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May 15, 1978


Gagliardi, D.J.

The opinion of the court was delivered by: GAGLIARDI


Plaintiff Securities and Exchange Commission ("SEC") has commenced this action against defendants Wall Street Transcript Corporation ("WSTC") and Richard A. Holman pursuant to § 209(e) of the Investment Advisers Act of 1940 ("Investment Advisers Act" or the "Act"), 15 U.S.C. § 80b-9(e). Jurisdiction lies under § 214 of the Act, 15 U.S.C. § 80b-14. The SEC charges these defendants with the violation of § 203(a) of the Act, 15 U.S.C. § 80b-3(a), which makes it unlawful for any "investment adviser" to use any instrumentality of interstate commerce in connection with its business unless it has registered with the SEC, and seeks an injunction requiring the WSTC to register. All parties to the case have moved for summary judgment pursuant to Rule 56, Fed. R. Civ. P. For the reasons stated below, the defendants' motion is granted and the SEC's motion is denied.

 Prior Proceedings

 This case turns upon a single legal issue -- whether defendant WSTC is an "investment adviser" as defined by § 202(a)(11) of the Investment Advisers Act, 15 U.S.C. § 80b-2(a)(11), which states in pertinent part:

"Investment adviser" means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities; but does not include . . . . (D) the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation . . . .

 WSTC publishes The Wall Street Transcript ("the Transcript"), a weekly tabloid primarily containing verbatim reprints of reports issued by brokerage houses concerning specific securities. In 1967, the SEC ordered an investigation of WSTC pursuant to § 209(a) of the Investment Advisers Act, 15 U.S.C. § 80b-9(a), to determine whether it was acting as an investment adviser in violation of § 203, 15 U.S.C. § 80b-3, the registration provision. When defendant Holman, the sole shareholder and the principal operating officer of WSTC, refused to produce documents or answer questions in response to the SEC's subpoena duces tecum, the SEC applied to the court for enforcement of its subpoena pursuant to § 209(c) of the Act, 15 U.S.C. § 80b-9(c).

 The court, per Judge Tyler, refused enforcement. SEC v. Wall Street Transcript Corp., 294 F. Supp. 298 (S.D.N.Y. 1968). It concluded that the Transcript was a "bona fide newspaper" or "financial publication of general and regular circulation" expressly excluded from the definition of "investment adviser" by § 202(a)(11)(D), 15 U.S.C. § 80b-2(a)(11)(D). Although it acknowledged the existence of a long line of cases holding that a district court must refrain from deciding, on a motion to enforce an administrative subpoena, whether the statute under which the agency purports to act applies to the firm or person against whom the agency is acting, 294 F. Supp. at 303, citing United States v. Powell, 379 U.S. 48, 13 L. Ed. 2d 112, 85 S. Ct. 248 (1964); Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 90 L. Ed. 614, 66 S. Ct. 494 (1946); Endicott Johnson Corp. v. Perkins, 317 U.S. 501, 87 L. Ed. 424, 63 S. Ct. 339 (1943), the court felt that the unique facts of the case before it, including WSTC's "virtually unrebutted showing" that it was entitled to the statutory exclusion, the all-encompassing nature of the subpoena and the First Amendment interests at stake, mandated a prompt decision concerning the Act's coverage. 294 F. Supp. at 307.

 The SEC appealed this ruling, and the Court of Appeals for the Second Circuit reversed. SEC v. Wall Street Transcript Corp., 422 F.2d 1371 (2d Cir. 1970). The Court of Appeals held that Judge Tyler, in determining whether the Transcript was entitled to the "bona fide newspaper" or "financial publication" exclusion, had given excessive weight to the existence of the "purely formal 'indicia of a newspaper' which [the Transcript] exhibits on its face and in the size and nature of its subscription list." 422 F.2d at 1377. Since Congress's objectives in enacting the Investment Advisers Act were "to protect the public and investors against malpractices by persons paid for advising others about securities," id. at 1376, quoting, [1960] U.S. Code Cong. & Adm. News 3503, and "to expose . . . . all conflicts of interest which might incline an investment adviser -- consciously or unconsciously -- to render advice which was not disinterested," 422 F.2d at 1376, quoting, SEC v. Capital Gains Research Bureau, 375 U.S. 180, 191-92, 11 L. Ed. 2d 237, 84 S. Ct. 275 (1963), the "bona fide newspaper" or "financial publication" exclusion was held to be available only to "those publications which do not deviate from customary newspaper activities to such an extent that there is a likelihood that the wrongdoing which the Act was designed to prevent has occurred." 422 F.2d at 1377 (footnote omitted). The commercial practices involved and the financial interests served in the Transcript's publication were thus held to be the critical factors to be examined. Whether the Transcript was paid for the circulation of material by the brokerage houses whose reports it published and whether the location of those reports was determined on the basis of the editor's news judgment alone were deemed "highly relevant" to the availability of the exclusion. *fn1" Id. at 1378. Consequently, the SEC was empowered to investigate the defendants' commercial operations. The court held, moreover, that the First Amendment did not prohibit such an investigation. 422 F.2d at 1378-81.

 After the Supreme Court denied defendants' petition for certiorari, 398 U.S. 958, 90 S. Ct. 2170, 26 L, Ed. 2d 542 (1970), the investigation proceeded. In 1972, the SEC commenced the instant action for an injunction compelling registration alleging that WSTC was in violation of § 203(a) of the Act. Defendants filed their answer in 1974, *fn2" denying the principal allegations of the complaint and claiming that WSTC was expressly excluded from the Act's coverage under § 202(a)(11)(D) as the publisher of a "bona fide newspaper, news magazine or business or financial publication of general and regular circulation." *fn3" Discovery was conducted pursuant to a stipulation between the parties, and it is now complete. *fn4"

 Statement of Facts

 The material facts are not in dispute. WSTC is a New York corporation organized in 1963. Holman is and has been the chief executive officer, director and sole shareholder of WSTC since that date. WSTC's sole business is the weekly publication of the Transcript, which is printed in the form of a tabloid newspaper. The Transcript is offered to anyone who wishes to purchase it, either by subscription or at the newsstand, but the vast bulk of the weekly circulation of approximately 5,000 copies is sold by annual subscription at a price of $480. These subscriptions are mailed out with second-class mailing privileges. Approximately 40 people are employed by the Transcript.

 A large percentage of each issue of the Transcript is devoted to the reproduction of brokerage house reports, either verbatim or in summary form, on the past performance of and the investment prospects for specific corporations and their securities. *fn5" These reports generally contain specific buy, sell or hold recommendations. Full attribution is given to both the house and the individual author, if specified in the report, and includes the date on which the report was written, if specified. All reports are publicly circulated by the respective brokerage houses before they are published in the Transcript.

 Several pages of each issue of the Transcript are devoted to the "TWST Roundtable", a verbatim record of a panel discussion among financial analysts moderated by Holman. The discussion generally centers upon the performance of companies within a given industry, and participants often express conflicting views. Full attribution is given to the persons participating in the discussion. Related features, entitled "TWST Interview" or "Who's Who in Profits", frequently appear in the Transcript and consist of the verbatim record of an interview, conducted by Holman, of a single individual in the business or financial community with full attribution to the person interviewed. These interviews often address the performance of either a single corporation or several corporations within an industry.

 In a section entitled the "Executive's Corner," the Transcript reprints verbatim speeches delivered by corporate executives to financial analyst societies. These speeches generally discuss the recent past performance of the ...

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