Five-minute digest
Lowe v. SEC
Summary
Christopher Lowe was president and principal shareholder of Lowe Management Corporation, a registered investment adviser from 1974 to 1981. During those years he was convicted of misappropriating a client's funds, acting as an adviser without registering in New York, tampering with evidence to cover up a fraud on a client, and stealing from a bank. In May 1981 the Securities and Exchange Commission revoked the firm's registration and barred Lowe from associating with any investment adviser. Lowe and his companies then turned to publishing. The Lowe Investment and Financial Letter offered market commentary, reviews of indicators and specific buy, sell and hold recommendations to between three thousand and nineteen thousand subscribers, and there was a second newsletter and a chart service. No evidence showed that the publications contained false information or that Lowe traded in the securities he discussed. The Commission sued in federal court in Brooklyn, seeking to stop the newsletters as the business of an unregistered investment adviser. The District Court refused most of that relief, and a divided Second Circuit panel reversed, holding that the newsletters were advisory business and that the First Amendment did not bar the injunction. Lowe argued that a ban on publishing truthful commentary was a prior restraint on the press. The Commission answered that the Act plainly covers anyone who advises others through publications or writings for pay, and that a person barred for fraud should not evade the bar by mailing his advice. On 10 June 1985 the Court reversed, 8–0, with Justice Powell taking no part, but on statutory rather than constitutional grounds. Justice Stevens read the Act's exclusion for the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation in light of its history. Congress had legislated against the background of Near v. Minnesota and Lovell v. City of Griffin, and the Commission's own study had described investment counsel as a personal-service profession built on a close relationship with each client. A newsletter offering impersonal advice to the public at large does not have that personalized character. The words bona fide describe the publication, not the publisher, so Lowe's record did not disqualify his letters, and they were regular in the sense that mattered, since they were not timed to market events. Because the newsletters fell within the exclusion, the Court did not reach the First Amendment. Justice White, joined by Chief Justice Burger and Justice Rehnquist, concurred only in the result. He believed Lowe was an investment adviser under the statute's plain terms and the Commission's long interpretation, warned that the Court was redrafting the Act to avoid a constitutional question, and would have held that forbidding Lowe to publish at all violated the First Amendment. The library text gives the majority opinion and the opening portion of White's concurrence; it contains no notes. Lowe remains the leading authority on the publisher's exclusion, and lower courts have carried its test into newer media.
Top Lessons
Personal advice versus publication
The opinion rests on a distinction the investment counselors themselves drew in 1940: an adviser who knows a client's circumstances stands in a relationship of trust, while a writer addressing the public does not. Stevens treated that personalized relationship as the core of what the Act regulates.
Judging the work, not the author
Lowe's record was poor, yet the Court held that the words bona fide describe the publication rather than the publisher. The ruling separates the question of a person's past conduct from the question of whether a particular writing is genuine and lawful.
Avoiding a constitutional question
Courts often prefer to decide cases on statutory grounds when a constitutional ruling can be avoided. White agreed with the principle but argued that the Court had stretched the statute beyond what Congress wrote, and that deciding the First Amendment question honestly would have shown more respect for the legislature.
Prior restraint and the financial press
Both opinions agreed that Lowe could not be silenced altogether, though for different reasons. Behind the case stands the long Anglo-American suspicion of licensing the press, which Stevens traced through Near v. Minnesota and Lovell v. City of Griffin.
Verified Quotes
Frequently cited
“The Act was designed to apply to those persons engaged in the investment-advisory profession—those who provide personalized advice attuned to a client's concerns, whether by written or verbal communication.”
“The mere fact that a publication contains advice and comment about specific securities does not give it the personalized character that identifies a professional investment adviser.”
“On the contrary, they circulate for sale to the public at large in a free, open market—a public forum in which typically anyone may express his views.”
“Notably, however, those words describe the publication rather than the character of the publisher; hence Lowe's unsavory history does not prevent his newsletters from being "bona fide."”
“In my view, petitioner is an investment adviser subject to regulation and sanction under the Act. I concur in the judgment, however, because to prevent petitioner from publishing at all is inconsistent with the First Amendment.”
“The courts should not lightly take it upon themselves to state that the path chosen by Congress is an impermissible one; but neither are the courts free to redraft statutory schemes in ways not anticipated by Congress solely to avoid constitutional difficulties.”
Medical Lens
A case about investment newsletters and the definition of an adviser; nothing in it touches medicine or mental health.