A Security in Los Angeles. Not in Washington.
Updated: 1 day ago
What Barry v. SEC shows about who pays when the law is unclear, the courts are split, and an agency keeps pushing to expand its own reach
By Nick Morgan
November 10th, 2026
Brenda Barry, Eric Cannon, and Caleb Moody were salespeople. They sold fractional interests in life insurance policies for a California company called Pacific West Capital Group, and they were paid on commission. They did not hold managerial roles, nor did they pick the policies, set the prices, or decide how the premiums would be covered. The SEC has never accused them of fraud. Yet they have spent eleven years defending themselves against the agency.
The SEC sued them in 2015 for selling unregistered securities and for selling them without being registered as brokers. This week, with our co-counsel at Paul Hastings LLP, we asked the Supreme Court to take their case.
On paper, the question is narrow: what counts as a security. But the SEC's handling of it reveals several problems at once. For eleven years, since it filed its lawsuit in 2015, the agency has used some of its harshest tools against three everyday people not accused of fraud or harming investors to push a definition of a security further than the federal appellate court in Washington, D.C., agrees it goes, and the fallout reaches far beyond this case. Four problems stand out.
The SEC counted work that was finished before anyone bought
The test for what counts as a security goes back to a 1946 Supreme Court case about Florida orange groves. In SEC v. W.J. Howey Co., people bought strips of grove land and paid the company to farm it, harvest the fruit, and sell it for years afterward. They weren't really buying a farm. They were putting money into an orange business someone else ran.
That’s what the Howey test looks for. Under it, a deal is an investment contract, and so a security, when it has four parts:
An investment of money. The Howey buyers paid for strips of land, and most of them also paid for a service contract to go with it.
A common enterprise. The groves were farmed together, and the fruit was pooled and sold together, so every buyer’s return rose and fell with the whole operation.
An expectation of profits. Most buyers were guests at a nearby resort hotel. They wanted a return, not oranges to eat or land to farm.
Profits from the efforts of others. The company did the planting, the harvesting, and the selling.
The fight in this case is over which efforts count.
Pacific West did most of its work before it sold anything. It found policies, looked for insureds who were at least 75, reviewed medical records, estimated how long each person would live, and set a price. It also set up a reserve fund meant to cover the premiums. Once a sale closed, an outside trustee held the policies and paid the bills. Under oath, the trustee called its own job “administrative and/or clerical.”
The Ninth Circuit still found the buyers relied on others' efforts to generate profits. The efforts the court pointed to were the picking, the pricing, and the design of the reserve, all done before anyone bought a fraction of any particular policy.
When you buy something that’s already finished, you’re paying for work that’s been completed, not counting on work still to come. Nobody thinks a house is a security because a good builder made it worth more. The same goes for art. If a dealer spends years tracking down a painting, authenticating it, and pricing it, the buyer still owns a painting, not a security.
The D.C. Circuit said as much in 1996. In SEC v. Life Partners, which involved life insurance interests the petition calls materially the same as these, the court held that a seller’s pre-sale efforts “cannot by themselves suffice.” The buyer has already paid for that work in the price. After the sale, what the buyer gets back depends on how long the insured lives, not on anyone’s work.
That is exactly the kind of rule lawyers rely on. A company like Pacific West would ask counsel whether its product was a security, and counsel would look at what Howey says and how the D.C. Circuit applied it in Life Partners. When that answer can’t be trusted because the SEC wants to push the boundaries in a different court, innovation gets stifled, and products consumers want may never make it to market.
The answer depends on where the SEC decides to sue
Thirty years later, the courts still don’t agree. The Eleventh Circuit rejected the D.C. Circuit’s rule in 2005. The Fifth Circuit did the same in 2019, and admitted that under Life Partners the life settlements in its own case wouldn’t have been securities. Last year the Ninth Circuit joined them in this case, and said so plainly: it would “depart from a conclusion reached by the D.C. Circuit.”
The SEC knows the courts are split. When it opposed rehearing in this case, it admitted the Ninth Circuit “placed greater weight on PWCG’s pre-purchase efforts” than the D.C. Circuit had in similar cases. In 1996, when the SEC asked the D.C. Circuit to rehear Life Partners, it called the same rule an artificial “bright-line” test. When the rule cost the SEC its case, the agency treated it as a hard line that mattered. Now that the rule would help the people it sued, it calls the split a minor difference in emphasis.
