Violations of 17(b) Alleged for Failing to Disclose Compensation
September 24, 1998 – the SEC announced the filing of a civil action involving a fraudulent touting scheme engaged in by individuals and the corporate publisher of a Newsletter. The Complaint alleges that the individuals accepted cash and stock payments from issuers of microcap and smallcap securities in exchange for favorable reviews in their purportedly independent newsletter.
The Commissions Complaint, filed in the United States District Court for the District of Colorado, alleges that, from June 1996 though July 1997, the individuals, through their company, wrote, published and distributed the Newsletter and mailed it to as many as 60,000 investors a month.The Newsletter touted the stocks of a total of 50 microcap and smallcap issuers who paid total consideration of almost $400,000 in stock and cash to the individuals for this service.
The Complaint further alleges that Each of Newsletter failed to disclose, or disclosed inadequately, that the individuals had received consideration in exchange for promoting the featured securities, under Section 17(b) of the Securities Act. Further, SEC alleged that the inviduals violated Section 10(b) of the Exchange Act by presenting the Newsletter as an objective research report drafted by qualified analysts, when, in fact, the newsletter was simply a paid tout sheet.
Section 17(b) requires that whoever gives publicity to a security in return for compensation from an issuer or underwriter must disclose the receipt and the amount of the compensation.
The Commissions Complaint seeks an injunction against the Halls and Arrowhead to prevent further violations of the federal securities laws, disgorgement of the undisclosed compensation, prejudgment interest, and civil penalties.
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
- Another Whistleblower Award – $18 Million to Whistleblower
- Another SEC Whistleblower Award – Approximately $2 Million.
- IRS Issues Warning About Coronavirus-Related Scams
- SEC Provides Additional Temporary Regulatory Relief and Assistance to Market Participants Affected by COVID-19
- FINRA Postpones All Arbitrations
Introductions and Primers
- What is Securities Arbitration?
- Overview of the Securities Arbitration Process
- Finders Explained – Be Careful
- Federal Securities Law, a Securities Lawyer Guide
- Introduction to State Securities (Blue Sky) Laws