Subverting the First Amendment

You thought the press was controlled only in banana republics? Guess again. Mr. Jefferson, meet the SEC.


Since the 1960s an agency of the federal government has been engaged in flagrant suppression of the First Amendment rights of a small group of publishers. In direct contravention not only of the First Amendment but of explicit instructions from Congress, this agency has imposed a requirement that these publishers secure a printing license—something that English-speaking democracies have not seen since the 17th century, when England's licensing laws for publishers were abolished. When, to avoid the risk of a felony conviction, publishers comply and obtain a license, they become subject to regulatory demands showing blatant disregard for freedom of the press—for example, censorship of the publications' content, forced disclosure of subscribers' names, and restrictions on the sale of the publishers' assets.

That federal agency is the Securities and Exchange Commission. The publishers it is aggressively drawing into its regulatory net, in spite of several adverse court decisions, are the publishers of financial newsletters offering investment information to the public. And what is the agency's rationale for actions that subvert the First Amendment? Protection of the investing public.

Ordinarily, one would not expect that people were in any particular need of "protection" from those who want to offer for sale their opinions on the merits of various investments. As consumers of such information, investors can quickly determine for themselves what the advice is worth. And so, for the same SEC that has, without blinking an eye, registered astrologers as investment advisors, cases such as that of Christopher Lowe must seem particularly important.

Papers filed by the SEC in June 1982 in US District Court in New York indicate that Lowe (or corporations with which he is associated) currently publishes such newsletters as the Lowe Investment & Financial Letter, the Lowe Stock Advisory, and the Lowe Stock Chart Service, for which he has, altogether, 4,000–5,000 subscribers. But, notes the SEC, Lowe pled guilty in 1977 to appropriating $2,200 of an advisory client's funds, pled guilty in 1978 to stealing $764 from a bank, and pled guilty in 1978 to writing bad checks on various accounts in an amount in excess of $27,000. And so, says the SEC, Lowe should be muzzled—barred for the rest of his life from putting out newsletters offering his opinions about investments.

But should possession of a criminal record disqualify one from publishing investment information and opinion—any more than from publishing a newspaper or a book? And, more generally, should publishing investment commentary require a printing license (the SEC prefers to call it a "registration requirement") from the government?

The SEC claims its power to license financial newsletters from the Investment Advisers Act of 1940, which requires a money manager, investment counselor, pension fund advisor, or anyone else who gives investment advice "either directly or through publications or writings" to register with the SEC as an investment advisor. In passing this legislation, Congress was mindful of the First Amendment's provision that it "shall make no law…abridging the freedom of speech, or of the press." Congress specifically exempted from the coverage of the act "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation." Yet the SEC has adamantly refused to recognize the applicability of the publishers' exemption to financial newsletters.

True, these newsletters are fairly small-time operations. But the Supreme Court has long held that the protection against government restrictions on freedom of the press afforded by the First Amendment "is the right of the lonely pamphleteer who uses carbon paper or a mimeograph just as much as the largest metropolitan publisher who utilizes the latest photocomposition methods." Nor is there anything in the legislative history of the Investment Advisers Act to suggest that Congress intended to protect only the "largest metropolitan publishers" rather than "the lonely pamphleteer."

The key phrases in this exemption are bona fide and regular and general circulation—phrases that appear designed to keep a genuine investment advisor with individual customers or with responsibility for other people's funds from using the publishers' exemption to avoid registration. There are no similar phrases in the exemption, however, to warrant the SEC's conclusion that it does not apply to persons who are solely engaged in regularly publishing investment advice and commentary in a pamphlet or newsletter format available to the general public by subscription.

There are no indications that anyone at the SEC has carefully thought through the First Amendment implications either of its efforts to shut down Chris Lowe's printing press or of its efforts to license and regulate publishers of financial newsletters generally. Why this is so has a lot to do with the nature of the SEC, an independent regulatory agency, and the way it has exercised its statutory authority. Roberta Karmel, a former SEC staff attorney and an SEC commissioner during the Carter administration, recently wrote an insightful, albeit sympathetic, critique of the agency, Regulation by Prosecution. The SEC, she says, "became so enamored with law enforcement as an adversary sport that it lost sight of the need to justify its programs politically at the same time as it overstepped the boundaries of its statutory authority."

