20036

Counsel for
The Newspaper Guild

Bruce W. SANFORD
BAKER & HOSTETLER
818 Connecticut Ave., N.W.
Washington, D.C. 20006
Counsel for Society of
Professional Journalists,
Sigma Delta Chi

TABLE OF CONTENTS

INTEREST OF AMICI CURI AE
V
SUMMARY OF ARGUMENT
e

I.

II.

CONCLUSION

FINANCIAL NEWSLETTERS ARE ENTI-
TLED TO FULL FIRST AMENDMENT PRO-
,’ SRE Le

A. The First Amendment Fully Protects Finan-
cial and Economic Advictceꝝtʒʒ

B. Speech About Financial or Economic Mat-
ters, Including Investment Recommenda-
tions, Is Not “Commercial Speech)!

C. Prohibiting the Publication of Financial
Newsletters by Unregistered Publishers is
Not Like the Regulation of Commercial Ac-
tivity or the Licensing of Professionals

1. Regulation of commercial activity —_...........
2. Licensing of professionals

IN PROHIBITING THE PUBLICATION OF
FINANCIAL NEWSLETTERS WITHOUT A
LICENSE, THE ACT IMPOSES AN UNCON-
STITUTIONAL PRIOR RESTRAIN T

A. The Prior Restraint Imposed by the Act’s
Registration Requirement Cannot Be Justi-

1. The Act unconstitutionally compels finan-
cial publishers to register with the gov-
.

2. The right to publish may not constitu-
tionally be denied on grounds of prior
ENS .

B. The Publication of Financial Newsletters by
Unregistered Publishers Cannot Be En-
, !..

Co

11

30

ii
TABLE OF AUTHORITIES

Cases: Page

Abood v. Detroit Board of Education, 431 U.S.
1 — — B 8
All Diet Foods Distributors, Inc. v. Time, Inc., 56
Misc. 2d 821, 290 N. V. S. 2d 445 (Sup. Ct. 1967) 11
American Column & Lumber Co. v. United States,
gE Bs, errr een oe 17
Associated Press v. NLRB, 301 U.S. 103 (1937). 17
Bantam Books, Inc. v. Sullivan, 372 U.S. 58

c 21, 29
Bates v. State Bar of Arizona, 433 U.S. 350
45 . 12, 13, 14
Bayside Enterprises, Inc. v. Carson, 470 F. Supp.
, 28
Bolger v. Youngs Drug Products Corp., 51
U.S. L. W. 4961 (U.S. June 24, 1983) 12, 14

Bon Air Hotel, Inc. v. Time, Inc., 295 F. Supp.
704 (S. D. Ga. 1969), af d, 426 F.2d 858 (5th
r ( 10
Bose Corp. v. Consumers Union, 508 F. Supp. 1249
(D. Mass. 1981), aff'd in pertinent part and
rev'd in part, 692 F.2d 189 (Ist Cir. 1982), af d,

52 U.S.L.W. 4513 (U.S. Apr. 30, 198477 10
Branzburg v. Hayes, 408 U.S. 665, (1972) 22
Buckley v. Valeo, 424 U.S. 1 (1976) 24, 27

Burroughs v. United States, 290 U.S. 534 (1934) 25
Cantwell v. Connecticut, 310 U.S. 296 (1940) 24, 27
Central Hudson Gas & Electric Corp. v. Public

Service Commission, 447 U.S. 557 (1980) 12, 13, 14
Citizen Publishing Co. v. United States, 394 U.S.
r 17
Collin v. Chicago Park District, 460 F. 2d 746 (7th
cc 28
Communist Party v. Subversive Activities Control
r 25
Curtis Publishing Co. v. Butts, 388 U.S. 130
8 8

Dun & Bradstreet, Inc. v. Greenmoss Builders,
Inc., No. 83-18 (reargument requested, 52
U.S.L.W. 3937 (U.S. June 26, 1984))) 11

iii
TABLE OF AUTHORITIES—Continued 3
Page
Entertainment Concepts, Inc., III v. Maciejewski,
631 F.2d 497 (7th Cir. 1980), cert. denied, 450
r . ae ea iene 28
Farnsworth v. Tribune Co., 48 Ill. 2d 286, 253
e x area 3 10
Fernandes v. Limmer, 663 F.2d 619 (Sth Cir.
1981), cert. denied, 458 U.S. 1124 (1982) 28
First National Bank of Boston v. Bellotti, 435 U.S.
r A 22, 27
Florida Bar v. Brumbaugh, 355 So. 2d 1186 (Fla.
.. 20
Friedman v. Rogers, 440 U.S. 1 (19799977 12, 13
General Products Co. v. Meredith Corp., 526 F.
r 10

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) 11
Gi bone v. Empire Storage & Ice Co., 336 U.S. 4989
rr eee Ra Oars 16, 17
Ginzburg v. United States, 383 U.S. 463 (1966) 14
Hynes v. Mayor of Oradell, 425 U.S. 610 (1976) 24
In re Lowe Management Corp., [1981 Transfer
Binder] Fed. Sec. L. Rep. (CCH) 7 82,873 (May

„ RS SRR A Se Nace HI ERS eI EO 26
In re R.M.J., 455 U.S. 191 (1982) .......................... 12
In re Thompson, 574 S.W.2d 365 (Mo. 1978)........ 20
International Society for Krishna Consciousness V.

Eaves, 601 F.2d 809 (5th Cir. 1979) 2.000000. 28

International Society for Krishna Consciousness V.
City of Houston, 689 F.2d 541 (5th Cir. 1982) 24
Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495

RSE Le LRA SETH Rte la RO 14
Kunz v. New York, 340 U.S. 290 (1951177 27, 28
Lewis Publishing Co. v. Morgan, 229 U.S. 288

r 24
Lin mar Associates, Inc. v. Township of Willing-

e et 12
Lovell v. City of Griffin, 303 U.S. 444 (1938) 22
Metromedia, Inc. v. City of San Diego, 453 U.S.

ee 12

2

lv

TABLE OF AUTHORITIES—Continued
„ Page
Mills v. Electric Auto-Lite Co., 396 U.S. 375
ccc 17
Minneapolis Star & Tribune Co. v. Minnesota
Commissioner of Revenue, 460 U.S. 575 (1983).. 16, 23

NAACP v. Button, 371 U.S. 415 (1963) —.............. 26
Near v. Minnesota, 283 U.S. 697 (1931777 28, 29
Nebraska Press Association v. Stuart, 427 U.S. 539

: — c itenilidtadittaaniai 29
New York County Lawyers Association v. Dacey,

21 N.Y.2d 694, 287 N.Y.S.2d 422 (1967) 19, 20
New York ex rel. Bryant v. Zimmerman, 278 U.S.

0 25
New York Times Co. v. Sullivan, 376 U.S. 254

Ec 13, 14
New York Times Co. v. United States, 403 U.S.

. 00 ene 21, 29, 30

NLRN v. Gissel Packing Co., 395 U.S. 575 (1969) 17
Ohralik v. Ohio State Bar Association, 436 U.S. 447

r 12, 16, 17, 18
Oklahoma Press Publishing Co. v. Walling, 327

r SSPE SS Dero ne ne ene Oe 17, 23
Oklahoma Publishing Co. v. District Court, 430

OE RTARTA RR Te SD oe 29
Oregon State Bar v. Gilchrist, 272 Or. 552, 588 P.2d

D . SE See 20
Organization For a Better Austin v. Keefe, 402

r 21, 29
Palmer v. Unauthorized Practice Committee, 438

S. W. 2d 374 (Tex. Civ. App. 1969999 20
Pittsburgh Press Co. v. Pittsburgh Commission on

Human Relations, 413 U.S. 376 (1973) 12, 14
Rosen v. Port of Portland, 641 F.2d 1243 (9th

9h A I Cee 24, 25
San Juan Liquors, Inc. v. City of Jacksonville, 480

F. Supp. 151 (M.D. Fla. 19799 28
Schneider v. State, 308 U.S. 147 (193997 26, 27, 29

SEC v. Capital Gains Research Bureau, Inc., 375
U.S. 180 (1963)

v

TABLE OF AUTHORITIES—Continued

Page
SEC v. Financial News Associates, No. 84-0878-A
(E. D. Va. filed Aug. 29, 198hah ⁸ 4
SEC v. Options Strategy Associates, Ltd., No. 84
Civ. 4316 (S.D.N.Y. filed June 20, 198) 4

SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d

Cir. 1968), cert. denied, 394 U.S. 976 (1969) 17
SEC v. Wall Street Publishing Institute, Inc.,

[Current] Fed. Sec. L. Rep. (CCH) { 91,575

(D.D.C. July 12, 1984), appeal docketed, No. 84-

5485 (D.C. Cir. Aug. 2, 198hꝓ)))))j 4
SEC v. Wall Street Transcript Corp., 422 F.2d

1371 (2d Cir.), cert. denied, 398 U.S. 958

c —T——T—T—TTVT— — 21
Simmons Ford, Inc. v. Consumers Union, 516

F. Supp. 742 (S. D. N. V. 1981) .-........................----- 10
Smith v. California, 361 U.S. 147 (1959997 14
State v. Winder, 42 App. Div. 2d 1039, 348 N.Y..S.

