United States v. Wenger

427 F.3d 840 (2005)

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United States v. Wenger

United States Court of Appeals for the Tenth Circuit
427 F.3d 840 (2005)

  • Written by Sharon Feldman, JD

Facts

Section 17(b) of the Securities Act of 1933 (the Securities Act) prohibits being compensated by a company to publicize its stock without disclosing the payment. Wenger (defendant), the publisher of an investment newsletter, violated section 17(b) and entered into a consent decree with the Securities and Exchange Commission (SEC) that required him to disclose the full value of anything he received from companies recommended in his newsletter. Thereafter, Wenger began publishing another newsletter and hosting a radio program. Wenger offered to help publicize PanWorld Minerals International, Inc.’s (PanWorld) stock for a $15,000 fee, ultimately agreeing to provide consulting services in exchange for stock. Wenger consulted with lawyers about how to comply with section 17(b)’s disclosure requirements. Wenger was advised to announce he was a paid consultant to some companies he covered and send compensation details upon request. Wenger told listeners they could request a list of his stock holdings, and when they did, he sent a letter stating that he charged a company $16,000 for a variety of services, including radio exposure, and then listed the stocks in his personal portfolio. Wenger promoted PanWorld without disclosing the amount of stock he had received as compensation and continued to promote it after he sold his own shares for more than $100,000. Wenger was indicted under section 17(b) for failing to disclose he was being paid by a company whose stock he was promoting, and under section 10(b) of the Securities Exchange Act of 1934 for failing to tell his readers he was selling shares in companies he was recommending. Listeners testified that they bought stock in PanWorld based on Wenger’s recommendation and would not have done so if Wenger had disclosed that he was selling his own stock. A lawyer who recommended the disclosure steps testified that he did not know about the SEC consent decree. Wenger was convicted and appealed, arguing that his conduct was not willful because he relied in good faith on the advice of counsel.

Rule of Law

Issue

Holding and Reasoning (Tymkovich, J.)

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