Long before there was an SEC or an Investment Advisers Act, there were financial newsletters. Babson's Reports, generally recognized as the first newsletter, was founded in 1904 by Roger W. Babson, "the father of the newsletter industry." During World War I, the federal government was also involved in the newsletter business, publishing financial information in the United States Bulletin right alongside casualty reports. Babson worked for the Bulletin during the war and in 1919 assumed private control of its publication, which soon became the United Business Service and began weekly distribution on a subscription basis. Babson continued to publish Babson's Reports, and in 1924 his cousin, Paul T. Babson, purchased the United Business Service. The Babson family is still prominent in both enterprises, which are among today's larger newsletter operations.

Many others, including Standard & Poor's, began publishing newsletters during the bull markets of the 1920s. Many newsletter publishers went out of business in the years following the crash of 1929, most suffering from a terminal case of lost credibility. Babson's, United, Standard & Poor's, plus a handful of others, however, survived both the crash of '29 and the Great Depression.

During the depression in the 1930s, Congress passed extensive reform legislation designed to eliminate certain practices in the securities industry that were thought to have contributed to the stock market crash. The Securities Act of 1933 required (with a few exceptions) filing with the SEC a registration statement for initial investment offerings. The Securities and Exchange Act of 1934 governed secondary distributions of securities, including regulation of proxies and "insider trading." The Investment Advisers Act of 1940 required registration of all broadly defined "investment advisors." In commenting on these laws, the Supreme Court has held that their fundamental purpose was to substitute the rule of full disclosure for the existing one of caveat emptor.

Following passage of the Investment Advisers Act, the SEC made little effort to compel newsletter publishers to register as advisors. While some did, many did not and were likely unaware that the SEC even maintained a registration requirement. Starting in the early 1960s, however, the SEC began to zero in on financial newsletter publishers. It promulgated regulations under the 1940 act prohibiting advertisements by investment advisors containing "testimonials" or reference to former recommendations that would have been profitable to the potential investor-subscriber.

At the same time as it was issuing these regulations on "testimonials"—which when applied to newsletter publishers are a form of prior restraint—the SEC was in the process of litigating SEC v. Capital Gains Research Bureau. This is the only case under the Investment Advisers Act involving newsletters ever decided by the Supreme Court.

Capital Gains Research Bureau was the publisher of a newsletter with a circulation of 5,000 subscribers at an annual fee of $18.00. Capital Gains was accused of "scalping" by the SEC when, on six occasions over an eight-month period in 1960, it recommended a particular security in its newsletter as an excellent long-term investment, purchased it for its own account, and then within 5–10 days after publication sold the security at a higher price (allegedly caused, in part, by the Capital Gains recommendation). The total income from these transactions was approximately $20,000, or about 3 percent of the company's annual gross income of $570,000.

Although the SEC offered no evidence that the securities were not worth their appreciated value, it claimed that Capital Gains was involved in a conflict of interest. The Supreme Court upheld the SEC, and Capital Gains was subsequently ordered to disclose the "scalping" technique to its subscribers.

The First Amendment implications of licensing and regulating financial newsletters were not considered or ruled upon by the Supreme Court in the Capital Gains decision. Nevertheless, the SEC thereafter commenced a campaign focused not on the supposed evil of scalping but on unregistered financial newsletters generally. During the '60s and '70s and continuing into the '80s, it has engaged in an open and frequently arrogant suppression of First Amendment rights of financial newsletter publishers under the guise of its otherwise unsupported interpretation of the Investment Advisers Act.