. SEES ee Serre
State Bar v. Cramer, 399 Mich. 116, 249 N.W.2d 1

c
State ex rel. Schneider v. Hill, 223 Kan. 425, 573

ENEMA ae es CET SOO
Strasser v. Doorley, 432 F.2d 567 (Ist Cir. 1970) ..
Talley v. California, 362 U.S. 60 (19600) 23,
Thomas v. Collins, 323 U.S. 516 (1945 8, 9, 24,
Thornhill v. Alabama, 310 U.S. 88 (19400) 8,
Time, Inc. v. Hill, 385 U.S. 374 (1967);
Twenty-Five East 40th Street Restaurant Corp. v.

Forbes, Inc., 322 N.Y.S.2d 408 (App. Div. 1971),

aff'd, 30 N.Y.2d 595, 331 N.Y.S.2d 29 (1972) 1
United Medical Laboratories, Inc. v. CBS, Inc., 404

F.2d 706 (9th Cir. 1968), cert. denied, 394 U.S.

921 (1968) ..................... PPA ERE Ee A TO 10
United States v. Harriss, 347 U.S. 612 (1954) 25
Universal Amusement Co. v. Vance, 587 F.2d 159

(5th Cir. 1978) (en banc), aff d, 445 U.S. 308

SSIS Ey APN no Ee es Oe een 28
Village of Schaumburg v. Citizens For a Better

Environment, 444 U.S. 620 (1980) 24, 26, 27

RRS S S

oo

So

vi
TABLE OF AUTHORITIES—Continued

Page

Virginia State Board of Pharmacy v. Virginia

Citizens Consumer Council, 425 U.S. 748
ETO LN Ee TO eI ee 8, 9, 12, 14, 15
Wulp v. Corcoran, 454 F. 2d 826 (1st Cir. 1972) 25

Statutes:

Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-

1 et seq. (1982) :
e 21
Ee oS 4, 20, 23, 25, 26
r 29
rc 21
rr 21

Other Authorities:

SEC Investment Advisers Act Release No. 563, 42

Fed. Reg. 2953 (Jan. 10, 197777 21
Oxbridge Directory of Newsletters (1983-84) 10
The Standard Periodical Directory (8th ed. 1983-

T.. c ⁰— a * 10
Emerson, The Doctrine of Prior Restraint, 20 Law

& Contemp. Probs. 648 (1955) 21, 22
Jackson & Jeffries, Commercial Speech: Economic

Due Process and the First Amendment, 65 Va.

, .. 11
Jeffries, Rethinking Prior Restraint, 92 Yale L. J.

ge rr 21, 22

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 83-1911

CHRISTOPHER L. LOWE ET AL.,

. Petitioners,

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Writ of Certiorari to the United States Court of Appeals
for the Second Circuit

BRIEF FOR THE REPORTERS COMMITTEE FOR
FREEDOM OF THE PRESS ET AL.,
AS AMICI CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF AMICI CURIAE

Amici curiae are ten organizations composed of indi-
vidual and institutional members of the press. Amici
are both large and small national news organizations
that collectively represent a broad spectrum of working
journalists, newspapers, magazines, newsletters, and
others involved in the gathering and dissemination of
financial and investment news to the public.

Specifically, amici are the folloving orzanizations:
The American Society of Magazine Editors has 450 mem-
bers who are chief and senior editors of consumer, trade,
and farm magazines across the United States. The
American Society of Newspaper Editors is a nationwide
organization of more than 900 directing editors of daily
newspapers, dedicated to improving the manner in
which the journalism profession serves the American
people. The Associated Press Managing Editors includes
more than 600 editors of newspaper members of the
Associated Press, which gathers news worldwide for dis-

2

semination to 1,350 newspapers and 3,300 broadcast sta-
tions around the world. The Media Institute is a non-
profit research organization which has published numer-
ous reports on foreign and domestic communications
policy and studies on broadcast coverage of economic
news. The National Newspaper Association is a national
organization of 5,500 newspapers, which is dedicated to
preserving the constitutional guarantee of freedom of
the press.

The Newsletter Association is an international trade
association of 850 publishers of 2,500 newsletters and
other specialized services which provide financial and
other types of information. The Newspaper Guild is a
trade union representing 40,000 editorial, advertising,
circulation, business and other non- mechanical depart-

ment employees of newspapers in the United States and

Canada. The New York Financial Writers Association
includes 350 reporters and editors dedicated to uphold-
ing the standards of business and financial journalists.
The Reporters Committee for Freedom of the Press is a
voluntary, unincorporated association of reporters and
news editors devoted to protecting the First Amendment
interests of the media. The Society of Professional Jour-
nalists, Sigma Delta Chi, is a voluntary, non-profit
organization of 28,000 people from every branch and
rank of print and broadcast journalism. It is the largest
organization of journalists in the United States.

Amici view the Second Circuit’s decision in this case
as a significant threat to the free dissemination of news
about the financial markets and specific investment op-
portunities. Amici fear that, if this Court affirms the deci-
sion below, some financial news organizations will be per-
mitted to publish freely and others will not. This would
be out of keeping with our system of a free and independ-
ent press. The decision below would permit prior re-
straints of business publications without any showing of
a direct, immediate, and irreparable harm to any vital
governmental interest. It approves of censorship in the
form of licensing and grants the government and the

3

courts the power—denied to them by the Constitution—
to decide which finarcial publications are “bona fide.”
Amici believe, on the contrary, that the First Amendment
permits any person freely to publish information about
any aspect of the social, economic, or political life of our
country, including financial trends, stock market predic-
tions, and securities recommendations. Accordingly, amici
submit this brief in support of petitioners.

Amici have received consent to file this brief from
petitioners and from respondent. Their letters of con-
sent have been filed with the Clerk of this Court.

STATEMENT

This case involves the constitutionality, under the
First Amendment, of provisions of the Investment Ac-
visers Act of 1940, 15 U.S.C. §§ 80b-1 et seg. (“Advisers
Act” or “Act”), that require all publishers, except pub-
lishers of so-called “bona fide” publications, to register
with the Securities and Exchange Commission (“the Com-
mission”) in order to publish financial newsletters con-
taining recommendations or reports concerning securities.
The Commission may deny or revoke the registration of
a publisher who is subject to one or more statutory dis-
qualifications, including disqualification for violating the
securities laws or for having been convicted of certain
crimes during the preceding ten years. The Act allows
the Commission to sue to enjoin publication by unli-
censed publishers, or to bring criminal prosecutions
against them.

Petitioner Christopher Lowe (“Lowe”) is president
of the three corporate petitioners, including Lowe Man-
agement Corporation (“Lowe Management”). Until
1981, Lowe Management was registered with the Com-
mission under the Act and published investment advice
and managed the funds of clients on a discretionary basis.
In 1977 and 1978, Lowe was convicted in state court of
two felonies and two misdemeanors related to this invest-
ment advisory business. On the basis of these convictions
and Lowe Management’s violation of certain provisions
of the Act, the Commission revoked Lowe Management’s

4

registration and barred Lowe from association with any
investment adviser, pursuant to 15 U.S.C. §§ 80b-3(e)
& (f).

Though petitioners were no longer registered with the
Commission, they continued to publish or to solicit sub-
scriptions for their investment newsletters. These news-
letters contain general descriptions of and commentary
on the state of the financial markets, short-term and
long-term economic forecasts, and general and specific
advice on the relative desirability of various invest-
ments, including securities.

