Internet companies and Internet trading are in the news . . . and under the ever-watchful eye of the Securities and Exchange Commission ("SEC"). The SEC has recently turned its attention to websites that tout public companies for a fee. The key here is disclosure. But you may be surprised to learn the extent of the disclosure necessary to avoid trouble with the SEC.

James E. Grady was the sole director and president of Investment Hotlines, which direct marketed investment opportunities, products and services by use of the mail and, principally, the Internet. Investment Hotlines published Investment Hotlines OnLine, a website that contains information and links to other sites relating to securities and other investment opportunities.

The focus of Investment Hotlines OnLine site is its "Featured Investment Opportunities" page. This page offers one-line descriptions ("touts") of companies whose stock are or were quoted on the OTC Bulletin Board and provides links to the websites of those featured companies. The companies' sites contain more extensive information including, but not limited to, business and management descriptions, financial information, investment opportunities and outlooks, and/or links to other sites offering current or delayed stock quotes. Additionally, Investment Hotlines published on Investment Hotlines OnLine press releases, which were "cut and pasted" from newswires or provided by the featured companies.

However, the only disclosure appearing on the Investment Hotlines OnLine site addressing the consideration Investment Hotlines received from its featured companies stated,

"The publisher, its affiliates, officers, directors, subsidiaries, and agents of this advertisement have been compensated by the companies herein."

This disclosure appeared on a page apart from the Featured Investment Opportunities page and was accessible only by a link from the site’s home page highlighted as "IMPORTANT INFORMATION - Please Read".

Investment Hotlines OnLinedid not disclose on its site the nature (specifically the stock and cash) or amount of the consideration it received from each of its featured companies for the publicity it provided to them.

In accordance with the terms of Respondents' settlement offer, the SEC found that Investment Hotlines and Grady committed or caused violations of Section 17(b) of the Securities Act by publishing or giving publicity to or circulating notices, advertisements, investment services or communications which, though not purporting to offer securities for sale, describe such securities for consideration received or to be received, directly or indirectly, from the issuers without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. The SEC ordered that: Investment Hotlines and Grady cease-and-desist from committing or causing violations or any future violations of Section 17(b) of the Securities Act.