The SEC's mistreatment of these publishers and their First Amendment rights is largely a sideshow, ancillary to its primary role of overseeing the nation's securities markets. For example, when we queried the SEC, we were told that only $58,000 of its annual $7.8 million budget is spent on registration and compliance for "investment advisors" who only publish newsletters. This is an unrealistically low figure. It does not include the hidden costs of litigation and compliance investigation in the field. Nevertheless, it is still a sideshow, and the victims are for the most part small operations. As a consequence, the SEC's suppression of their rights has been conducted outside the glare of publicity.

Why does the SEC show such insensitivity to one of our most important freedoms? As Roberta Karmel observes, regarding the agency's performance generally, "Staff members sometimes forgot that they were public servants and lapsed into an arrogance…intolerable in a democratic government."

The SEC gets away with its edict requiring the licensing of financial newsletters by intimidation. Failure of an investment advisor to register as such with the SEC is a felony punishable by up to five years in prison and a $10,000 fine. The SEC made it well known in the 1960s and thereafter that it considers publishers of financial newsletters to be investment advisors. The commission knows that many financial newsletters have material resources more akin to the lonely pamphleteer than to the large metropolitan publisher. It is not surprising that most newsletter publishers capitulate and register. The course of resistance and litigation to assert basic freedoms granted by the Constitution is not a popular one when your lawyers charge you by the hour and you started a newsletter with the purpose of making a profit.

When it comes to actual litigation regarding its interpretation of the Investment Advisers Act vis-à-vis financial newsletters, the SEC is a paper tiger that has been living off its reputation for years. The one time the SEC actually received a court ruling on the issue of whether a financial publication must register as an investment advisor, it lost.

The SEC's defeat, in a suit that it pursued for over 10 years, involved Richard A. Holman and the Wall Street Transcript. The Transcript was a weekly tabloid newspaper mailed to its 8,000 subscribers and sold on a few newsstands. It consisted of verbatim reports of various brokerage houses previously circulated and relating to particular securities, news on offerings of stocks and bonds, speeches by corporate managerial personnel, notices of executive promotions and transfers, and occasionally an editorial. By far, most of the Transcript was written by people it did not employ. Holman was its principal operating officer.

In 1965, in matters unrelated to his publication of the Transcript, the SEC revoked Holman's broker-dealer registration, ordered his expulsion from the National Association of Securities Dealers, and enjoined him from further securities law violations. Two years later, without possessing any evidence or having received any complaints of wrongdoing, the SEC suddenly launched an investigation of the Transcript and subpoenaed virtually every piece of paper maintained in its publishing operation. The ostensible purpose of the subpoena was to secure evidence to help the SEC determine whether the Transcript was an investment advisor.

Holman and the Transcript claimed the subpoena was harassment and a sham, refused to comply, and attacked it in federal court on First Amendment grounds. In 1968, the district court judge summarily threw the SEC out of court and held the Transcript to be a "bona fide newspaper" and thus exempt from the Investment Advisers Act. But the SEC pursued its case in the court of appeals, which ruled that the SEC should be allowed to gather evidence and make an initial determination on investment advisor status before the courts reviewed the validity or constitutionality of that decision. Dismissing fears expressed by the district court, the court of appeals asserted (too optimistically, as we shall see) that the SEC was "fully aware of the importance of First Amendment considerations."

The case was remanded to the district court, where in 1978 the Transcript was found to be "clearly involved in the business of publishing investment advice (in return for) subscription fees." But, just as happened 10 years earlier, the Transcript was also clearly found to be a bona fide newspaper and financial publication and hence exempt from registration. The SEC did not appeal.

Despite its loss to the Transcript, the SEC has not changed its policy of licensing and regulating financial newsletters. The SEC continues to maintain that the publishers must register as investment advisors. And if they do register, the SEC moves in with regulations and demands from which other publishers are immune under the First Amendment.

Examinations. The SEC regularly conducts unannounced examinations of registered brokers and investment advisors—including financial newsletters—both on-site and by phone, to determine their financial status. The examiners are typically unfamiliar with the publishing business. Consistent with the SEC's fiction that newsletters are investment advisors, they apply to the newsletters (many of which are small operations run out of the publishers' homes) the same standards that the SEC has established to ensure the solvency of investment advisors and brokers who actually have custody of clients' funds.

