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Free Press Victory

For more than 40 years, the Securities and Exchange Commission has required publishers of stock market newsletters to register and, in effect, obtain a license to print. No more. The U.S. Supreme Court ruled 8 to 0 Monday that independent investment newsletters are not covered by the Investment Advisers Act of 1940 and are therefore not required to register with the government. The decision affects the SEC’s regulation of about 600 stock market tout sheets not produced by brokerage firms.

Many observers had expected the high court to decide the case on constitutional grounds, ruling on whether the federal securities laws and the goal of protecting the investing public take precedence over the First Amendment guarantee of freedom of the press. But when it can, the court would rather rule on statutory than on constitutional grounds, and five justices did that in this case. Justice John Paul Stevens, writing for William J. Brennan Jr., Thurgood Marshall, Harry A. Blackmun and Sandra Day O’Connor, held that the 1940 act requiring registration of investment advisers applies only to personalized advice tailored to specific portfolios and not to information of general interest, which the newsletters distribute. The law does not apply to independent newsletters, the justices said, thereby avoiding the constitutional question altogether.

In a concurring opinion, three other justices (Byron R. White, Chief Justice Warren E. Burger and William H. Rehnquist) said the First Amendment prevents the SEC from prohibiting publication of newsletters even if the commission had the statutory authority to do so.

We wish the majority had adopted that reasoning. Licensing of newsletters is a clear prior restraint of the press, which is anathema to the First Amendment.

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Does this leave investors at the mercy of unscrupulous or inept investment newsletters? Not at all, but it does mean caveat emptor . Newsletters will still be liable for fraud. Short of that, the marketplace will separate the good from the bad, which, though imperfect, is a lot better than having the government do it.


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