Because petitioners were not registered, the Commis-
sion sought an order from the District Court for the
Eastern District of New York enjoining further publi-
cation of their newsletters.“ The Commission made no
claim that the information contained in the newsletters
is or has been false or misleading; nor did it allege that
petitioners traded in securities discussed in the newslet-
ters or used the newsletters as part of any fraudulent or
otherwise unlawful conduct.

The District Court refused to enjoin publication of
the newsletters. It reasoned that they constitute pro-
tected speech that cannot be prohibited; and it construed
the statute to require the Commission to allow (and not
to revoke) the registration of any publisher who does
not also give personal investment advice. The Court of
Appeals for the Second Circuit reversed. Reasoning that
the publication of newsletters containing specific invest-
ment advice constitutes either “commercial speech” or
the practice of a profession, the appellate court held that

As it did in this case, the Commission has recently sought in-
junctions against the publication of other financial newsletters in
SEC v. Wall Street Publishing Institute, Inc., [Current] Fed. Sec. L.
Rep. (CCH) { 91,575 (D.D.C. July 12, 1984), appeal docketed, No.
84-5485 (D.C. Cir. Aug. 2, 1984), stay granted, [Current] Fed. Sec.
L. Rep. (CCH) { 91,635 (D.C. Cir. Aug. 10, 1984); SEC v. Finan-
cial News Associates, No. 84-0878-A (E.D. Va. filed Aug. 29, 1984) ;
SEC v. Options Strategy Associates, Lied., No. 84 Civ. 4316
(S. D. N. V. filed June 20, 1984).

5

the Act constitutionally could require a license for such
publication, and that such a license constitutionally could
be denied on the basis of prior misconduct. Accordingly,
the Court of Appeals ordered that an injunction against
further publication of petitioners’ newsletters be
granted.

SUMMARY OF ARGUMENT

The First Amendment principally forbids prior re-
straints, including the licensing of the press and injunc-
tions against publication. Yet in this case, the Court of
Appeals sanctioned a system of licensing a segment of the
financial press and the use of an injunction to bar pub-
lication of financial newsletters by unlicensed publishers.
The Court of Appeals reached this erroneous ruling by
failing to treat financial newsletters as speech fully pro-
tected by the First Amendment, and consequently by not
applying this Court’s precedents forbidding prior re-
straints except on a showing of the most extraordinary
and compelling circumstances.

In Part I.A., we show that the publication of financial
newsletters constitutes fully protected speech. This Court
has long accorded the full protection of the First Amend-
ment to speech on a variety of subjects, including eco-
nomie and financial matters. Moreover, the fact that
financial newsletters provide specific recommendations
concerning investments does not diminish their status as
fully protected speech. This Court has never distinguished
specific information or advice from abstract discussion,
and there is no principled basis for such a distinction.
If that were the law, numerous books, magazines, and
newspaper features that provide specific advice on many
subjects also would receive diminished protection.

The Court of Appeals wrongly concluded that the pub-
lication of financial newsletters may be treated as com-
mercial or professional activity of a kind that may be
subjected to government regulation and licensing, or as
“commercial speech” entitled to less than full First
Amendment protection. In Part I.B., we show that the

Court of Appeals failed to perceive the distinction be-
tween speech on a commercial or financial subject and
“commercial speech.” This Court has defined the latter
term as commercial advertising, solicitation, or the pro-
motion of the speaker’s products or services, and nothing
else. Moreover, financial newsletters lack the salient
characteristics of “commercial speech” that permit its
greater regulation. We also show, in Part I. C., that
the Court of Appeals erred in treating the licensing
of financial newsletter publishers as an instance of the
permissible licensing of professionals. For purposes of
the First Amendment, there is a critical difference be-
tween rendering personalized professional services and
engaging in the publishing of impersonal recommenda-
tions. Moreover, no support for the Court of Appeals’
holding is provided by cases sustaining regulation of
“commercial activity” against First Amendment chal-
lenges. In all the cases relied upon by the Court of Ap-
peals, the regulation addressed conduct—either in con-
nection with a publishing business or in which speech
played an incidental part—not publication itself.

In Part II, we show that the Act’s registration
requirement and the injunction against publication by
an unregistered publisher constitute presumptively in-
valid prior restraints, which cannot be permitted in the
absence of a compelling justification. No such justifi-
cation exists in this case, where the principal purpose
of the registration requirement—the protection of in-
vestors from fraud—can be achieved by more narrowly
tailored means that do not suppress protected speech.
The Commission may prohibit and punish specific in-
stances of fraud committed by publishers of investment
advice. But it may not require them to obtain licenses
to publish; it may not deny them the right to publish
based on prior misconduct; and it may not obtain in-
junctions against publishers who have done no more than
publish without obtaining the Commission’s approval.

7

ARGUMENT

I. FINANCIAL NEWSLETTERS ARE ENTITLED TO
FULL FIRST AMENDMENT PROTECTION.

The Court of Appeals relied on alternative premises
in support of its conclusion that the publication of finan-
cial newsletters constitutionally may be licensed, and
that publication by unlicensed publishers constitutionally
may be enjoined.“ One was that the investment advice
contained in financial newsletters constitutes “commer-
cial speech.” 725 F.2d at 900 (Pet. App. Al7). The
Court of Appeals’ preferred basis for its decision, how-
ever, was that financial newsletters do not constitute
“speech” at all, 725 F.2d at 901 (Pet. App. Al7-18), but
instead constitute commercial activity that may be regu-
lated or professional conduct that may be licensed. /d.
We show in this Part that financial newsletters constitute
fully protected speech, and that the Court of Appeals’
alternative characterizations are incorrect.

A. The First Amendment Fully Protects Financial
and Economic Advice.

The Court of Appeals seems to have concluded that
because financial newsletters are specialized publications
dealing with matters of a financial and economic nature,
including specific investment advice, they are entitled to
less than the full protection of the First Amendment.
This is a crabbed reading of the First Amendment. It is
inconsistent with this Court’s broad interpretation of the
essential coverage of the Amendment, even before and
apart from the Court’s extension of that coverage to
encompass “commercial speech.” “The guarantees for
speech and press are not the preserve of political expres-

2 An investment adviser who renders individualized advice to

8

sion or comment upon public affairs,” Time, Inc. v. Hill,
385 U.S. 374, 388 (1967); rather, these guarantees
“embrace al! issues about which information is needed
or appropriate to enable the members of society to cope
with the exigencies of their period.” Thornhill v. Ala-
bama, 310 U.S. 88, 102 (1940). Thus, the First Amend-
ment “embraces at the least the liberty to discuss pub-
licly and truthfully all matters of public concern with-
out previous restraint or fear of subsequent punishment.”
Id. at 101-02. See also Curtis Publishing Co. v. Butts,
388 U.S. 130, 147 (1967).

These genera! principles are fully applicable to speech
about economic or financial matters. As this Court made
plain in Abood v. Detroit Board of Education, 431 US.
209, 231 (1977), its “eases have never suggested that
expression about economic ... matters... is
not entitled to full First Amendment protection.” See
also Thomas v. Collins, 323 U.S. 516, 531 (1945). In-
deed, in extending some First Amendment protection to
“commercial speech,” in the form of advertising by a
pharmacist, the Court explained that its holding went
beyond the protection theretofore afforded by the
Amendment to “speech on a commercial subject.” Vir-
ginia State Board of Pharmacy v. Virginia Citizens Con-
sumer Council, 425 U.S. 748, 761 (1976). “No one,”
the Court said, “would contend that [the] pharmacist
may be prevented from being heard on the subject of
whether, in general, pharmaceutical prices should be
regulated, or their advertisement forbidden.” Jd. at
761-62. To the extent, therefore, that financial newslet-

The narrower focus of this case is the provision of
investment advice by newsletters, in the form of anal-
yses and reports as to the value of specific securities and

recommendations regarding purchasing, selling, or hold-
ing specific securities. 725 F.2d at 902 (Pet. App.