More chilling for freedom of the press is the door opened to harassment. The SEC admitted in congressional testimony in March 1980 that it only examines investment advisors of all types on an average cycle of once every 12 years. Yet some members of the Newsletter Association of America (NAA) who are registered with the SEC report that they are examined every two to three years. Glenn Parker, chairman of the NAA's Freedom of the Press Committee, has been examined three times in the past six years, most recently after being identified as a potential expert witness for the defense for Christopher Lowe, whom the SEC wants to put out of business because of a criminal record.

Restrictions on Financing and Sale. According to the SEC, a subscription to a financial newsletter is an "investment advisory contract" and cannot be "assigned" without the subscriber's consent. Since the SEC views the sale of a newsletter publishing company as an "assignment" of the firm's subscriptions, the company cannot be sold without the consent of each individual subscriber. A newsletter publisher is even forbidden to pledge the stock of his company for a bank loan without the consent of his subscribers, on the rather specious grounds that such a pledge represents a potential assignment.

This policy, which restricts the freedom of a newsletter publisher to sell his business, is supposedly intended to protect readers against unannounced changes in editorial staff or policies. This constitutes control of a publisher that is patently inconsistent with the First Amendment.

But then, the SEC contends that financial newsletter publishers who register with it—to avoid the expense of litigation and the risk of a felony conviction—thereby forfeit their First Amendment rights. As the SEC argued before the court, in response to First Amendment objections to one of its demands of the publishers of Smart Money, "[Publisher] has no constitutional privilege to relinquish with respect to records that it is required to keep in the course of its business as a registered entity" (emphasis added).

Smart Money is a monthly eight-page newsletter published by the Hirsch Organization. It has a circulation of approximately 9,000 and is directed to "potential investors and readers who are interested in small, emerging growth companies, many of which have been overlooked by other publications." In April 1981 the SEC commenced an investigation of possible securities violations in connection with a public offering of shares of Entertainment Systems, Inc., a previously private company. Smart Money had published two articles about Entertainment Systems prior to the effective date of the public offering. Stating that its interest was "piqued," the SEC promptly subpoenaed both Yale Hirsch, the president of Smart Money's publishing company, and George Brooks, the Smart Money staff writer who wrote the two articles.

Hirsch and Brooks testified, produced many documents, and generally answered all relevant questions. Hirsch refused, however, to respond to a portion of the subpoena requesting the names and addresses of all of Smart Money's subscribers. In an action in federal court to enforce the subpoena, the SEC claimed it needed the subscription list so it could ascertain whether the Hirsch Organization "solicited" investors to purchase the Entertainment stock and whether the Smart Money articles played any role in the decision of those investors who did purchase the stock.

Yet the SEC knew, based on evidence submitted to it by Entertainment's underwriter, that no one connected with Smart Money either asked for or received anything in return for publishing the articles. Moreover, Hirsch's attorneys proposed a compromise whereby the list of Smart Money subscribers would be made available to SEC staff for the limited purpose of determining who among them had purchased Entertainment stock (the SEC already had the purchasers' names and addresses). And although arrangements like this to protect confidential business documents are quite common in federal litigation, the SEC rejected the compromise offer out of hand.

Did the SEC have ulterior motives, then, in seeking to compel the production of all the names and addresses of Smart Money's subscribers—motives not revealed to the court? Intimidation of financial newsletters generally could have been one of them. Another likely motive was to establish a new legal precedent to overcome a comment in the Wall Street Transcript decision by the appellate court which suggested that the SEC does not have authority to cast a "dragnet…for lists of all subscribers," which would necessarily "go to the jugular of…a publishing firm."

Evidence of ulterior motives came in the fall of 1982. The SEC entered into a consent decree settling the underlying suit against the underwriters of the Entertainment System stock offering. Yet it continued its attempt to enforce the subpoena against Smart Money. Why? The SEC is not talking. Neither Michael Berenson, chief of the SEC's Investment Advisers Study Group, nor the SEC trial attorneys would comment on the matter. Late in October 1982, US District Court Judge David Edelstein issued a decision refusing to enforce the subpoena. The SEC, he noted, had failed to "demonstrate that the need for the information outweighs the First Amendment protection accorded it." But the SEC could come back to the court to attempt a demonstration, added the judge.

