Insights · Compliance

Section 17(b) of the Securities Act, Explained for Issuers

If your company has ever paid a newsletter, a website, or a writer to describe its stock, you have touched the part of federal securities law known as the anti-touting rule. It is short, it is old, and it is enforced. This article explains what it requires and how issuers keep paid communications clean.

What Section 17(b) actually says

Section 17(b) sits in Securities Act of 1933 Section 17(b), codified at 15 U.S.C. 77q(b). The statute reads:

"It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof."

Read it slowly. The rule applies to a communication that describes a security but does not itself offer the security for sale. It applies when that communication is published for payment that comes from an issuer, an underwriter, or a dealer. When both of those are true, the publisher must fully disclose that it was paid and how much. The point is simple. A reader deserves to know when a favorable write-up was bought.

Who the rule reaches

On its face, the duty falls on the person who publishes, gives publicity to, or circulates the communication. That is the promoter, the newsletter, the website, or the author. But the statute names the issuer as a source of the payment, and that is where issuers come in. An issuer that hires a promoter, supplies the copy, or pays through an intermediary can become part of an enforcement matter if the paid promotion runs without proper disclosure. The phrase "directly or indirectly" is in the text for a reason. Paying a third party who then pays a writer does not remove the link to the issuer.

The statute also reaches non-cash arrangements. "Consideration" is not limited to money. Shares, warrants, options, or other value given for coverage count as consideration that must be disclosed. The U.S. Securities and Exchange Commission has brought cases against promoters and the companies behind them for paid promotion that was presented as if it were independent. You can read background on these matters and on fraudulent stock promotion at sec.gov.

What "full disclosure" requires

The statute uses two words that carry the weight: "fully" and "amount." Full disclosure under Section 17(b) has two parts.

• The receipt of consideration. The communication must state that the publisher was paid, including payment that is prospective rather than already received, and payment that arrives directly or through someone else.
• The amount. A vague note that the writer "may be compensated" does not satisfy the text. The statute asks for the amount of the consideration, not the mere possibility of it.

Practically, the disclosure needs to be clear and placed where a reader will see it, in the same communication that describes the security. A disclosure buried in fine print, or posted on a separate page the reader never reaches, works against the purpose of the rule. If the payment is in stock rather than cash, describe the securities received so the reader can understand the value and the conflict.

Issuer-paid content compared

Not every communication an issuer pays for is third-party touting. The company's own clearly attributed disclosure is a different thing from a write-up designed to look independent. The table below sorts common situations. It is a general guide, not legal advice for a specific facts.

A compliance checklist for issuers

1. Treat any payment for coverage that describes your stock as a Section 17(b) event, whether the payment is cash, stock, or a promise of future value.
2. Require, in writing, that the promoter disclose both the fact and the amount of consideration inside every piece it publishes.
3. Follow the chain. If you pay an agency that pays a writer, make sure the "directly or indirectly" link is still disclosed.
4. Check placement. The disclosure should be visible in the same communication, not hidden or on a far-off page.
5. Keep the contract, invoices, and copies of the published pieces. If a question comes later, you want the record.
6. Separate your own attributed statements, such as a press release under the company name, from paid third-party coverage.
7. When in doubt about a specific arrangement, ask securities counsel before the piece runs, not after.

Where this leaves an issuer that wants visibility

Companies still need to reach investors, and there is a lawful way to do it. The cleanest path is your own disclosure under your own name, plus coverage that either carries the required Section 17(b) disclosure or was never paid for at all. At FoundryIR we focus on the first kind: company-attributed communication and education, not disguised promotion. Our standalone press release, written and distributed across a North American circuit under the issuer's name, is published at US$799. A release under your name is the company speaking for itself, which is a different thing from the paid third-party touting that Section 17(b) governs.

The rule is not an obstacle to communicating with the market. It is a line between honest promotion and hidden promotion. Stay on the disclosed side of it and you can tell your story without inviting a problem.

Frequently asked questions

Does Section 17(b) apply if the promoter is paid in stock instead of cash?

Yes. The statute covers consideration received directly or indirectly, and that is not limited to money. Payment in shares, warrants, or options is consideration that must be disclosed, along with its nature, in the communication that describes the security.

Is our own company press release covered by Section 17(b)?

A press release issued under the company's name is the issuer speaking for itself, not a third-party write-up made to look independent, so it is a different situation from the paid touting the rule targets. You still have to follow normal securities disclosure law and keep the statements accurate and not misleading.

Whose job is it to make the disclosure, ours or the promoter's?

The text places the duty on the person who publishes or circulates the communication. In practice an issuer that arranges and pays for promotion can be drawn in through the 'directly or indirectly' language, so require the disclosure in writing and keep records of who was paid and how much.

Educational content, not investment, legal, or disclosure advice. Rules and exchange policies change; verify against the primary source linked above and consult your securities counsel on disclosure decisions.