9

A20).2 This Court has never suggested, however, that
publications containing specific advice are, for that rea-
son, not entitled to full First Amendment protection;
and there is no principled basis for so concluding.
Speech is not deprived of the full protection of the First
Amendment merely because it is practical and poten-
tially useful, rather than being of broad, abstract import.
For example, there is “no requirement that, in order to
avail themselves of First Amendment protection, the
parties to a labor dispute need address themselves to the
merits of unionism in general or to any subject beyond
their immediate dispute.” Virginia Pharmacy Board,
supra, 425 U.S. at 762-63 (citing Thornhill v. Alabama,
supra). Cf. Thomas v. Collins, supra, 323 U.S. at 531
(“Great secular causes, with small ones, are guarded.’’).

Moreover, there is no distinction of constitutional
significance between “general” and “specific” investment
recommendations—that is, for example, between a pre-
diction of the future course of the stock market as op-
posed to a recommendation to buy stock in one company
rather than another. As Judge Weinstein observed below,
there is “no sharp demarcation in the range of economic
observation that runs from comment on economic policy
to prediction of the performance and recommendation of
specific securities.” 556 . Supp. at 1367 (Pet. App.
A56). Nor does the fact that readers may act on the
basis of specific advice diminish its constitutional pro-
tection. See, e.g., Thomas v. Collins, supra, 323 U.S. at
537. For these reasons, the First Amendment does not re-
quire that protected speech address itself only to the
state of the economy and financial markets in general,
while steering clear of stating facts, opinions, or recom-
mendations about particular investments.

The Court of Appeals stated that it would “leave to another day
the question whether a publication dealing only with market in-
dicators generally or making recommendations only as to groups
of securities . . could be barred ....” 725 F.2d at 902 n.7 (Pet.
App. A20).

10

If its characterization as concrete advice disentitled
speech to some portion of First Amendment protection,
then many newspaper features would be vulnerable to
government regulation—including editorials telling poli-
ticians how to legislate or voters how to vote, and col-
umns containing advice on the subjects of health, ca-
reers, education, bridge, gardening, home repair, per-
sonal problems, and countless other subjects on which
people may wish to be informed and advised. The same
would be true of advice provided in books, periodicals,
and newsletters.“ More specifically, if speech is to be
given less protection because it is advice on how to
spend or save money, then such a restriction would
apply not only to advice on investments, but also to ad-
vice, criticism, and recommendations in articles on and
reviews of restaurants, movies, health care, vacation pack-
ages, and consumer products—on which the average
American probably spends more than he invests in se-
curities. Yet the courts have uniformly treated such
articles and reviews as fully protected speech.“ Thus,

* Thousands of periodicals and newsletters are published in this
country, on practically every subject imaginable, including scores
of newsletters on the subject of investment alone. For a list and
brief descriptions of these publications, see The Standard Periodical
Directory (8th ed. 1983-84); Oxbridge Directory of Newsletters
(1983-84).

See Bose Corp. v. Consumers Union, 508 F. Supp. 1249, 1269-
77 (D. Mass. 1981), aff'd in pertinent part and rev'd in part, 692
F.2d 189, 194 (Ist Cir. 1982), aff'd, 52 U.S.L.W. 4513, 4521 (U.S.
Apr. 30, 1984) (review of loudspeaker system in Consumer Re-
ports) ; United Med cal Laboratories, Inc. v. CBS, Inc., 404 F.2d 706
(9th Cir. 1968) (reports on practices of medical testing labora-
tories); Bon Air Hotel, Inc. v. Time, Inc., 295 F. Supp. 704 (S.D.
Ga. 1969), af d, 426 F.2d 858 (5th Cir. 1970) (magazine comments
on resort hotel accommodations and services); General Prods. Co.
v. Meredith Corp., 526 F. Supp. 546 (E.D. Va. 1981) (magazine
article on use of wood stoves for heating); Simmons Ford, Inc. v.
Consumers Union, 516 F. Supp. 742 (S.D.N.Y. 1981) (review of
electric cars); Twenty-Five East 40th Street Restaurant Corp. v.
Forbes, Inc., 322 N.Y.8.2d 408 (App. Div. 1971), af d, 331 N.Y.S.2d
29 (1972) (restaurant review); Farnsworth v. Tribune Co., 253
N.E.2d 408 (Ill. 1969) (newspaper report on practices of an

11

the fact that financial newsletters contain investment
recommendations concerning specific securities does not
detract from their entitlement to full First Amendment
protection.“

B. Speech About Financial or Economie Matters, In-
cluding Investment Recommendations, Is Not
“Commercial Speech.”

In the past decade, this Court has found a degree of
protection in the First Amendment for a category of

osteopathic physician) ; All Diet Foods Distribs., Inc. v. Time, Inc.,
290 N.Y.S.2d 445 (Sup. Ct. 1967) (derogatory implications of
photograph in book on nutrition). See also Jackson & Jeffries,
Commercial Speech: Economic Due Process and the First Amend-
ment, 65 Va. L. Rev. 1, 1 (1979).

In Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., No. 83-
18, reargument requested, 52 U.S. L. W. 3937 (U.S. June 26, 1984),
this Court is considering whether credit reports provided by Dun
& Bradstreet to its subscribers, as speech of a “commercial or eco-
nomic nature,” is entitled to the protection of the rule of Gertz v.
Robert Welch, Inc., 418 U.S. 323 (1974), against presumed or puni-
tive damages in a libel action. We agree with petitioner Dun &
Bradstreet that its credit reports are entitled to full First Amend-
ment protection. Even if this Court were to decide that they are
not, however, that decision would not dictate the correct decision
in this case.

First, the credit reports in Dun & Bradstreet are not like the
contents of financial newsletters. The credit reports are sold to
purchasers on individual order; that is, they are provided only to
a “subscriber” who requests a report on the creditworthiness of a
particular business. The sale of credit information in response to
particularized inquiries can more readily be characterized as com-
mercial activity that may be regulated than the publication of a
newsletter containing stock recommendations received by hundreds
or thousands of subscribers. Second, even if there were no differ-
ence in the character of the communications involved here and in
Dun & Bradstreet, there remains a difference in the type of regu-
lation involved in the two cases. Here, the government asserts its
authority to impose a prior restraint, in the form of a licensing
requirement enforceable by an injunction against publication,
whereas in Dun & Bradstreet the issue is what damages are
permissible. The availability of presumed or punitive damages
has a chilling effect on protected speech; but it does not impose the
absolute ban of a prior restraint.

12

speech that it has labeled “commercial speech.” On re-
peated occasions, however, the Court has noted that
commercial speech will not necessarily be entitled to the
same level of protection as more traditionally protected
speech. See, e.g., Bolger v. Youngs Drug Products Corp.,
51 U.S.L.W. 4961, 4962 (U.S. June 24, 1983); Virginia
Pharmacy Board, supra, 425 U.S. at 771-72 n.24. Ac-
cordingly, the Court of Appeals thought it possible to
sustain the Act’s registration requirement, and an in-
junction against publication by an unregistered pub-
lisher, by treating investment newsletters as commercial
speech.

For this Court to adopt the Second Circuit’s view
would be an expansion of the scope of the commercial
speech doctrine totally at odds with this Court’s prior
decisions. As this Court has applied the term to date,
“commercial speech” has meant commercial advertising,
promotion, or solicitation, and nothing more.“ Despite
this exclusive focus, the Court of Appeals opined that
this Court has not “limited commercial speech solely to
product or service advertising.” 725 F.2d at 900 (Pet.
App. Al7). The Court of Appeals relied primarily on
the fact that while this Court originally defined commer-
cial speech as speech that does “no more than propose a
commercial transaction,“ it also, and more recently,

™See Bolger v. Youngs Drug Prods. Corp., supra (advertising
contraceptives); In re R.M.J., 455 U.S. 191 (1982) (advertising
legal services) ; Metromedia, Inc. v. City of San Diego, 453 U.S. 490
(1981) (commercial advertising on billboards); Central Hudson
Gas & Elec. Corp. v. Public Service Comm’n, 447 U.S. 557 (1980)
(promotional advertising for electric power); Friedman v. Rogers,
440 U.S. 1 (1979) (optometrists’ solicitation of patronage by use of
trade names); Ohralik v. Ohio State Bar Ass’n, 486 U.S. 447 (1978)
(in-person solicitation of paying clients by lawyer) ; Bates v. State
Bar of Arizona, 433 U.S. 350 (1977) (advertising legal services) ;
Linmark Associates, Inc. v. Township of Willingboro, 431 U.S. 85
(1977) (advertising houses for sale); Virginia Pharmacy Board,
supra (advertising by pharmacists).