The SEC staff is neither naive nor innocent. They know that subscription lists are the jugular of a publishing firm. They know that if they can persuade a court to ratify their self-proclaimed right to possession of the names and addresses of all newsletter subscribers, their power over newsletters will be well-nigh absolute. They know, as Justice Douglas wrote in his 1953 concurring opinion in US v. Rumely, that:

A requirement that a publisher disclose the identity of those who buy books, pamphlets, or papers is indeed the beginning of surveillance of the press.…The finger of government leveled against the press is ominous. Once the government can demand of a publisher the names of the purchasers of his publications, the free press as we know it disappears. Then the spectre of a government agent will look over the shoulder of everyone who reads. The purchase of a book or pamphlet today may result in a subpoena tomorrow.…If the lady from Toledo can be required to disclose what she read yesterday and what she will read tomorrow, fear will take the place of freedom in the libraries, book stores, and homes of the land. Through the harassment of hearings, investigations, reports, and subpoenas, government will hold a club over speech and over the press.

Even without the right to cast a dragnet for subscribers' names, the clubs the SEC holds over newsletters are still quite heavy. One of them is the ever-present threat of baseless litigation designed to force a publisher out of business.

One victim of this particular tactic was Phillips Publishing Company. In 1974, Phillips published three newsletters, including the Retirement Letter, which offers investment advice to retired persons and had registered with the SEC as an investment advisor. In 1975 the SEC filed an action against Phillips seeking to permanently bar the firm from publishing the Retirement Letter unless it agreed to convey to the some 15,000 subscribers false information about the financial condition of the company. Specifically, the SEC wanted Phillips to tell its subscribers that it was "insolvent." Since this was not true and would have amounted to signing its death warrant as a publisher, Phillips refused.

When the case came to trial, the judge laughed the SEC out of court. It turned out that all the SEC was complaining about was that Phillips was using income from new subscriptions to fund its current operations and that it was not treating the full cost of unfilled subscriptions as a current liability. As anyone in the publishing industry can attest, almost all periodicals follow these accepted accounting principles in publishing, and the judge so held, finding "credible and persuasive evidence of…solvency—illustrating rather than an insolvent company, a young expanding company merely following the widely-adopted financing practices employed in the contemporary publishing industry."

As with its loss to The Wall Street Transcript, the SEC never appealed this defeat. For Phillips Publishing, the price of liberty was $25,000 in attorneys' fees (Phillips' gross income for the previous year being only $135,000).

The SEC is determined that the price of First Amendment freedoms for financial newsletters will continue to be high. Censorship is part of that price. Although the SEC has denied to both Congress and the White House that it engages in censorship of the contents of financial newsletters, the facts do not support its denial. Censorship by the government is nothing more than the power to direct and control the content of a publication.

Case: The Bowser Report, a financial newsletter published by R. Max Bowser, was examined by the SEC in April 1982. In May, the SEC sent a letter directing Bowser to make "revisions of certain practices…to comply with the Act and its rules and regulations"—or lose his printing license. Two of these "practices" involved the content of publications by Bowser. One of the offenses was a piece that he sent to all new subscribers. Entitled "Brokers Familiar with the Bowser Plan," it listed brokers throughout the country who get the Bowser Report each month "and are aware of the stocks we recommend and our philosophy." Bowser's other offense was to print unsolicited letters from satisfied subscribers that, noted the SEC, "praise your publication, your rating system or your investing philosophy."

Case: In its newsletter, Money Fund Safety Ratings, the Institute for Econometric Research evaluates money market mutual funds on a scale ranging from a high of AAA to a low of D. The institute requests, from time to time, current portfolios of the many funds it rates, most of which readily respond. Not all do so, however, and for those funds, the institute suggests in its newsletter that "as a matter of public policy, money funds should publicize their portfolios at all times, and that funds which fail to do so should be avoided by cautious investors."

