# Amicus Curiae Brief — Pirate Investor LLC v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1794%3A6 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 2010 - **Citation:** 561 U.S. 1026 ## Text Supreme Court, U.S. FILED APR 23 2010 No. 09-1176 OFFICE CF THE CLERK IN THE Supreme Court of the Gnited States on ae ae PIRATE INVESTOR LLC AND FRANK PORTER STANSBERRY, Petitioners, v. UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Respondent. ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT BRIEF AMICI CURIAE OF THE REPORTERS COMMITTEE FOR FREEDOM OF THE PRESS AND MEDIA ORGANIZATIONS IN SUPPORT OF PETITIONERS Lucy A. Dalglish Counsel of Record Gregg P. Leslie The Reporters Committee for Freedom of the Press 1101 Wilson Blvd., Suite 1100 Arlington, Va. 22209 (703) 807-2100 ldalglish@rcfp.org (Additional counsel for amici listed on inside cover.) Additional counsel for amici: Kevin M. Goldberg Fletcher Heald & Hildreth 1300 N. 17% St. 11% Floor Arlington, VA 22209 Counsel for The American Society of News Editors David H. Tomlin Associate General Counsel The Associated Press 450 W. 33rd St. New York, NY 10001 Counsel for The Associated Press Jonathan Bloom Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Counsel for The Association of American Publishers, Inc. (“AAP”) Kathleen A. Kirby Wiley Rein LLP 1776 K Street NW Washington, DC 20006 Counsel for The Radio Television Digital News Association Robert M. O’Neil The Thomas Jefferson Center for the Protection of Free Expression 400 Worrell Drive Charlottesville, VA 22911 TABLE OF CONTENTS ee ee I a aicis vas nooks cnecsncoasdcsciwadecoueasenvces ill I We NN isin vnc ce nespoccn inn veacensvcscnecnerroacesess 1 PUISIMATY OF ATBUMIOIE ooecccccicccvevesscctscssecescecees OO 4 RS EK IIR RN IE ae OC A En TERT 7 § The decision below applying § 10(b) to a publisher of general financial recommendations with no First Amendment safeguards will impermissibly chill valuable speech regarding financial issues ....................6. 7 A. Financial reporting has long been a cornerstone of journal- ism, informing the public and interpreting economic infor- mation on its behalf........ ? about the collapse. !2 '0 Katharine Q. Seelye and James Barron, Wall Street Journal Wins 2 Pulitzer Prizes, N.Y. TIMES, April 17, 2007 at B8. '! Press Release, Long Island Univ., Long Island University Announces Winners of 2001 George Polk Awards (Feb. 20, 2002), available at http://www. brooklyn.liu.edu/polk/press/awards. pdf 12 Press Release, The New York State Society of CPAs, Journal] ists Receive Awards from NYSSCPA for Financial Reporting (March 31, 2009), available at http://www.nysscpa.org/society/PR/3-31-09releasea. htm 12 The calculus changes with the Securities and Exchange Commission’s counsel making the chilling pronouncement at trial that the Commission would not hesitate to apply § 10(b) to any financial publica- tion, specifically mentioning The Wall Street Jour- nal,}3 Furthermore, under the Fourth Circuit’s reason- ing, the fact that publications aim to improve their reputations by disseminating accurate financial in- formation bolsters a claim of fraud under § 10(b).!4 Such reasoning creates a disincentive to freely pub- lish accurate information — an untenable result, as far as the First Amendment is concerned. The production of informative and timely finan- cial articles is in the public’s best interest. Courts should not allow for improper government interfer- ence with journalists’ pursuit of financial reporting. With such a judicial interpretation of § 10(b) in place, future reporting may be chilled.'5 13 Pet. Cert. at 10. 14 SEC v. Pirate Investor, 580 F. 3d 233, 247 (4th Cir. 2009) (finding that “reputational gain” that encourages the future purchase of more information is a “connection” to the sale of securities). '5 See Daniel v. Dow Jones & Co., 520 N.Y.S.2d 334 (N_Y. Civ Ct. 1987) (granting motion to dismiss sult against news service report that allegedly contained false and misleading informa- tion that led the plaintiff to make a bad investment; noting the potential chilling effect finding otherwise would have on pa- pers) Regardless of connection to current af- fairs, the First Amendment fully protects financial and economic advice. Setting aside the need to protect financial publi- cations generally, the fact that a publication gives specific advice about securities does not unilaterally exclude it from First Amendment protection. The First Amendment’s guarantees “embrace all issues about which information is needed or appropriate to enable the members of society to cope with the exi- gencies of their period.” Thornhill v. Alabama, 310 U.S. 88, 102 (1940). Thus, the First Amendment does not cease to protect speech that may not be specifi- cally germane to current events or politics. The First Amendment “embraces at the least the liberty to dis- cuss publicly and truthfully all matters of public con- cern without previous restraint or fear of subsequent punishment.” /d. at 101-02. To the extent that financial reports discuss eco nomic, financial or investment matters generally, there can be no doubt that they are fully protected by the First Amendment. This Court’s “cases have never suggested that expression about .. . economic matters ...1is not entitled to full First Amendment protection.” Abood v. Detroit Board of Education, 431 U.S. 209, 231 (1977). With regard to financial analyses and reports that value or recommend specific securities, this Court has never held that specificity strips publica- tions of full First Amendment protection. Speech is not deprived of the full protection of the First Amendment merely because it is practical and nar- rowly useful, rather than being of broad, abstract import. 