Tip Tiff

While the stock market has drifted aimlessly for the past 18 months, the growth of newsletters that offer investment advice has been almost straight up. Since 1970, the number of tip sheets devoted to picking everything from stocks to crops has doubled, to more than 700. That rapid growth has caught the eye of the Securities and Exchange Commission, which has been cracking down on fraud within the financial newsletter industry. The agency has hauled six market-advice publishers into court since 1981 on such charges as making false advertising claims and has launched administrative actions against a dozen more.

Now the SEC's power to regulate newsletters is being challenged in a widely watched Supreme Court case. In opening arguments before the high court last week, Michael Schoeman, attorney for Publisher Christopher L. Lowe, declared that the SEC violated Lowe's constitutional right to freedom of speech when it sought to bar him from publishing market tips. The agency revoked Lowe's investment adviser license in 1981 after the Jersey City man was convicted of grand larceny, tampering with evidence, defrauding a client and failing to register as an investment adviser in New York State. Said Schoeman prior to appearing before the Supreme Court: "We're not challenging the revocation of the license. We're saying you don't need a license to publish a newsletter. Freedom of the press, if it means nothing else, means the right to publish free of licensing."

Other market advisers are rallying around Lowe, who has continued to issue his 5,000-subscriber Lowe Investment & Financial Letter, a tip sheet that sells for $195 a year. They note that newspapers and magazines do not have to be licensed. Said Norman Fosback, president of the Florida-based Institute for Econometric Research, which produces five investment letters with 60,000 subscribers: "Hopefully, the Supreme Court will now rule once and for all that the First Amendment applies equally to every American." Support also has come from such newspapers as the Washington Post and the Wall Street Journal, which have denounced the registration requirement.

The SEC, meanwhile, argues that it has no choice but to enforce the Investment Advisers Act of 1940, which says that the agency should register newsletter publishers and monitor their activities. Said John Fedders, the SEC's enforcement director: "Courts of appeals have held uniformly that requiring the registration of persons who furnish investment advice through newsletters is consistent with the First Amendment guarantee of freedom of ( speech and the press." If the SEC prevails in the case, Fedders said, critics should ask Congress to change the law.