The Stansberry scam
Investment insight: Porter Stansberry

When the New York Times

backed Porter Stansberry


Award-winning investigative reporter Brian Deer (left) on an honour he has shared with Baltimore investment tipster Porter Stansberry - an editorial in the #1 newspaper

Why it should feel so good is hard to explain. But Porter Stansberry and me have felt it. The buzz in question is being honourably mentioned in an editorial in The New York Times.

Mine was over an investigation into a children's vaccine. His was more relevant to what may have brought you here: his famous "Stansberry scam".

I've explained that scam at other pages of my site. In short, Porter Stansberry was caught by the SEC selling false information to investors. Claiming inside knowledge about a commercial transaction, he sold his subscribers a pup.

But that wasn't the reason why the Grey Lady wrote about him. The Times's concern was freedom of speech. Hence the tile of their editorial about Stansberry. The called it "The right to be wrong".

"The Supreme Court has long held that newspapers and other publications have the right to be wrong, as long as they did not err deliberately or with negligence," wrote the paper's editorial writers on July 3 2010. "As Justice Lewis F. Powell Jr. wrote in 1974, 'the First Amendment requires that we protect some falsehood in order to protect speech that matters.'"

It's an issue of more than passing interest to the Times, and not merely because it protects their journalists. It was a famous case, The New York Times Company v Sullivan, which in 1964 established the principle that non-malicious errors of fact are protected. The issues at stake were connected with reporting Souther racism, and the decision marked a cleavage from English libel law, with its strict liability for defamatory errors.

Enter Porter Stansberry with his false investment tip, in which he made untrue claims of what he knew.

"Unfortunately," said the paper, "the court missed an opportunity to uphold that principle when it refused to take an important First Amendment case last week.

"In the case, the publisher of a financial newsletter promised a hot stock tip, based on inside information, to people willing to pay $1,000. About 1,200 people agreed to pay, but the tip did not pan out, and the stock failed to soar. The Securities and Exchange Commission sued the publisher for securities fraud, and the lower courts agreed that the publisher, Frank Porter Stansberry and his company, Agora Inc., should be penalized."

Noting that the laws against securities fraud are meant to stop insider trading and stock price fixing, the Times argued: "Mr. Stansberry’s actions might seem unorthodox or even unethical by the standards of most reputable publishers, but that does not make them illegal."

In words that would certainly have been welcome to Porter Stansberry, the paper said that the implications of the the SEC's action were "potentially profound" and might lead to financial journalism becoming "more cautious and less robust" as newspapers or websites came to think that they too might be prosecuted for getting their facts wrong. "Any financial commentator who passes on bad information in good faith could be sued."

The Times wasn't alone in its concerns over the case. A formidable groups of publishers and professional bodies took the same line and urged the Supreme Court to reverse a ruling by the Fourth Circuit Court of Appeals that Stansberry was liable for his actions.

But I'm not really sure that Porter Stansberry was the poster boy he might have appeared to those concerned about protecting the first amendment. After all, as the trial court found, and the appeals court upheld, Stansberry intended to publish false information.

Thus, his error had been found to lack the essential ingredient of good faith. That would rule it outside the parameters of protected speech. And, of course, the Supreme Court would know that.

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