14 Moreover, there is no distinction of constitu- tional significance between “general” and “specific” investment recommendations — that is, for example, between a prediction of the future course of the stock market as opposed to a recommendation to buy stock in one company rather than another. Nor does the fact that readers may act on the basis of specific ad- vice diminish its constitutional protection. See Tho- mas v. Collins, 323 U.S. 516, 536-37 (1945) (“When legislation or its application can confine [speakers]. . . to innocuous and abstract discussion .. . and so be- cloud even this with doubt, uncertainty and the risk of penalty, freedom of speech for them will be at an end.”); see also Org. for a Better Austin v. Keefe, 402 U.S. 415, 429 (1971) (“The claim that the expressions were intended to exercise a coercive impact on re- spondent does not remove them from the reach of the First Amendment. Petitioners plainly intended to in- fluence respondent's conduct by their activities; this is not fundamentally different from the function of a newspaper.’). Instructively, a Maryland federal court noted in a case involving the very same corporation that pro- duces Petitioner’s publications that because the par- ticular publication in that case was offered to the general public and advice given was not specifically tailored to the financial situation of any individual] subscriver, it was “subject to the same protection un- der the First Amendment as any other publication.” Ginsburg v. Agora, Inc., 915 F. Supp. 733, 740 (D. Md. 1995) (citing Lowe v. SEC, 472 U.S. 181, 210 (1985)); see also Lubin v. Agora, 882 A.2d 333 (Md. 2005) (finding that a subpoena of the same company had First Amendment implications). 15 Nor does the use of hyperbole diminish speech’s full First Amendment protection. Financial journal- ism is often rough and boisterous, and tends to re- flect opinion rather than pure fact. As media expert David L. Nelson noted in a re- port to the lower court in this case, “almost all me- dia” try to “brag” and “shout” to connect with the au- diences, and “[n]lewsletters are no exception.” Joint Appendix at 4352. Nelson noted that financial news- letters “use aggressive, usually upbeat or ‘Doomsday’ rhetoric to attract attention and get subscribers.” Id. at 4354. In Nelson’s trial testimony, he also testified about the exuberant tone that readers have come to expect of newsletter writers. Jd. at 1171. This is ex- ceedingly common throughout the particular genre. Financial discourse is often prone to heated ex- changes and speculation, which most readers take in the aggregate and filter for themselves. However, financial reports’ investment recom- mendations concerning specific securities and their use of bombastic tone do not detract from their enti- tlement to full First Amendment protection. '!® 6 Furthermore, the high price and low circulation of informa- tion has no bearing on constitutional protection. Reynolds v. Murphy, 188 S.W.3d 252, 265 n.17 (Tex. App. 2006) (“News ser- vices, whether free to the public, as are television or radio, or more expensive specialized media, such as defendant's comput- erized database, are instruments for the free flow of all forms of information, and should be treated as unquestionably within the First Amendment's guarantee of freedom of the press.”) (cit- ing Daniel, supra note 13, at 101-102 (“[T]he cost of the service and the degree of its distribution are not related to the impor- tance of the protection needed for the statement at issue.”)). 16 The Fourth Circuit should have conducted an independent appellate review because of the instant case’s First Amendment im plications. A. Restrictions on speech are presump- tively invalid and any such restriction must be narrowly construed. This Court has said that the requirement that all viewpoints be treated equally, one of the founda- tions of the First Amendment, imposes a special re- sponsibility on judges whenever it is claimed that a particular communication is unprotected. Bose Corp. v. Consumers Union of United States, Inc., 466 U. S. 485 (1984). Although not all speech is of equal First Amendment protection, no cause of action or prose- cution can claim “talismanic immunity from constitu- tional limitations” and all “must be measured by standards that satisfy the First Amendment.” New York Times v. Sullivan, 376 U.S. 254, 269 (1964). Such constitutional protection does not depend upon "the truth, popularity, or social utility of the ideas and beliefs