8 See Pittsburgh Press Co. v. Pittsburgh Comm’n on Human Rela-
tions, 413 U.S. 376, 385 (1973).

13

has described commercial speech as expression related
solely to the economic interests of the speaker and its
audience,” Central Hudson Gas & Electric Corp. v. Pub-
lic Service Commission, 447 U.S. 557, 561 (1980), and as
„Speech . linked inextricably to commercial activity.”
Friedman v. Rogers, 440 U.S. 1, 10 n.9 (1979).

We submit that these formulations, when properly
read in context, do not and were not intended to broaden
this Court’s basic definition of commercial speech.
Rather, it seems clear that in both Central Hudson and
Friedman, the Court employed a new formulation - be-
eause it found itself confronted with promotional adver-
tising that nevertheless could not be said to “propose” a
particular “commercial transaction.” Thus, the utility’s
promotion of the use of electricity in Central Hudson,
and the optometrists’ use of trade names to solicit
patronage in Friedman, both served to promote the sale
of the speakers’ products or services. Moreover, the lan-
guage employed in Central Hudson plainly cannot be
given its broadest literal interpretation, which also would
cover, for example, discussion of the merits of raising
taxes or school teachers’ salaries, joining a union, or im-
posing import quotas on foreign goods. And the Court
in Friedman did not define commercial speech as “speech
. . . linked inextricably to commercial activity”; rather,
it observed that “commercial speech is linked inextric-
ably to commercial activity“ because, after all, com-
mercial speech proposes or promotes a commercial trans-

® The Court of Appeals also noted that commercial speech cannot
be equated with advertising, since fully protected speech that hap-
pens to appear in the form of a paid advertisement nevertheless re-
tains its fully protected status. 725 F.2d at 900 (Pet. App. A17);
see New York Times Co. v. Sullivan, 376 U.S. 254 (1964). We agree
that “[i]f commercial speech is to be distinguished, ‘it must be dis-
tinguished by its content,“ not by its form, Bates v. State Bar of
Arizona, supra, 433 U.S. at 363, but the content that makes some-
thing “commercial speech” is promotion of one’s own commercial
products or services, and nothing else.

14

action. In short, this Court has not departed from the
proposition that there must be a commercial, promotional
element in speech—even if implicit or derived from the
context—to make it “commercial speech,” see Bolger V.
Youngs Drug Products Corp., supra, 51 U.S.L.W. at
4963 n.13, and this Court has not applied that definition
to any other type of communication.”

Financial newsletters fall outside this definition of
“commercial speech.” While such newsletters may rec-
ommend the purchase of particular securities, the pub-
lisher of the newsletter does not sell securities or receive
a commission on such sales.“ As long as the speaker does

10 To be sure, this Court has held that “advertising which ‘links
a product to a current public debate’ is not thereby entitled to the
constitutional protection afforded noncommercial speech.” Bolger
v. Youngs Drug Prods. Corp., supra, 51 U.S.L.W. at 4963 (quoting
Central Hudson Gas & Elec. Corp., supra, 447 U.S. at 563 n.5). But
the premise of this statement is that the speaker is the seller of the
product in question and that the comments on public issues “are
made solely in the context of commercial transactions,” 51 U.S.L.W.
at 4968, see Central Hudson, supra, 447 U.S. at 562-63 n.5; its
rationale is that promotional advertising cannot attain a higher level
of constitutional protection by being sandwiched between “refer-
ences to public issues.” 51 U.S.L.W. at 4963. The element of pro-
motion of one’s own products or services remains, and is critical to
the commercial speech characterization.

u the publisher of a newsletter profits by the sale of
— This in no way diminishes his entitlement to First
Amendment protection, however, since speech “is protected even
though it is carried in a form that is ‘sold’ for profit.” Virginia
Pharmacy Board, supra, 425 U.S. at 761. See also Bates v. State
Bar of Arizona, supra, 483 U.S. at 363. Otherwise, there would
be no First Amendment protection for any book, movie, magazine,
or newspaper that is not given away free of charge, as this Court
often has pointed oui. See Pittsburgh Press Co. v. Pittsburgh
Comm’n on Human Relations, supra, 413 U.S. at 384-85; Ginzburg
v. United States, 383 U.S. 463, 474 (1966); New York Times Co. v.
Sullivan, supra, 376 U.S. at 266; Smith v. California, 361 U.S. 147,
150 (1959); Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 501
(1952).

15

not propose a commercial transaction between himself
and the reader or promote the sale of his own products
or services, his expression is not “commercial speech.”

Moreover, financial newsletters lack the salient charac-
teristics of commercial speech that make appropriate “a
different degree of protection.” Virginia Pharmacy
Board, supra, 425 U.S. at 771-72 n.24. First, the ac-
curacy of such speech is more easily verifiable by its dis-
seminator than, for example, news reporting or political
commentary, “in that ordinarily the advertiser seeks to
disseminate information about a specific product or
service that he himself provides and presumably knows
more about than anyone else.” Jd. Since newsletters
comment on securities issued and sold by others, and
consist of unverifiable opinions as much as facts, this
characteristic is lacking.

Similarly, this Court has focused on the “hardiness”
of commercial speech, because speech motivated by the
desire to make a sale is less likely to be chilled than
other speech. Id. Again, this observation has no bear-
ing on reporting on investments that the publisher is
not attempting to sell, any more than it would be ap-
plicable to publishers of magazines, books, or daily news-
papers, who also have an interest in maximizing reve-
nues through subscriptions or sales. Thus, we submit,
not only does the Court’s traditional definition of “com-
mercial speech” not fit petitioners’ newsletters, but the
salient characteristics of commercial speech, which allow
its greater regulation, also are absent.”

12 A third characteristic of commercial speech that permits its
greater regulation is that it generally is not urgent or timely. The
information and recommendations in investment newsletters, on the
other hand, are valuable either now or never. Accordingly, it would
be inappropriate to apply to financial newsletters the prescreening
requirements that sometimes apply to commercial speech.

Finally, the incentive to use commercial speech in a misleading
way is also absent in the case of newsletters. The publisher of an

16

C. Prohibiting the Publication of Financial Newslet-
ters by Unregistered Publishers Is Not Like the
Regulation of Commercial Activity or the Licens-
ing of Professionals.

The Court of Appeals’ alternative and “preferred”
basis of decision was that the publication of financial
newsletters without a license constitutionally may be pro-
hibited under decisions sustaining the regulation of com-
mercial activity and the licensing of professionals.
Neither line of cases is applicable, however.

1. Regulation of commercial activity.

The cases identified by the court below as permitting
the “regulation of commercial activity” stand for two
different, but related, propositions. One line of cases
establishes that a business is not immune from “gener-
ally applicable economic regulations” simply because it
is part of the press. Minneapolis Star & Tribune Co. V.
Minnesota Commissioner of Revenue, 460 U.S. 575, 581
(1983). A second line of cases demonstrates that “ ‘it
has never been deemed an abridgment of freedom of
speech or press to make a course of conduct illegal
merely because the conduct was in part initiated, evi-
denced, or carried out by means of language, either
spoken, written, or printed.“ Giboney v. Empire Stor-
age & Ice Co., 336 U.S. 490, 502 (1949), quoted in
Ohralik v. Ohio State Bar Association, 436 U.S. 447, 456
(1978).

Publishing is, of course, a commercial activity, in
that it is a business carried on for profit. But publish-

investment rewsletter—like any publisher of newspapers, books, or
magazines—likely will sell more subscriptions if its reporting and
recommendations prove infor native, useful, and reliable than if
they do not, since it is “selling” speech itself, not using speech to
sell some other product.

17

ing itself, without more, cannot be made unlawful with-
out clashing directly with the First Amendment. For
purposes of First Amendment analysis, therefore, “com-
mercial activity” that may be regulated and “publishing”
as such are mutually exclusive categories. When a pub-
lisher engages in some business or commercial practices
apart from just publishing, however, that conduct may
be regulated or prohibited just as it would be if engaged
in by any other business. Thus, for example, a newspa-
per is subject to the federal antitrust laws, Citizen Pub-
lishing Co. v. United States, 394 U.S. 131, 139-40
(1969), state laws against restraint of trade, Giboney v.
Empire Storage & Ice Co., supra, the federal labor laws,
Associated Press v. NLRB, 301 U.S. 108, 132-33 (1937),
and the federal minimum wage laws, Oklahoma Press
Publishing Co. v. Walling, 327 U.S. 186, 192-98 (1946).
Indeed, these laws are applicable to any newsletter pub-
sher that comes within their respective terms. In each
of these cases, however, what is regulated is some con-
duct other than publishing itself, and the regulation
therefore “ends in no restraint upon expression or in
any other evil outlawed by [the First Amendment’s]
terms and purposes.” Id. at 193 & n.8.