In the October 1981 issue of Money Fund Safety Ratings, the John Hancock Cash Management Trust, managed by John Hancock Mutual Life Insurance Co., received an "avoid" recommendation based, in part, on its secretive portfolio policies. The fund was also given a BBB safety rating by the newsletter based on the institute's evaluation of what the fund chose to release regarding its portfolio, that is, "the minimum diversification restrictions set forth in the fund's own SEC filings and prospectus." The fund was not happy with its BBB rating and on November 4, 1981, through its attorneys, demanded that the institute retract the rating. Its attorneys claimed that the institute had committed criminal violations of the Investment Advisers Act by its BBB rating of the fund and threatened to file a complaint with the SEC unless the retraction was promptly forthcoming.

The threat was not an idle one. The institute knew that a former law partner of the fund's attorneys was, at the time, an SEC commissioner. But it ignored the fund's heavy-handed attempt at intimidation and did not publish a retraction. In December 1981 the institute received a threatening letter from an SEC staff attorney advising that a complaint had been filed with the SEC about BBB ratings and "avoid" advice given with respect to certain unidentified funds. The SEC attorney echoed the claims made by the fund and concluded that it was "improper" for a financial publication "to provide a low rating rather than to state that it has insufficient information available upon which to base a rating."

The institute's attorneys promptly responded that the "avoid" recommendation was based only in part on the secretive nature of the fund's portfolio, that the BBB rating derived from the institute's evaluation of what information was publicly available regarding the portfolio, that there was no evidence to support the tortured inference of the fund's attorneys (unquestioningly adopted by SEC staff) that either the recommendation or the rating was designed "to force funds into providing…(more) information," or that any of this constituted a "conflict of interest." The SEC has not responded.

The SEC has never produced any verifiable evidence to prove that there are abuses inherent or peculiar to the newsletter industry that SEC licensing requirements and regulations are specifically designed to prevent or discourage. Nor has it produced evidence to demonstrate why antifraud provisions under SEC Rule 10(b)(5) are somehow inadequate to police newsletter publishers.

Recently, the SEC suggested in a letter to a US senator that Rule 10(b)(5) does not apply to newsletter publishers. But the court cases it cited did not limit the SEC's authority to bring an action for violation of the rule. Of course, senators do not usually have federal case reports sitting in their offices. Federal judges, however, are known to keep them around, and hence the SEC regularly claims in its lawsuits that Rule 10(b)(5) does apply to newsletter publishers.

When we interviewed Michael Berenson, chief of the SEC's Investment Advisers Study Group, he confirmed that the SEC does believe that the rule applies to newsletter publishers. So we asked him why anything more than this rule is needed to police any fraudulent securities conduct by newsletter publishers. Mr. Berenson declined comment.

Inconsistency is not infrequent in the SEC's responses to criticism of its long-standing disregard for the First Amendment rights of newsletter publishers. In its brief in the Hirsch case involving a subpoena for subscribers' names, the SEC's response to the First Amendment issues raised by Hirsch was, in effect: "First Amendment? Trust us. We're the SEC." As the SEC brief intoned:

[Hirsch] posits that compulsory production of the subscriber information may potentially inhibit publication of articles about "small, emerging, growth stocks," intimidate subscribers and result in the disclosure of subscription information to competitors. This apocalyptic scenario derives from [Hirsch's] apparent fear or belief that the Commission cannot be trusted.…This unattractive contention is belied by the Commission's reputation for thoroughness, tempered by fairness, and if given credence will, not may, impose unreasonable shackles upon the Commission's broad investigatory mandate.…Ultimately, one is led to conclude that, in this instance, "freedom of the press and speech" is a subterfuge, designed to shield [Hirsch's] possible culpability from disclosure.