This matters because the SEC picks where to sue. If the SEC handles a case in its own in-house proceeding, the person can appeal to the D.C. Circuit, wherever they live, and the Life Partners rule applies. But when the SEC sues in federal court, it chooses the courthouse, and it can choose one in a circuit that has rejected that rule. So the same sale can be a security in Los Angeles and not a security in Washington.
In this case, the answer even changed inside one courthouse. In 2015, the district court turned down the SEC’s request for a preliminary injunction, finding the SEC hadn’t shown these interests were securities. The case was later reassigned to a different judge. In 2023, the same court, looking at the same products, ruled for the SEC.
That’s not a rule anyone can plan around. It’s a coin toss, and the SEC gets to call it.
Everyday people pay the price, even when no one could have known the rule
The SEC charged Brenda, Eric, and Caleb with selling unregistered securities and acting as unregistered brokers. Neither charge requires the SEC to prove fraud. Neither requires proof that anyone meant to break the law. If what they sold counts as a security, everyone who sold it is liable.
Think about what that means for someone taking a sales job. Most salespeople aren’t expert securities lawyers. Even the judges who heard the appeal saw the problem. At oral argument in the Ninth Circuit in late 2024, one judge asked why these three were expected to know better, when the court itself had “spent a lot of time and read a lot of pages” trying to decide whether this was an investment contract. Salespeople can’t be expected to know better than the federal courts, or be held liable when the SEC decides to pursue a reading the DC Appeals Court had rejected.
This isn’t the first time regulators have punished salespeople over a line no one could see clearly. In 2001, the appeals body of the National Association of Securities Dealers, FINRA’s predecessor, reviewed the case of registered representatives who had sold viatical settlements, a close cousin of life settlements, relying on Life Partners. It admitted “the state of the law was unsettled” on whether those products were securities, yet upheld their discipline and said relying on a lawyer’s advice was no defense. If following the best legal advice available isn’t enough, there is nothing a salesperson can do to protect themselves. That is where Brenda, Eric, and Caleb are today.
The people furthest from the decisions have paid the highest price. Every other defendant settled or was dismissed. The three left are the ones who designed nothing, priced nothing, and controlled nothing, and they have spent eleven years in court. That should worry anyone who sells assets that someone else selected and priced before the sale, from alternative investment platforms to fractional ownership marketplaces to crypto companies.
Unless the Supreme Court resolves the split, the SEC can keep bringing these cases in the circuits that have already sided with it, and any of these sellers could find out years later, in an enforcement action, that what they were selling was a security.
Eleven years on, the products and Commission’s public comments keep evolving. The SEC’s approach in court hasn’t.
When the SEC sued in 2015, Ethereum had just launched. Owning a fraction of a painting or a rare collectible was niche, and tokenized real-world assets barely existed. All of these are real markets now. Each one raises the same question as this case: what happens when the work is done before the sale and the buyer simply holds what they bought?
People building new products can’t plan around a rule that changes at a circuit line.
The SEC’s own recent guidance points away from the position it took against Brenda, Eric, and Caleb. In March, the SEC and the CFTC issued a joint interpretation on crypto assets. It says that once an issuer has finished the work it promised, “purchasers no longer have any reasonable expectations of profits” from that work. That is essentially the D.C. Circuit’s rule, and it’s the rule these three have argued for from the start.
The guidance covers crypto, and it doesn’t claim to answer the question in this case. But it fits a pattern we’ve written about before. What the SEC says publicly about the rules isn’t always what it argues in court against individual people.
Suing first and leaving it to the courts to decide, years later, what the law meant isn’t fair to the people being sued. It’s also a poor way to oversee markets that keep changing. Guidance can be rewritten by the next Commission. A Supreme Court ruling on what Howey means would apply in every circuit, no matter who is running the agency.
Real people and real businesses are waiting on this answer
Brenda, Eric, and Caleb took jobs and helped their clients without knowing about the unfair road that lay ahead. If the Supreme Court takes this case, it could make things right for three people who have carried the SEC's overreach far longer than anyone should.
The Supreme Court also has the chance to give everyone else a rule they can count on before they act. Entrepreneurs could know whether a product is a security before they launch it, not years later in an enforcement action. Fractional ownership of things like apartment buildings, farmland, and music royalties could reach ordinary investors, including in their retirement accounts. And the next wave of financial innovation could avoid a litigious environment where real people pay the price.
The SEC will have a chance to respond to our petition, and then the Court will decide whether to hear the case. We’ll keep you posted.
Get this answer right, and millions of Americans could build portfolios from the whole economy. Leave it to a courthouse coin toss, and that future may never get built.
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