Similarly, there is no support for the Court of Ap-
peals’ holding in this Court’s acknowledgment that
communications may be regulated without offending the
First Amendment when they merely further an unlaw-
ful course of conduct. See Ohralik v. Ohio State Bar
Ass'n, supra, 436 U.S. at 456. In each of the examples
cited by the Court in Ohralik—including the exchange
of inside information about securities, SEC v. Texas
Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968), cert.
denied, 394 U.S. 976 (1969), the issuance of corporate
proxy statements, Mills v. Electric Auto-Lite Co., 396
U.S. 375 (1970), the exchange of price and production
information among competitors, American Column &
Lumber Co. v. United States, 257 U.S. 377 (1921), and
employers’ threats of retaliation for the labor activities
of employees, NLRB v. Gissel Packing Co., 395 U.S. 575,
618 (1969)—the subject of the regulation properly may

18

be characterized as “commercial activity,” in which
speech is simply a component. Ohralik, supra, 436 U.S.
at 456. The same cannot be said of publishing invest-
ment recommendations, without more.

2. Licensing of professionals.

The Court of Appeals also relied on cases sustaining
the regulation and licensing of professionals. 725 F.2d
at 901 (Pet. App. A18-19). The court reasoned that if
the States may require the licensing of professionals
including, most notably, lawyers and doctors—then Con-
gress similarly may require the licensing of investment
advisers, including publishers of investment advice. This
view overlooks the fact that the First Amendment
carves out the occupation or profession of publishing
from among other professions and immunizes it from
licensing or similar requirements. It is necessary to de-
termine, therefore, whether financial newsletter pub-
lishers are engaged in the regulable profession of invest-
ment advising or the immunized profession of publishing.

The absence of individualized, personal interaction
between the publisher and his subscribers distinguishes
publishing a newsletter from engaging in a regulable
profession. This distinction was fully appreciated by the
District Court and the dissenting judge in the Court of
Appeals. See 725 F.2d at 903-04 (Pet. App. A23-24)
(Brieant, J., dissenting); 556 F. Supp. at 1365, 1369
(Pet. App. A62) (Weinstein, J.). First, the publisher
of an investment newsletter has no authority over the
funds of clients. Thus, a substantial component of an
investment adviser’s business that involves conduct—in
the form of initiating securities transactions—is entirely
lacking in the case of a newsletter publisher. Second, the
newsletter publisher has no information about or famil-
iarity with the individual circumstances of his subscrib-
ers, and does not tailor his advice to those circumstances.
As a corollary, his subscribers cannot delegate decision-
making authority to him, nor rely on his advice in the

19

way that a client in a one-to-one relationship with his
investment adviser relies on the latter’s advice. Thus,
there is a gap between the publisher’s expression of
views and the subscriber’s application of those views to
his own circumstances. That gap, we submit, breaks the
personal nexus between adviser and client that is the
quintessential element of any professional relationship,
including one involving an investment adviser.

Judge Brieant, dissenting below, concisely described
the distinction between publishing advice and opinion,
on the one hand, and engaging in the practice of a pro-
fession, on the other:

“The expression of opinion [in a financial newslet-
ter] is poles apart from the traditional giving of
investment advice; just as remote as a health care
publication (e.g., ‘Prevention Magazine’) is from the
practice of medicine, or a book advising how to avoid
probate is remote from the practice of law. The latter
require a medical or law degree and a license, while
the former are protected First Amendment expres-
sion.” 725 F.2d at 903 (Pet. App. A23-24).

Numerous decisions concerning the licensing of profes-
sionals bear out this distinction. In the leading case of
New York County Lawyers Association v. , 21
N.Y.2d 694, 287 N.Y.S.2d 422 (1967), the New York
Court of Appeals held, by adopting the dissenting opinion
in the Appellate Division, that authors or publishers of
books giving estate planning advice, who are not mem-
bers of the Bar, are not engaged in the unauthorized
et te eae ee eee ee

may not enjoined from publishing such advice.
The opinion explained: :

“Dacey’s book is sold to the public at large.
There is no personal contact or relationship with s
particular individual. Nor does there exist that
relation of confidence and trust so necessary to the
status of attorney and client. This is the essential
element of legal practice—the representation and

The Dacey distinction has been found persuasive in every
State but one in which the question has been considered.”

It therefore would be erroneous, and in conflict with
the First Amendment, to characterize the publishing of
an investment newsletter as the practice of a profession.
Moreover, this would be a dangerous precedent. If giving
advice or making recommendations by impersonal publi-
cation is deemed to be engaging in a profession—or,
indeed, in any occupation for which a license may be
required—then government similarly may require a li-
cense to publish books or pamphlets giving advice on count-
less subjects. The extreme nature of such a result dem-
onstrates the incorrectness of the underlying premise.

Il. IN PROHIBITING THE PUBLICATION OF FINAN-
CIAL NEWSLETTERS WITHOUT A LICENSE, THE
ACT IMPOSES AN UNCONSTITUTIONAL PRIOR
RESTRAINT.

As we have just demonstrated, financial newsletters
contain speech that is fully protected by the First Amend-
ment. The Advisers Act, however, makes it “unlawful
for any investment adviser, unless registered , to
make use of the mails or any mezas or instrumentality
of interstate commerce in connection with his or its busi-
ness as an investment a: iser.“ 15 U.S.C. § 80b-3(a).
For purposes of the Act, an “investment adviser” is “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 ad-
visability of investing in, purchasing, or selling securi-
ties, or Who. . . issues or promulgates analyses or re-

13 See Florida Bar v. Brumbaugh, 355 So. 2d 1186 (Fla. 1978) ;
State ex rel. Schneider v. Hill, 573 P.2d 1078 (Kan. 1978); State
Bar v. Cramer, 249 N.W.2d 1 (Mich. 1976); In re Thompson, 574
S.W.2d 365 (Mo. 1978); State v. Winder, 348 N.Y.S.2d 270 (App.
Div. 1973) ; Oregon State Bar v. Gilchrist, 538 P.2d 913 (Or. 1975).
But see Palmer v. Unauthorized Practice Comm., 438 S. W.2d 374
(Tex. Civ. App. 1969).

21

ports concerning securities Id. § 80b-2(a) (11)
(emphasis added). The Act contains several exclusions
from its definition of “investment adviser,” including one
for “the publisher of any bona fide newspaper, news mag-
azine or business or financial publication of general and
regular circulation.” Jd. § 80b-2(a)(11)(D). This ex-
clusion has been construed narrowly, however, and is ap-
plicable “only where, based on the content, advertising
material, readership, and other relevant factors, a publi-
cation is not primarily a vehicle for distributing invest-
ment advice.” SEC Investment Advisers Act Release
No. 563, 42 Fed. Reg. 2953 (Jan. 10, 1977) (citing SEC
v. Wall Street Transcript Corp., 422 F.2d 1371 (2d
Cir.), cert. denied, 398 U.S. 958 (1970) ).

Thus, unless the “bona fide newspaper” exclusion is
applicable, a publisher must register with the Commis-
sion as an investment adviser in order to publish invest-
ment advice or reports concerning securities. The Act
authorizes the Commission to enforce this ban on publi-
cation by unregistered publishers either by applying to
a court for an injunction against publication, 15 U.S.C.
§ 80b-9(e)—the route chosen by the Commission in this
case—or by seeking criminal penalties for publishing in
violation of the statute. Id. § 80b-17. In either case, as
we now show, the Act’s prohibition of publication by
those not registered with the Commission imposes a prior
restraint on protected speech, which “‘comes to this
Court bearing a heavy presumption against its constitu-
tional validity.“ New York Times Co. v. United
States, 403 U.S. 713, 714 (1971) (quoting Bantam
Books, Inc. v. Sullivan, 372 U.S. 58, 70 (1963)). “The
Government ‘thus carries a heavy burden of showing
justification for the imposition of such a restraint.’ ”
New York Times Co. v. United States, supra (quoting
Organization For a Better Austin v. Keefe, 402 U.S. 415,

See generally Emerson, The Doctrine of Prior Restraint, 20
Law & Contemp. Probs. 648 (1955); Jeffries, Rethi +
Restraint, 92 Yale L.J. 409 (1983). „

419 (1971)). The Commission cannot sustain that heavy
burden in this case.
A. The Prior Restraint Imposed by the Act’s Regis-
tration Requirement Cannot Be Justified.