which are offered." NAACP v. Button, 371 U.S. 415, 445 (1963). After all, “[e]Jrroneous state- ment is inevitable in free debate . .. and it must be protected if the freedoms of expression are to have the breathing space that they need . . . to survive," Sullivan at 272 (citation omitted). Indeed, the principle that speech needs wide latitude to flow freely was fiercely supported by the core founders of the United States of America. Tho- mas Jefferson, no stranger to aggressive scrutiny by the press, once wrote, “{Wlere it left to me to decide 17 whether we should have a government without newspapers or newspapers without a government, | should not hesitate a moment to prefer the latter." Letter from Thomas Jefferson to Edward Carrington, Delegate to the Continental Congress (Jan. 16, 1787). These behefs were reflected in the First Amendment to the U.S. Constitution. Because of the constitutional requirement that First Amendment freedoms be given. sufficient breathing space, the government may regulate in the area only with narrow specificity. See Cantwell uv. Connecticut, 310 U.S. 296, 311 (1940). Any govern ment regulation of speech “susceptible of regular ap- plication to protected expression” is impermissible, Houston v. Hill, 482 U.S. 451, 467 (1987), and analy- sis must be done carefully, for “{w]here particular speech falls close to the line separating the lawful and the unlawful, the possibility of mistaken fact- finding —- inherent in all litigation — will create the danger that the legitimate utterance will be penal- ized.” Speiser v. Randall, 357 U.S. 513, 526 (1958). This Court has in the past rejected the need for close judicial oversight with regard to speech involv- ing economic matters stating, “The dangers of fraud, deception, or overreaching... are present in person- alized communications but are not replicated tn pub- lications that are advertised and sold in an open market.” Lowe, 472 US. at 210. 18 B. The First Amendment requires a heightened evidentiary showing that a communication, always presumed to be protected, should be stripped of that protection. All speech at its inception is protected, and when a case requires a court to strip a communica- tion of its First Amendment protection, the evidence in the record must be clear and convincing.!7 Bose Corp., 466 U. S. 485. Appropriate heightened proof requirements have been held to provide sufficient breathing room for protected sjeech. See Sullivan, 376 U.S. at 279-280; see also Bose, 466 U.S. at 502. This Court held that with regard to imposing liability on a publisher, a simple negligence standard would constitute an “intolerable burden.” Time, Inc. v Hill, 385 U.S. 374, 387-89 (1967). As an additional safeguard responsive to First Amendment concerns, an appellate court may inde- pendently veview lower courts’ findings. Cf. Bose Corp., 466 U.S., at 498-511 (de novo appellate review of findings regarding actual malice). '7 The proper standard on these facts is that of “actual malice,” as the First Amendment requires a heightened standard. See Daniel, 520 N.Y.S.2d at 339 (“The societal right to free and un- hampered dissemination of information precludes liability ab- sent proof of knowing falsity or reckless disregard for the truth.”); see also Nat! Life Ins. Co. v. Phillips Publishing, 793 F. Supp. 627 (D. Md. 1992) (holding in a defamation suit that “Profitable Investing,” a financial newsletter, was entitled to the “actual malice” standard because of First Amendment con- cerns). 19 C. This Court should clarify the impor- tance of First Amendment deference and elucidate that restrictions on speech should be narrowly.construed. The use of independent appellate review as an important constitutional safeguard should be reaf- firmed by this Court. The Fourth Circuit erred in re- jecting Petitioners’ argument that the SEC was re- quired to prove the elements of § 10(b) by clear and convincing evidence, before the communication was stripped of its protected status. The Fourth Circuit used the evidentiary standard generally applicable to civil enforcement actions, which requires proof by a “preponderance of the evidence.” SEC v. Pirate Inves- tor, 580 at 242. However, this approach cannot be squared with the First Amendment. Bose requires any case that implicates the First Amendment to comport with the “clear and convincing” evidentiary standard before the speech is stripped of protection. Because § 10(b) has not been applied to independent publishers of general financial advice,'8 the applicable standards in place do not conform to accepted First Amendment standards. This is likely because in the course of cre- ating the regulation, it was not contemplated that it had the potential to implicate financial speech of non-fiduciaries who neither own nor trade securities. With regard to such speakers, a_ proper First Amendment analysis would first assume the pro- '8 See Sup't of Ins. V. Bankers Life & Cas. Co., 404 U.S. 6, 8 (1971). 