I'd like to know the SEC regulations that specifically deal with
income promises. What kind of income promises (if any) can a
non-investment advisor do?

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Request for Question Clarification by pafalafa-ga on 20 Jul 2005 14:29 PDT

Can you give us a bit more detail about what you're asking?

I'm not sure what you mean by a "non-investment advisor", but it
doesn't sound like something that would be regulated by the SEC.

Under general principles of truth-in-advertising, if you offer some
sort of guarantee about investment returns, then you'd better be sure
the investments can live up to the promise!

Other than that, I'm not aware of any restrictions on what a
non-investment advisor could promise a client.

If you can tell us anything more about the circumstances, it would help.


pafalafa-ga

If I recall the law class correctly, the scenario depends on whether
or not you're 'creating' the security, so simply recommending it for a
fee.

The test case was a company that promoted an at-home business where
customers bought a kit to raise some sort of fish. The fish were
supposed to reproduce at greater-than-replacement rate, allowing the
customer to skim some off and mail them back to the company. The
company would send payment for each fish received. The company pitched
this as a guaranteed return investment, and the courts ruled that this
constituted issuance of a security. Thus, they fell under SEC
regulation.

If you're just a guy on the street making for-a-fee investment advice,
I belive you would fall under general fraud if you promise returns on
someone else's security. I think there are threshold tests to
determine whether or not an investment advisor has to register w/ the
SEC (and adhere to regulations)... it doesn't sound like you'd meet
those tests.

Keep in mind the standard GA disclaimer... if you go to jail, you can't blame us.