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They are the old gray ghosts of advertising, often little more than b&w text. They are the so-called tombstone ads that fill the financial pages of newspapers to meet Securities & Exchange Commission requirements.

Now, the ongoing debate about the constitutionality of tobacco ad curbs is raising questions about those ad restrictions imposed by the SEC for more than 50 years.

First Amendment lawyers, who are questioning whether government can limit tobacco ads aimed at adults so that children won't see them, have said that the rules limiting the financial ad messages for adults are flagrantly unconstitutional.

"If anyone wanted to [challenge them], those SEC rules wouldn't last 10 minutes," said Burt Neuborne, a New York University professor who handles a number of First Amendment cases.


The restrictions were first drafted in the 1930s to end so-called "blue sky" offerings. When stocks or bonds are sold and a prospectus required, SEC Rule 134 imposes the requirement for "tombstone" advertising -- meant to prevent companies from making wild claims -- named for the black borders that usually appear around the text-oriented ad statements.

Competitrack, which measures expenditures on such business-to-business tombstone ads, reported that $85 million was spent last year on ads from individual companies and groups of companies, much of it one-time ads in The Wall Street Journal and the Financial Times.

The SEC rules also apply to mutual funds ads that don't make performance claims. Mutual funds spend far more on advertising, in both print and broadcast media.

Since 1984, color has been allowed in tombstone ads, which also now can feature logos and some pictures. But the rules and interpretations of them by the government agency sharply limit what can go into the ads.

For example, financial information has to be prescribed data, and descriptions of the company have to be extremely general, leaving out product names and photographs of products.


According to First Amendment lawyers, U.S. Supreme Court rulings on commercial free speech during the past 20 years raise substantial doubt about those regulations' constitutionality.

"To the extent [SEC regulators] attempt to regulate truthful content . . . in the absence of a showing of extraordinary need for a restriction on the free flow of information, the question is not about the context where the information appears, it is whether it is truthful or misleading," said Mr. Neuborne.

Floyd Abrams, another First Amendment lawyer, said the decisions would suggest that the rights to advertise stock sales are well beyond what the SEC rules permit, even in corporate proxy battles, which are subject to separate rules.

"Speech about corporate affairs should be held to as much protection as political affairs," said Mr. Abrams. "It matters as much. It is not some watered-down version."

Mr. Abrams contended the Supreme Court would have problems with rules prescribing what a company can say in advertising rather than what it can't say.


Recent court decisions have determined that the government can only regulate truthful and non-misleading commercial speech, under very controlled circumstances.

Mr. Abrams contended many of the SEC's concerns about information could be accommodated through less severe limits on speech, and with more public disclosure.

Mr. Abrams and Martin Reddick, a professor at Northwestern University, both questioned the SEC regulations' constitutionality at a recent meeting of the Senate Judiciary Committee, when another lawyer justified tobacco ad restrictions by noting the SEC's curbs on tombstones.

Mr. Reddick said later the restrictions are "overbroad" and fail the "reasonable fit" test the Supreme Court set up for the constitutionality of ad restrictions.

An SEC spokesman said the constitutionality of the agency's proxy restrictions had been upheld, but otherwise declined comment.

Ad agencies, ad groups and some advertisers said the SEC rules limit creativity, but also said that any changes would likely affect only a portion of the tombstones. Ads announcing bond sales that contain little more information than the name and logos of the underwriters would be unlikely to change substantially, they admit.

But other ads could change.

"Ads would be more of an investor's relations angle," said Jim Sansevero, managing director of Citigate Albert Frank, New York, a shop that specializes in financial ads.


In fact, Mr. Sansevero said, the ads are already changing somewhat. In some cases, companies are using colors or backgrounds.

John Eckelberry, chairman of agency Doremus & Co., New York, said bankers would be "loath" to put in additional financial information because of liability suits, but ads might change in other ways if the rules were found unconstitutional.

Carol Parish, senior VP-marketing at First Union Corp., said she would be intrigued to explore options if restrictions on tombstone advertising were relaxed.

She noted that some companies are putting a corporate stamp on tombstones. First Union, for instance, runs a marble background, while Merrill Lynch & Co. includes an image of its famous bull.

John Kamp, senior VP of the American Association of Advertising Agencies, said any changes in the rules would have significant effect, but gradually. "My guess is that eventually you would see a lot of advertising. Financial services are traditionally very conservative, and it is hard to tell how much [of that is because of] the SEC rules and how much their own predilection. But we all know [the field] is getting more competitive."M

Contributing: James B. Arndorfer.

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