20 tected status of the speech, and then scale back that protection if necessary. IV. The application of § 10(b) to publishers violates the First Amendment because it will have substantial effects on newsgath- ering. Furthermore, to counter a defense of First Amendment protection, the SEC may not use the standard set forth in Cohen v. Cowles Media, as it pertains only to laws that have “incidental” effects on the press’s ability to gather and report the news. 501 U.S. 663 (1991). Unhke in Cohen, § 10(b)’s impact on newsgathering and news reporting would be more than merely incidental, and thus its application would violate the First Amendment. In Cohen, the plaintiff was a political staffer that leaked information about an opponent to local newspapers on the promise of anonymity. 501 US. 663, 665 (1991). On the theory of promissory estop- pel, the state courts held the newspapers liable for breach of contract for printing the anonymous name. Id. at 666. Prior to that ruling, the defendants ar- gued that the First Amendment prevented the litiga- tion because allowing the judicial enforcement of con- fidentiality contracts would chill the free speech of newspapers that had legally obtained truthful infor- mation, under the existing standards set forth in this Court's prior cases. Id. at 668. Instead, this Court in Cohen set forth the new standard that “generally applicable laws do not of- fend the First Amendment simply because their en- forcement against the press has incidental effects on its ability to gather and report the news.” I/[d. at 669. 21 The Court based its decision on precedent upholding the rule that journalists may not break the law while newsgathering by trespassing, intimidating, or breaking and entering. Jd. Liability under contract doctrine was generally applicable and thus the First Amendment did not preclude its enforcement. In contrast with this scenario, the application of § 10(b) of the Securities Exchange Act of 1934 re- quires additional First Amendment safeguards. Al- though there was no express exception for publishers in the language of the law, § 10(b) was intended to apply only to true insiders — those with the highest level of power and internal knowledge that influ- ences the sale of securities. See Reliance Ins. Co. v. Barron's, 442 F. Supp. 1341, 1353 (S.D.N.Y. 1977) (“The securities laws, and particularly Rule 10b-5, were not developed with the intention of overlapping or reinforcing the law of libel, nor to inhibit the exer- cise of freedom of the press.”); Cf. [owe v. SEC, 472 U.S. 181, 204 (1985) (“Congress, plainly sensitive to First Amendment concerns, wanted to make clear that it did not seek to regulate the press through the licensing of non-personalized publishing activities.”). A regulation that controls the action of one who improperly discloses information to sell securities does not in effect apply to all citizens equally, as a contract or trespass law statute does. This is true be- cause an additional layer of constitutional scrutiny is required if a restriction on speech has a substantial effect on First Amendment freedoms. See Food Lion Inc. v. Capital Cities/ABC, 194 F.3d 505, 522 (4th Cir. 1999). As was discussed more fully in section I supra, the expansion of § 10(b) has the potential to dramati- 22 cally chill speech in a field where financial journal- ists must be free to act as watchdogs without fear of government intervention. Furthermore, the instant case is distinguishable from a traditional Cohen case in that the speech itself is the conduct being pun- ished. The First Amendment effects on speech would not be incidental, as the Cohen standard sets forth, but direct and overreaching. Government pressure to refrain from making any statements about securities, in case they later prove to be false, is a substantial negative effect on the gathering and dissemination of news. Although financially-specialized journalists os- tensibly have knowledge about securities that is greater than that of the average reader, they do not possess the types of duties that would fairly give rise to the culpability contemplated by § 10(b). Without an additional) layer of constitutional scrutiny, its ap- plication to non-fiduciary publishers who neither trade nor own stock violates the First Amendment. 23 CONCLUSION No form of speech is from its inception auto matically placed outside the First Amendment’s pro- tections. If permitted to stand, the Fourth Circuit ruling threatens financial reporting in publications throughout the country. The Court must clarify that any removal of speech from the First Amendment’s protections must be proved by an absolute minimum of “clear and convincing” evidence of actual malice on appeal. Because of the Fourth Circuit’s lack of defer- ence to the First Amendment, which will result in an unconstitutional chilling effect on all publications, amict therefore respectfully request that this Court errant Petitioners’ petition for certiorari. Respectfully submitted, Lucy A. Dalglsh Counsel of Record Gregg P. Leslie The Reporters Committee for Freedom of the Press 1101 Wilson Blvd., Ste. 1100 Arlington, VA 22209-2211 (703) 807-2100 Idalglish@rcfp.org April 29, 2010 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_1794%3A6. Public record. Not legal advice.