June 20th, 2024
Dear ICAN Partners,
As we await the Supreme Court's consequential decision in SEC v Jarkesy, I wanted to update you on some of the latest developments with ICAN’s clients and other important cases working their way through the judicial system.
With limitless government resources at its disposal, the SEC deploys litigation as a crucial part of its strategy to expand its reach. While we hope for a favorable decision in Jarkesy that may address the agency’s unfair administrative court advantage and restore due process to the proceedings, we expect that regulation through enforcement will remain the SEC's maneuver of choice. As such, it’s more important than ever for ICAN to continue to expand our efforts to vigorously defend small investors and entrepreneurs targeted by the SEC.
If we want to end the SEC's use of unfair practices, we must ensure that these everyday people—whom the SEC often views as “easy targets”—have the ability to resist the regulatory behemoth's efforts to bully them into settlements that advance the agency’s agenda.
Our pro bono litigation strategy is already paying off for ICAN’s first client, small business owner Joseph Collins. (See an update on Joseph's case below.) And, though we may not be able to 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. With each case we are able to litigate - thanks to the support of our generous partners – we are increasing the pressure on the SEC to regulate in a transparent, fair manner and beginning to corral the agency’s unwieldy powers back within their rightful boundaries.
With thanks for your continued support,
Nick Morgan
Founder and President of ICAN
SEC v. Punch TV Update
ICAN and Ed Totino of Baker & McKenzie stepped in at the eleventh hour late last year to represent Joseph Collins. Joseph and his company, Punch TV, face a financially ruinous judgment after a years-long legal battle over a self-reported technical infraction. Despite no allegations of fraud or investor harm and no prior issues with the SEC, they referred to him as a “recidivist” in a press release long before a judge decided on his case.
The SEC has painted Joseph as a villain and exhausted a small business owner's resources to defend himself to set a precedent for seeking disgorgement in the absence of investor harm. At ICAN, we don’t believe such a scorched-earth strategy is reasonable or conducive to a regulatory environment that attracts business and innovation.
When the SEC finally filed its reply brief after ICAN stepped in, it improperly included more than 150 pages of new documents, as well as new affidavits from SEC staff members. Leading up to the rescheduled hearing, we filed an objection to the SEC improperly trying to introduce late evidence to shore up the defective motion. We also served a motion for sanctions against the SEC for making misrepresentations to the court about the presence of investor "pecuniary harm."
We’re pleased to report that the SEC decided to withdraw the portions of its brief mentioned above in response to our motion for sanctions. (As you may recall, the SEC was recently sanctioned over misconduct in the Debt Box case.)
No legal outcome can be guaranteed, but thanks to ICAN, Joseph has counsel with the experience and expertise to resist the SEC’s bullying and challenge the regulatory body’s questionable win-at-all-cost tactics.
One of the reasons that defending people like Joseph is so important is that there are many others like him. The SEC’s conduct, in his case, is straight out of a well-oiled playbook and is, as you’ll see below, all too common.
The SEC’s Browbeating Path to Expanding the Definition of “Dealer”
Regulation through enforcement has become more widely recognized in recent years as the agency tries to use existing rules to deal with rapidly evolving advances like crypto. This approach, instead of public rule-making, creates uncertainty and slows innovation. The SEC doesn’t just use this objectionable practice when it’s trying to keep up with new products and technologies; it also uses it to change long-established definitions of its laws.
The definition of “dealer” was written into law in 1934, and in the subsequent decades, investors who have traded in their own account on their own behalf have not needed to register as a dealer. That has all changed over the last few years, as the SEC has begun strategically identifying smaller investors and cornering them into settlements to expand its definition of “dealer.”
This Forbes article from late last year chronicles the experience of one investor the SEC steamrolled in its quest to change the rules that have existed for decades. Before it engaged in public rule-making on the matter, the SEC pursued (and continues to pursue) its litigious playbook.
In a new episode of SEC Roundup, ICAN co-founders Nick Morgan and Tom Zaccaro talk with Marc Indeglia, Partner at Glaser Weil and founder of the Small Public Company Coalition, about the cases in motion as the SEC tries to expand the definition of “dealer.”
As Marc talks about the cases at play, you’ll see how similar the tactics are to what our client Joseph has faced. The SEC identifies easy targets, “makes them seem more nefarious than they are” (e.g., our “recidivist” client who reported his own technical infraction), and without the resources to fight back, these investors and business owners are left in ruins. At the same time, the rest of the business and investor community is stuck with the SEC’s anti-business, detrimental regulations coming from their precedent-setting settlements.
Currently, ICAN is actively raising funds for the legal defense of a client who is one of the “easy targets” the SEC has targeted to expand the dealer definition, which will further reduce opportunities for everyday investors. With your help, we can ensure that the SEC has one less easy target.
Wrapping Up and How You Can Help
With momentum building from our amazing network, ICAN is eager to develop a playbook that counters SEC overreach and expands access to capital markets for more Americans.
The more resources available to ICAN, the more cases the organization can take on. The greater the number of cases, the greater the legal bulwark we can build to corral the SEC's unwieldy powers back within their rightful boundaries.
If you’d like to donate to our legal fund to support this case and future cases, please click here or reply to this email.
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