The architects of an on-line stock recommendation newsletter and chat room agreed to pay $1.5 Million to settle charges that they misled subscribers. The SEC alleges that the respondents lied about their credentials, their proprietary trading model, and performance. According to the SEC, the respondents collected over $1.1 Million in ill-gotten subscription fees. The SEC asserts violations of Section 10 and Rule 10b-5 for making false statements in connection with the purchase and sale of securities.
OUR TAKE: This case shows the expanding reach of the SEC to regulate non-registrants such as newsletter providers who do not receive either commissions or asset-based fees. Using a broad interpretation of Rule 10b-5 and other rules, the SEC has pursued cases against other securities-market participants such as administrators, custodians, auditors and lawyers.