The term “prior restraint” is used loosely “to embrace
a variety of different situations.” Emerson, The Doc-
trine of Prior Restraint, 20 Law & Contemp. Probs. 648,
655 (1955). The registration requirement of the Act
presents “(t]he clearest form of prior restraint, in that,
as applied to financial newsletters, it “undertakes to
prevent future publication . . . without advance approval
of an executive official.” Id. Thus, a publisher can be
prosecuted or enjoined from publishing not because of the
unprotected content or manner of his speech, but merely
because hz did not procure a license from the government
in advance. Id. See also Jeffries, Rethinking Prior Re-
straint, 92 Yale L.J. 409, 417-18 (1983).

allow registration by some prospective publishers, like
The “bona fide newspaper” exclusion does not save the Act

|
|
|

23

petitioners, on account of their statutory disqualification.
Those publishers do not even have the option of procuring
a license in order to publish lawfully. While only the
latter situation is directly involved in this case, we here
address both applications of the statute.

1. The Act unconstitutionally compels financial
publishers to register with the government.

To comply with the Act’s registration requirement, a
publisher must submit extensive information to the Com-
mission.“ He then must wait for approval before pub-
lishing. Even when there is no question of disqualifica-
tion, the Commission need not act on an application for
45 days; and if the Commission decides to investigate
further, it can take up to seven months to act on the
application. 15 U.S.C. §§ 80b-3(c) (2) (A) & (B).

These provisions, which require newsletter publishers
to register with the government prior to publication, are
invalid under the First Amendment. As this Court has
long recognized, the freedom to publish written mate-
rials without identifying oneself to the government is at
the heart of the Amendment.” In Talley v. Cali foruia,

16 This information includes the names of the publisher and his or
its partners or officers, as well as their address and number of em-
ployees; the education and business affiliations of the publisher and
his or its partners or officers for the past ten years; a statement of
the nature of the business of the publisher, including the manner of
giving advice and rendering analyses or reports; and a balance sheet
certified by an independent public accountant. 15 U.S.C. §§ Sob-
3(c) (1) (A)-(D).

* Of course, the press is not immune from regulations that are
applicable to businesses generally and that may include a duty to file
information with the government. See Minneapolis Star & Tribune
Co. v. Minnesota Comm of Revenue, supra, 460 U.S. at 586-87 n.9
(nondiscriminatory taxation laws) (dictum) ; Oklahoma Press Pub-
lishing Co. v. Walling, supra, 327 U.S. at 192-98 (Fair Labor Stand-
ards Act). But the Court has never intimated that publishers con-
stitutionally may be required to identify themselves solely with
respect to the fact of publication.

862 U.S. 60 (1960), the Court struck down a city ordi-
nance that forbade the public distribution of hand-bills
unless they contained the name and address of the printer
and the distributor, on the ground that “such an identi-
fication requirement would tend to restrict freedom to
distribute information and thereby freedom of expres-
sion.” Id. at 64. Similarly, Thomas v. Collins, 323 U.S.
516 (1945), “held unconstitutional a prior restraint in
the form of a registration requirement for labor organ-
izers.” Buckley v. Valeo, 424 U.S. 1, 81 (1976). Even
though registration in Thomas would have been granted
as a matter of course and used solely for identification
purposes, the Court noted that as long as nothing more
than speech is involved, any registration requirement,
even if ministerial, is “quite incompatible with the re-
quirements of the First Amendment.” 323 U.S. at 540.“
Accordingly, except for situations involving speech inter-
twined with conduct,” or occurring in special settings,”

18 See also Lewis Publishing Co. v. Morgan, 229 U.S. 288 (1913).
In that case, this Court upheld application of the Post Office Act’s
registration requirement to newspapers on the ground that the Act
required such registration only as a prerequisite to enjoyment of
the privilege of second class mail rates. The implication is clear
that the requirement would have been held unconstitutional had it
applied to newspapers distributed through the regular mails.

10 For example, informational licensing may be required in order
to engage in solicitation. See Village of Schaumburg v. Citizens For
a Better Environment, 444 U.S. 620, 637-38 (1980); Cantwell v.
Connecticut, 310 U.S. 290, 306 (1940). As the lower courts have
recognized, solicitation stands on a different constitutional footing
from the publishing and distribution of printed literature. See, e.g.,
International Society for Krishna Consciousness v. City of Houston,
689 F.2d 541, 556 (5th Cir. 1982); Rosen v. Port of Portland, 641
F.2d 1243, 1251 n.17 (9th Cir. 1981).

20 The Court indicated in Hynes v. Mayor of Oradell, 425 U.S.
610, 619 (1976), that a state could require informational registra-
tion of persons engaged in door-to-door canvassing or soliciting, on
the ground that there is no absolute First Amendment right to “en-
ter on the private premises of another and knock on a door for any

purpose.

25

or where an overriding national interest in disclosure
has been demonstrated, this Court has not sanctioned
even ministerial licensing of the written press as a pre-
condition to the right to publish.”

When tested against this background, the registration
provisions of the Advisers Act—which call for substan-
tial information in addition to the publisher’s name and
address and permit a prolonged delay in the registration
process—cannot stand as applied to financial newsletter
publishers. Such publishers are engaged in pure speech,
not solicitation. They communicate with willing listen-
ers, and do not intrude upon private property. Any in-
terests served by the requirement—including, presum-
ably, assistance in investigating potential fraud—fall far
short of those overriding national interests for which
compelled registration has been approved.

2. The right to publish may not constitutionally be
denied on grounds of prior misconduct.

The Commission has the authority, under 15 U.S.C.
$§ 80b-3(c) and (e), to deny or revoke registration if it

21 For example, informational registration requirements have
been upheld where necessary to safeguard the functioning of our
national institutions, see Burroughs v. United States, 290 U.S. 534
(1934) (Federal Corrupt Practices Act); United States v. Harriss,
347 U.S. 612 (1954) (Federal Regulation of Lobbying Act), or
where national security or violence were involved, see Communist
Party v. Subversive Activities Control Bd., 367 U.S. 1 (1961);
New York ex rel. Bryant v. Zimmerman, 278 U.S. 63 (1928).

22 The principle of Talley and Thomas—that government cannot
require the registration of persons who seek to do no more than
speak has been applied in other settings by the Courts of Appeals.
For example, the First Circuit has struck down city ordinances re-
quiring newspaper vendors on city sidewalks to obtain licenses in
advance, even though such licenses were automatically granted by
city authorities. Wulp v. Corcoran, 454 F.2d 826, 834 (ist Cir.
1972) ; Strasser v. Doorley, 432 F.2d 567 (Ist Cir. 1970). Similarly,
the Ninth Circuit has held that persons seeking to do no more than
distribute written literature in public facilities cannot be required
to register with governmental authorities. Rosen v. Port of Port-
land, supra, 641 F.2d at 1250-51.

26

finds that the applicant or registrant is subject to a
statutory disqualification. In the instant case, the Com-
mission deregistered Lowe Management and barred
Lowe from association with any investment adviser
based on Lowe's state court convictions and certain vio-
lations of the Act’s reporting and disclosure require-
ments. In re Lowe Management Corp. [1981 Transfer
Binder), Fed. Sec. L. Rep. (CCH) { 82,873 (May 11,
1981). Thus, petitioners cannot obtain the license that
is the prerequisite to publishing lawfully.”

