SEC v Thurlow

This troubling case involves SEC allegations against our client, JD Jordan, that stem from alleged technical violations of securities registration requirements - importantly, the SEC has not accused Mr. Jordan of any fraud or intentional misconduct. Mr. Jordan purchased from a private party debt convertible into common stock of a publicly traded company, which he converted and sold in open market transactions. What makes the SEC's case particularly concerning is that Mr. Jordan and his company, WBC, relied in good faith on a legal opinion letter from an attorney who opined that the stock transactions complied with securities laws.

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The attorney opinion letter was central to the transactions. However, the SEC later found that the attorney had "drastically failed to comply with the rigorous due diligence obligations of an attorney writing a legal opinion letter" and failed to investigate multiple red flags despite the lawyer representing that he had "conducted all required due diligence" before opining that Mr. Jordan could sell the stock without violating securities registration requirements.

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Mr. Jordan acted properly by obtaining and relying on what he believed was a valid legal opinion from a reputable law firm confirming the transactions were lawful. We believe the SEC's inclusion of Mr. Jordan in this enforcement action is particularly unfair, given that he sought and received assurance from qualified counsel that the transactions complied with securities laws.

 

Even more concerning is the SEC's attempt to seek disgorgement from Mr. Jordan despite the absence of fraud allegations or evidence of investor losses - an approach that appears to conflict with the Second Circuit's ruling in SEC v. Govil and the Supreme Court's decision in SEC v. Liu limiting disgorgement to cases involving actual pecuniary harm to victims. ICAN looks forward to defending Mr. Jordan and demonstrating that he acted appropriately and in good faith throughout these transactions.

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This case raises serious questions about why the SEC would allocate substantial resources to pursuing a non-fraud technical violation against someone who demonstrably sought and relied on qualified legal counsel. Pursuing enforcement actions against unintentional violations fundamentally fails as a deterrent strategy because, by definition, these violations occur without awareness or purpose—one cannot be deterred from actions one never intended to take in the first place. The inability to foresee or recognize such violations renders traditional deterrence theory ineffective, as individuals cannot adjust behavior to avoid outcomes they cannot predict.

 

Meanwhile, aggressive enforcement against unintentional violations creates a climate of regulatory uncertainty that chills legitimate market activity in several ways. Market participants, fearing unpredictable liability, may adopt overly cautious approaches that restrict innovation and efficient capital allocation. This regulatory overcorrection leads to increased compliance costs as firms implement excessive safeguards against unknowable risks, ultimately reducing market liquidity and participation in the face of complex and sometimes ambiguous regulations.

 

Cases like Mr. Jordan's exemplify why ICAN's action plan calls for reforming these tactics to better align with the SEC's mission and protect market participants from having their lives ruined over an unintentional technical violation.