The STFU Campaign (continued)
An intriguing red herring has arisen in the STFU Campaign. It all has to do with something called Section 17(b) of the Securities Act of 1933.
Apparently some of the STFU campaigners say that Gradient Analytics, whose alleged horribleness I mentioned earlier, violated 17(b) by not disclosing that it got paid by a hedge fund to issue a research report.
There is an ironic aspect to this, which I'll be coming to in a moment, but first here is the text of Section 17(b), in its entirety. You can find it yourself here, on page 30:
(b) It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article,letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. [emphasis added]
A hedge fund is not an "issuer, underwriter or dealer."
Despite the pretty darn clear language of this law, I heard on the always-reliable CNBC this morning that the SEC staff -- going all out to help the STFU Campaign -- may apply it to this situation anyway. Seems like a stretch to me, but what the heck. I'm not a lawyer and if they want to increase disclosure requirements, well, more power to them.
Still, I am struck by the irony here. As I describe in Wall Street Versus America, the folks at the SEC do an absolutely miserable job of enforcing Section 17(b) as written against its actual targets -- corporate stock issuers that pay for stock touting. You'd think they might want to try doing a bit of that first, before bending it to meet the requirements of the STFU Campaign.
There are plenty of reasons to dislike hedge funds and their allies -- I have about five chapters' worth of reasons in my book. The SEC should focus on those issues (such as the burgeoning number of crook-run hedge funds) and quit carrying water for crummy companies that don't like criticism.
Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.