The purpose of the disqualification provision is the
protection of the investing public from securities fraud
and related infractions. See generally SEC v. Capital
Gains Research Bureau, Inc., 375 U.S. 180 (1963).
The Act’s disqualification provision attempts to promote
the government’s interest in protecting investors by pre-
venting the giving of any investment advice by persons
who, in Congress’ view, may be more likely than others
to engage in fraudulent practices. But [bi road pro-
phylactie rules in the area of free expression are suspect.
Precision of regulation must be the touchstone.”
NAACP v. Button, 371 U.S. 415, 438 (1963), quoted in
Village of Schaumburg v. Citizens For a Better Environ-
ment, 444 U.S. 620, 637 (1980). Even on the assump-
tion that the prevention of securities fraud is “‘a sub-

23 The Court of Appeals stated that Lowe is not prohibited “from
publishing recommendations in somebody else’s bona fide newspaper
as an employee, editor, or writer.” 725 F.2d at 902 (Pet. App.
A20). This does not affect the constitutionality of the restraint
imposed, however, because “one is not to have the exercise of his
liberty of expression in appropriate places abridged on the plea
that it may be exercised in some other place.” Schneider v. State,
308 U.S. 147, 163 (1939).

24 For example, investment recommendations may constitute part
of a fraudulent “scalping” scheme, in which a person (whether
a newsletter publisher or personal adviser) “purchas[es] shares
of a security for his own account shortly before recommending
that security for long-term investment and then immediately
sells] the shares at a profit upen the rise in the market price
following the recommendation.” SEC v. Capital Gains Research
Bureau, Inc., supra, 375 U.S. at 181.

27

ordinating interest which is compelling,’ ” First National
Bank of Boston v. Bellotti, 485 U.S. 765, 786 (1978)
(citations omitted), the government must “employ
means ‘closely drawn to avoid unnecessary abridgment
....» ” Id. (quoting Buckley v. Valeo, supra, 424 U.S.
at 25.

Denying the right to publish is not a closely drawn,
narrowly tailored means of dealing with the problem of
potential securities fraud. On several occasions this
Court has struck down other permit requirements for
which the government offered a similar justification. In
Schneider v. State, 308 U.S. 147 (1939), a municipality
urged the prevention of fraud as its justification for
prohibiting leafletting and soliciting without a permit.
While ſelonceding that fraudulent appeals may be
made in the name of charity and religion,” the Court
nevertheless held:

“Frauds may be denounced as offenses and punished
by law. Trespasses may similarly be forbidden. If
it is said that these means are less efficient and con-
venient than bestowal of power on police authorities
to decide what information may be disseminated
from house to house, and who may impart the in-
formation, the answer is that considerations of this
sort do not empower a municipality to abridge free-
dom of speech and press.” Id. at 164.
See also Village of Schaumburg, supra, 444 U.S. at 636-
37; Cantwell v. Connecticut, 310 U.S. 296, 306 (1940).
As the Court said in Schaumburg, [f raudulent misrep-
resentations can be prohibited and the penal laws used to
punish such conduct directly.” 444 U.S. at 637.

Nor is the Act’s insufficient justification aided by the
fact that licenses are denied on the basis of prior mis-
conduct involving fraud or violation of the securities
laws. As this Court held in rejecting a similar argu-
ment in Kunz v. New Yor., 340 U.S. 290, 294-95
(1951):

“The court below has mistakenly derived support
for [upholding the denial of a license] from the

evidence . . that appellant’s religious meetings

had, in the past, caused some disorder. There are
appropriate public remedies to protect the peace
and order of the community if appellant’s speeches
should result in disorder or violence. ‘In the present
case, we have no occasion to inquire as to the per-
missible scope of subsequent punishment.’ Near v.
Minnesota, 283 U.S. 697, 715 (1931). We do not
express any opinion on the propriety of punitive
remedies which the New York authorities may
utilize. We are here concerned with suppression—
not punishment.”
Based on Kunz and Near, licensing schemes have uni-
formly been held unconstitutional when they provide that
“future conduct that may fall within the purview of the
first amendment is absolutely prohibited after a finding
of unprotected present conduct.” Universal Amusement
Co. v. Vance, 587 F.2d 159, 165-66 (5th Cir. 1978)
(en banc), aff'd, 445 U.S. 308 (1980)

Sufficient remedies short of prior restraint are avail-
able and in place to deal with the kinds of securities
fraud by publishers with which the Commission is con-
cerned.” It is unlawful for publishers to act secretly
as publicity agents, paid by persons already holding posi-
tions in recommended stocks. “[{S]ensationalists who
promise miracles in the market which they can hardly
deliver” may be dealt with by means of restrictions on
deceptive advertising. To the extent that “out-and-out
tipsters” falsely claim to have inside information, in or-
der to dupe subscribers into investing in stocks in which
they hold positions or are otherwise personally interested,
such deceit may be punished or subjected to civil lia-

25 See also Fernandes v. Limmer, 663 F.2d 619, 629-30, 632 (5th
Cir. 1981); Entertainment Concepts, Inc., III v. Maciejewski, 631
F.2d 497, 506 (7th Cir. 1980); International Society for Krishna
Consciousness v. Eaves, 601 F.2d 809, 832-33 (5th Cir. 1979) ; Collin
v. Chicago Park District, 460 F.2d 746, 753-54 (7th Cir. 1972); San
Juan Liquors, Inc. v. City of Jacksonville, 480 F. Supp. 151, 153-54
(M.D. Fla. 1979) ; Bayside Enterprises, Inc. v. Carson, 470 F. Supp.
1140, 1142-45 (M.D. Fla. 1979).

26 See Brief for Appellant at 19-23, SEC v. Lowe, 725 F.2d 892
(2d Cir. 1984).

bility. As this Court held in Schneider v. State, supra,
308 US. at 164, the possibility that these remedies may
be “less efficient and convenient” than a prior restraint
is precisely the argument that is rejected by the First
Amendment. Congress may not prohibit all publication
that it suspects may result in problems that may be dealt
with more narrowly, if and when they arise.”

B. The Publication of Financial Newsletters by Un-
registered Publishers Cannot Be Enjoined.

The use of an injunction to enforce the Act’s registra-

tion requirement also is unconstitutional. Because “it is

ring). Instead, if the government is to obtain an injunc-
tion against publication, it must prove that publication
“will surely result in direct, immediate, and irreparable
damage to our Nation or its people.” Id. at 730 (White,
J., concurring). See Organization For a Better Austin v.
Keefe, supra; Nebraska Press Association v. Stuart, 427
US. 539 (1976); Oklahoma Publishing Co. v. District
Court, 430 U.S. 308 (1977). See also Bantam Books
Inc. v. Sullivan, supra (informal system of prior re

80b-6. Publishers of financial
to whom “bona fide newspaper” exclusion is in-
applicable would remain within the Act’s definition of “invest-

straint held unconstitutional). “[O]nly governmental al-
legations and proof that publication must inevitably, di-
rectly, and immediately cause the occurrence of an event
kindred to imperiling the safety of a transport already
at sea can support even the issuance of an interim re-
straining order.” New York Times Co. v. United States,
supra, 403 U.S. at 726-27 (White, J., concurring).

The Commission’s interests fall far short of meeting
this exacting standard. The justification for an injunc-
tion is derived from, and rises no higher than, the justifi-
cation for the Act's registration and disqualification pro-
visions. As we have just shown, however, these provi-
sions are overly broad means of furthering the Commis-
sion’s legitimate interest in preventing and punishing
securities fraud. Since these provisions themselves can-
not withstand constitutional scrutiny, as applied to pub-
lishers, it follows a fortiori that publication by an un-
registered published may not be enjoined.

CONCLUSION

For the reasons stated above, the judgment of the
Court of Appeais should be reversed.

Respectfully submitted,
Of Counsel: NANCY J. BREGSTEIN
BENJAMIN W. BoLEY — Record )
SEA & GARDNER RICHARD M. WYNER
1800 Massachusetts Ave, N.W. SHEA & GARDNER
Washington, D.C. 20036 1800 Massachusetts Ave., N.W.
(202) 828-2000 — D.C. 20036
1 (202) 828-2000
— — Cor wel for Amici C
Tue REPORTERS COMMITTEE

FoR FREEDOM OF THE PRESS
800 18th Street, N.W.
Washington, D.C. 20006
(202) 466-6313

November 15, 1984

Counsel for amici gratefully acknowledge the assistance of David
Gruber and Leigh Hermance, Law Student Interns at the Reporters
Committee for Freedom of the Press.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0775%3A05. Public record. Not legal advice.