Conspicuous by its absence from the brief, dated March 3, 1982, was any claim that Smart Money was engaged in "commercial speech" and subject as such to regulation. Yet only two months later, in May 1982, the SEC in a letter to Sen. John Warner (R–Va.) based its entire First Amendment defense of regulation of financial newsletters on the ground that the newsletters are allegedly engaged in "commercial speech."

The letter, signed by Richard W. Grant of the SEC's Division of Investment Management, incredibly cited the court of appeals decision in the Wall Street Transcript case without mentioning that the SEC, after 10 years of litigation, had finally lost the case, that it had not attempted to appeal the loss, and that it had yet to find a court that approved of its strained interpretation of the bona fide publisher exemption in the Investment Advisers Act. As if that omission were not deceptive enough, the SEC also falsely told Senator Warner that the Supreme Court had "affirmed" its authority to regulate "newsletter publishers," when in fact the issue has never been ruled on by the Supreme Court at all.

The SEC soon discovered that some senators are more easily mollified than others. When the SEC sent the same response to Sen. Alfonse D'Amato (R–N.Y.), he promptly expressed his dissatisfaction at such a disingenuous position and demanded a further response. The SEC is still working on it.

Senator D'Amato's reaction is not difficult to understand. Aside from the dubiousness of the current dogma that commercial speech is not fully protected by the First Amendment, the Supreme Court has held that commercial speech is "speech which does no more than propose a commercial activity"—that is, sales advertising. Clearly, as Michael Schoeman has argued in the Business Lawyer (the official publication of the American Bar Association's Business and Banking Law Section, which is not particularly known as a bastion of First Amendment zealotry), financial newsletters are not advertising vehicles but rather "are more akin to traditional press publications in that they contain information and opinion…about the merits of products (in this case, investments) sold by others, often mixed with traditional news about economic events." Supreme Court decisions support this view and have granted First Amendment protection in numerous cases to consumer or news accounts on goods and services, including commentaries on resort hotels, medical testing labs, and osteopathic physicians. As the Supreme Court held in Buckley v. Valeo: "This Court has never suggested that the dependence of a communication on the expenditure of money operates itself to introduce a nonspeech element or to reduce the exacting scrutiny required by the First Amendment."

Late in July 1982, the SEC filed a case in federal court seeking to permanently shut down Stock Market Magazine ("The Voice of the Small Investor") unless it secures an SEC printing license. According to the SEC papers filed with the court, Stock Market Magazine is a monthly publication with approximately 50,000 mail subscriptions and newsstands sales in major metropolitan areas throughout the country. The essence of the four-count SEC complaint was that the magazine publishes "analyses and reports concerning securities…without being registered as an investment adviser." Other charges are that the magazine published certain unspecified articles on companies written by their public relations firms (without attribution) as well as running certain unspecified articles on companies by free-lance writers who were paid $250–$500 by the companies featured (without disclosing by whom the writers were paid).

Questionable journalism? Possibly—if true. Sufficient cause to shut the magazine down? Never—unless the SEC has become immune from any obligation to honor the First Amendment. But that is what one must begin to wonder.

And then one must begin to wonder about the fate of the free press generally in the United States. Financial publishers and their editors and writers are a small minority among members of the media. They have in their midst an occasional Christopher Lowe. No doubt there are a few skeletons in closets throughout the publishing world, but in this case there is an agency of the government that has arrogated to itself the power to ride roughshod over the First Amendment—first with the requirement that permission be obtained and requirements be met before access to a printing press be allowed; then, once its foot is in the door, with demands pursued via lawsuits and censorship of editorial content.

It is indeed only one government agency waging war on the rights of only part of the press. Yet it is the government and it is the press, and as Justice Douglas warned in 1953, "The finger of government leveled against the press is ominous." If the SEC can continue with impunity its disregard for freedom of the press, which publishers are next? from which finger of government? for the seemingly benign protection of which group of consumers?

Michael McMenamin, a contributing editor of Inquiry, and William Gorenc, Jr., formerly managing editor of the Cleveland State Law Review, are attorneys with a Cleveland law firm. This article is a project of the Reason Foundation Investigative Journalism Fund.