September 19th, 2024
Our First Case is Our First Win
Dear ICAN Partners,
Less than nine months ago, with the help and support of so many of you, ICAN took on our first direct litigation case—SEC v Punch TV. I am proud to share with you today that our first case has now become our first victory. This is a significant step forward in our ongoing effort to build a precedent-based bulwark to restrain the SEC.
The judge in the case completely rejected the SEC’s trumped-up monetary judgment against our client Joseph Collins—a small business owner seeking to crowdfund for a new venture—awarding $0 of the $1.35 million in disgorgement and interest the SEC had sought. In doing so, the judge also notably rejected the regulatory agency’s attempt to find a chink in the limits placed on its disgorgement powers by the Supreme Court, an essential block by ICAN that will help protect future entrepreneurs from similar attempted shakedowns by the SEC.
When we founded ICAN, we knew restraining the SEC and protecting investor choice meant being prepared to fight battles of attrition. The government agency has virtually unlimited resources to keep testing and re-testing every legal boundary constraining it, going from court to court to find a weak spot - a judge who will rule in the agency’s favor or a client who will settle and help establish what the SEC can then argue is precedent for future actions. The agency aims to wear down justice, requiring the constant vigilance of an organization like ICAN that empowers small investors and entrepreneurs to push back against the government agency and challenge SEC overreach wherever it occurs.
Below, we’ll detail the win, which wouldn’t have been possible without our network of supporters and pro bono co-counsel Ed Totino of Baker McKenzie.
But first, I’m also honored to share that ICAN has been named one of six finalists for this year's national Gregor G. Peterson Prize in Venture Philanthropy. The prize is awarded annually to a "trailblazing start-up in the non-profit sector."
The award is particularly apt considering the Prize is named for a venture capital pioneer who co-founded Sutter Hill Co. in 1961, one of the first venture capital firms on the West Coast. The Prize will be awarded in December, but being selected as a finalist from amongst the multitude of start-up nonprofit organizations out there is an enormous honor and a testament to the work the ICAN team is doing to build a robust and durable organization positioned to have a meaningful impact today and tomorrow.
Litigation is a long game, and ICAN is in it for the long haul. Every case we take on, every client we empower, is another opportunity to push back against the SEC's relentless overreach and continue corralling the agency’s unwieldy powers back within their rightful boundaries. It is also an investment in long-term, systemic change. Change that will outlast an election cycle. ICAN’s work has the potential to fundamentally alter the playing field on which elected officials operate, regardless of their political affiliation, helping to protect investors and entrepreneurs and guaranteeing access for all to the benefits of robust capital markets.
With thanks,
Nick Morgan
Founder and President of ICAN
SEC’s Attempt to Breach Limits of Liu Rejected
Joseph Collins, the owner of Punch TV, is just one of too many average American business owners who have found themselves in the path of the scorched-earth approach the SEC uses to expand its power. Although we cannot protect every person unfairly targeted by the SEC, by taking on critical, strategically selected cases like Joseph’s, ICAN is disrupting the historically easy path the regulator has had to set “precedents” through forced settlements.
Taking on Joseph’s case presented ICAN with a pivotal opportunity to combat the SEC’s attempt to find a chink in the limits of Liu v SEC, which placed necessary restraints on the agency’s ability to obtain disgorgement in the absence of investor harm. We were able to step in at the last minute to avoid Joseph being on the hook for more than $1.5 million and prevent the SEC from notching a win that would erode the protections hard won in Liu.
You can read Joseph’s story here. It’s a frightening example of how easily an entrepreneur can go from being an innovative early adopter of an expansion of the JOBS Act designed to help small businesses raise funds to being labeled a “recidivist” by the SEC.
ICAN recognized Joseph’s case as a chance to “block a shot”—to prevent the SEC from obtaining an unobstructed win in a case with broad implications. We appeared at the end of the case to oppose the SEC's final motion, in which the agency asked the court for an order requiring Punch TV and its CEO to pay $1.2 million in disgorgement (all the funds received from investors) and $130,000 in prejudgment interest (plus even more in penalties)- all over a technical infraction that did not involve fraud or harm investors.
The SEC's request flagrantly disregarded the Supreme Court's recent restrictions on the agency’s ability to obtain disgorgement. In Liu v SEC, the Supreme Court confined the SEC's ability to seek disgorgement to amounts that (1) do not exceed the wrongdoer's net profit and (2) are awarded to victims. In Joseph’s case, the SEC identified no victims and did not limit its disgorgement request to net profits.
The SEC asked for $1.35 million in disgorgement and interest, but in the end - thanks to ICAN’s efforts, which gave Joseph the opportunity for a fair hearing of his case, the court awarded the SEC $0 in disgorgement and interest. It is an excellent result for Punch TV and Joseph Collins and a significant step forward in ensuring that federal agencies actually comply with the limits placed on the administrative state by the Supreme Court.
You can read the court order here:
A Win for Joseph is a Win for All: The Impact of Victory
Each of ICAN’s cases represents one or more ordinary Americans who have spent years (and, often, their entire life savings) fighting a David and Goliath battle against the SEC's unjust punitive actions. Each case illustrates how an unbridled administrative state threatens the livelihoods of unsuspecting Americans. ICAN exists to empower small investors and entrepreneurs to defend themselves while, in the process, building a precedent-based bulwark against the SEC’s increasingly avaricious overreach.
While we have highlighted how Joseph’s win is a win for all of us—blocking the SEC from eroding the protections the Supreme Court rightly awarded in Liu—there’s something else we want to emphasize about why disgorgement in the absence of investor harm or fraud is a critical subject.
The SEC often acts contrary to its mission to protect investors - making choices it “assumes” are best but which can often be far from beneficial. When investor funds are paid to the SEC, that money sometimes goes back to investors, but frequently, it ends up going into the US Treasury. You may remember a mention of this back in our February newsletter announcing Joseph’s case.
A better solution would be for the SEC to require (or ask a court to require) that defendants make a rescission offer to investors, meaning offering to return some or all of their investment funds in exchange for a return of the stock purchased. This approach differs from the SEC full-disgorgement model in a meaningful way. It respects the wishes of investors, some or all of whom may not want to rescind their stock purchase even if the technical registration requirements were not met. It allows investors to continue putting their money to work for themselves and their families.
It is a proud moment for our organization and network of supporters that our first case not only resists another settlement or judgment at the expense of an entrepreneur’s livelihood but also continues to push for SEC practices that protect investor choice.
Wrapping Up and How You Can Help
Over the past two decades, first as a lawyer at the SEC and later as an attorney in private practice—as Administrations in Washington came and went—I continued to meet countless clients whose lives and businesses were destroyed by the SEC. Each time, the agency incrementally increased its power or scope—often without any benefit to the constituency it is tasked with serving.
This experience led ICAN’s founders to the conclusion that litigation was the only way to generate actual change and achieve our mission. ICAN’s strategy is especially critical moving forward, as the SEC further leans into regulation by enforcement - noted in a piece on Pitchbook this week: “SEC turns to litigation to address rule-making failures."
We’re thrilled to celebrate this first win with you, and we hope that you’ll join us in this noble fight as we advocate for small investors and entrepreneurs whose efforts are too often impeded by government regulation - creating a vibrant economy with opportunity for all.
If you’d like to donate to our legal fund to support our cases, please click here.
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