Failed Defenses

Failed Defenses_________________________________________________________

Some defendants claimed that they were using the "industry-standard" disclaimer and that if all the broker-dealers were using that, it that must be accepted by the industry even though the rule says you have to put the specific amount of compensation in the claimer. This does not work, as the courts and the Commission have repeatedly held a practice may be prevalent in the industry and still be fraudulent.

Further, note that in order to show a 17(b) violation, the SEC need not show that anyone read the communication, need not show that anyone relied on the communication, and need not show that the communication was in any other way false, other than as to the compensation received.

In fact, 17(b) requires only a “description” of a security, not even a recommendation.