Federal Court Finds Financial Website Protected under IAA "Publication Exclusion"
A federal District Court dismissed a lawsuit by paid subscribers against a financial news website; the subscribers had alleged that the website acted illegally as an unregistered investment adviser.
According to the Decision and Order of the US District Court for the Southern District of New York, the website was a tool that offered subscribers research and other services "to make money in the stock market." The Court stated that the services included: (i) "exclusive access to certain information and recommendations relating to securities," such as articles written by independent authors and "aggregated ratings of Wall Street analysts;" (ii) alerts to ratings changes and recommendations for subscribers' investments upon linking to a brokerage account and portfolios; (iii) "on-site warnings" which alerted subscribers that stocks in their portfolios may be "at high risk of performing badly;" and (iv) "a 'stock screener' that identifie[d] stocks ... for potential investment based on criteria [a subscriber may] select or on pre-defined criteria such as 'Top Rated Dividend Stocks' or 'Top Growth Stocks.'"
The subscribers, on their own behalf and as a proposed class of plaintiffs, alleged that the website operated as an investment adviser under the Investment Advisers Act ("IAA") and that it failed to register as such. They sought (i) rescission and restitution, "alleging that contracts designed to provide investment advisory services by unregistered investment advisers are void" and (ii) "restitution of all compensation they and purported class members paid under those allegedly void contracts."
The District Court found that the website was protected under an "exclusion for publishers." In its legal analysis, the Court said that under the IAA publishers' exclusion to investment adviser registration, a publication must be "bona fide," and it must be "of regular and general circulation." The Court found that the website's publications were not personal communications and that "Plaintiffs [did] not contend that they 'contain[] any false or misleading information' or were 'designed to tout any security in which [the website] had an interest.'" The Court determined that the website was a "bona fide" publication. The Court further found that the publication was "of regular and general circulation," ... "advertised and sold in an open market" and updated regularly.
The Court granted the website's Motion to Dismiss but allowed subscribers to amend their Complaint.