Securities and Exchange Commission v. Park

Yun Soo Oh Park (defendant) ran a paid website, which he used, along with emails to subscribers, to provide daily stock advice. The Securities and Exchange Commission (SEC) (plaintiff) sued Park, alleging he violated § 10(b) of the Securities Exchange Act of 1934 (exchange act) and SEC Rule 10b-5 (collectively, the antifraud provisions) as well as the Investment Advisers Act of 1940 (advisers act). Specifically, the SEC alleged that Park did not disclose that he already owned certain stocks he touted on the website or that his audience’s purchases of such stocks likely would inflate the price at which Park could sell his stock. Indeed, the SEC alleged that Park often scalped stock; that is, he regularly sold stocks he advised others to buy after his advice caused the price to increase. Per the SEC, Park persuaded investors to heed his advice by disseminating enthusiastic testimonials and false and misleading data. Park moved to dismiss the advisers-act claim, arguing that he did not provide personalized investment advice (i.e., buy and sell recommendations tailored to individual clients) and thus was not an investment adviser and (2) the First Amendment barred the SEC from regulating his editorial content. Park moved to dismiss the antifraud-provision claims, arguing he had no duty to disclose his scalping activities and that he made no false or misleading statements in connection with the sale of a security. The SEC responded that Park was an investment adviser because he met the statutory definition: one who is paid to advise “others, either directly or through publications or writings, as to the value of securities” or “the advisability of investing in, purchasing, or selling securities.” Per the SEC, under this broad statutory definition, the lack of personalized investment advice is irrelevant. The SEC further argued that Park did have a duty to disclose his scalping because he had a relationship of trust and confidence with his subscribers.