Lingley v. Seeking Alpha Inc.

Background

Matthew Lingley and Sandy Papadopoulos filed a proposed class action on behalf of themselves and others similarly situated against Seeking Alpha, Inc. The plaintiffs were paid subscribers to Seeking Alpha Premium. They alleged that Seeking Alpha operated as an investment adviser under the Investment Advisers Act of 1940 (IAA) and the laws of the states and the District of Columbia, but had not registered as one.

The plaintiffs sought rescission and restitution. Rescission would treat the alleged investment-advisory contracts as void, and restitution would require repayment of compensation paid under those contracts. The plaintiffs stated that they brought this claim exclusively under state law, although the parties agreed that the relevant state-law issues should be interpreted consistently with the IAA.

Seeking Alpha operates a website concerning publicly traded equity securities and offers paid subscribers access to Seeking Alpha Premium and Seeking Alpha Pro. The services provide articles by independent authors, analyst ratings, recommendations, stock classifications, warnings, screening tools, and portfolio-related alerts. Subscribers can link brokerage accounts or portfolios to the services, or manually enter portfolio information.

Legal Standard

Seeking Alpha moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court accepts well-pleaded factual allegations as true and draws reasonable inferences for the plaintiffs, but it does not accept legal conclusions without supporting facts.

Court’s Analysis

The court explained that the plaintiffs’ claim depended on whether Seeking Alpha qualified as an investment adviser. The IAA generally defines an investment adviser as a person who, for compensation, advises others about securities or issues analyses or reports concerning securities as part of a regular business. But the statute excludes the publisher of a bona fide newspaper, news magazine, or business or financial publication of general and regular circulation.

Relying principally on Lowe v. SEC, the court said the publisher exception protects publications that are genuine and disinterested rather than promotional, and that are generally and regularly circulated. The court found that the complaint did not allege that Seeking Alpha’s publications were personal communications, contained false or misleading information, or promoted securities in which Seeking Alpha had an interest. The court also found that the publications were advertised and sold in an open market and were updated regularly.

The plaintiffs argued that Seeking Alpha’s frequent updates, breaking-news coverage, market alerts, changing ratings, portfolio warnings, and customized screeners meant that its offerings were not regularly circulated. The court rejected that argument. It held that publications updated daily and continuously, including in response to breaking news, can still be regular. The court declined to require strictly measured and predictable publication intervals.

The court also rejected the plaintiffs’ argument that portfolio alerts and user-selected filters transformed generally available information into individualized investment advice. The complaint did not allege that Seeking Alpha created articles, ratings, recommendations, or warnings specifically for the plaintiffs or delivered them only to the plaintiffs. Nor did the plaintiffs allege that Seeking Alpha controlled subscribers’ funds, had authority to make investment decisions for their accounts, or engaged in a fiduciary, person-to-person relationship with them.

The court distinguished the decisions cited by the plaintiffs because those matters involved allegations of false or misleading performance information, undisclosed interests, manipulation of stock prices, personalized communications, or authority to execute trades. The court stated that no similar allegations were made against Seeking Alpha.

Disposition

The court held that the plaintiffs had not pleaded facts sufficient to support a plausible inference that Seeking Alpha operated as an investment adviser outside the IAA’s publisher exception. The court therefore granted Seeking Alpha’s Rule 12(b)(6) motion to dismiss. The court stated that it did not need to address Seeking Alpha’s additional dismissal arguments.

Because the complaint had not previously been amended, the court granted the plaintiffs leave to file an amended complaint within 30 days of the Decision and Order. The Clerk of Court was directed to terminate the motion at Docket No. 29.