Does buying a finished product make it a security? Supreme Court asked to resolve 30-year circuit split
ICAN and Paul Hastings seek review on behalf of three commissioned sales agents the SEC never accused of fraud. The question could affect how federal securities law applies to fractional art and collectibles, precious metals, and digital assets.
FOR IMMEDIATE RELEASE November 10th, 2026
WASHINGTON— The Investor Choice Advocates Network (ICAN Law) and Paul Hastings LLP have asked the Supreme Court of the United States to decide whether a seller’s work completed before a sale—selecting, evaluating, and pricing an asset—can by itself make the asset a security under federal law, or whether the buyer must be led to expect profits from managerial efforts others will make after the sale.
A 30-year split the courts agree is decisive
In 1996, the D.C. Circuit held in SEC v. Life Partners that a promoter’s pre-sale efforts “cannot by themselves suffice” to create an investment contract, because their value is already reflected in the price the buyer pays. The Eleventh and Fifth Circuits rejected that rule. In Barry v. SEC, the Ninth Circuit did too, writing: “we join the Eleventh and Fifth Circuits and depart from a conclusion reached by the D.C. Circuit.”
The courts have acknowledged that the choice decides cases. The Fifth Circuit wrote that “[w]ere we to follow the Life Partners majority, we would thus conclude that the life settlements at issue here are not investment contracts.” In opposing rehearing below, the SEC acknowledged that the Ninth Circuit “placed greater weight on PWCG’s pre-purchase efforts than did the D.C. Circuit in addressing similar investments.”
Because anyone aggrieved by a final SEC order under the Exchange Act may seek review in the D.C. Circuit, the petition explains, the same transaction can be a security in an SEC case filed in California, Texas, or Florida and not a security in Washington. “Only this Court can end that disparity,” the petition states.
Strict liability, uncertain law
The stakes are high because registration violations require no proof of fraud or intent, and liability reaches not only promoters but everyone who sells a security. “A threshold test that turns on the circuit in which the SEC brings its enforcement lawsuit fails at its most basic function: telling people in advance whether the law applies to them,” the petition states. “That failure falls hardest on people like petitioners, commissioned agents who designed nothing, controlled nothing, and were accused of no fraud.”
Regulators have recognized the uncertainty. In 2001, the National Association of Securities Dealers’ appellate body acknowledged that “the state of the law was unsettled” as to whether certain viatical settlement products were securities, yet held that reliance on counsel’s advice was no defense.
Three sales agents, eleven years
Brenda Barry, Eric Cannon, and Caleb Moody were commissioned sales agents for Pacific West Capital Group (PWCG), a California company that sold fractional interests in life insurance policies. The Ninth Circuit found they “played no managerial role at PWCG.” The SEC charged the company and its founder with fraud. It charged the three agents only with selling unregistered securities and acting as unregistered brokers. Every other defendant settled or was dismissed.
The SEC sued in 2015. The three agents were ordered to disgorge more than $600,000 combined and to pay civil penalties of $15,000 each, and Mr. Cannon was enjoined. All of that liability depends on whether the interests they sold were securities.
An investment, or a purchase?
Under SEC v. W.J. Howey Co. (1946), an investment contract requires an expectation of profits from the efforts of others. The buyers in Howey relied on the promoter to cultivate, harvest, and market Florida citrus after the sale. The petition argues that Howey separates an investment, where the return depends on someone’s continuing work, from a purchase of a finished thing whose value then turns on other forces. “A buyer who pays for a house built by a skilled builder does not thereby acquire a security, however much the seller’s skill affects the asset’s later value,” the petition explains. Likewise, an art dealer’s careful search for a rare painting does not make the painting a security.
The Ninth Circuit held that PWCG’s selection and pricing of policies, its premium reserve system, and the fractional nature of the interests together satisfied Howey, and it declined to decide whether any one feature alone would suffice. The petition argues that each was work completed before the sale. Any question about essential post-sale managerial efforts, it argues, can be addressed on remand under the correct standard.
Beyond life settlements
The petition explains that many assets are built, selected, or curated before sale and then simply held, including fractional interests in art and collectibles, precious metals, and digital assets whose software and networks are completed before tokens are sold. Under the Ninth Circuit’s rule, the seller’s completed work can make each a security even when no one promises any further effort. Under the D.C. Circuit’s rule, it cannot.
The petition also points to the SEC’s March 2026 interpretive release on crypto assets, issued jointly with the CFTC. The release states that once an issuer “has fulfilled the essential managerial efforts it represented or promised it would undertake, purchasers no longer have any reasonable expectations of profits to be derived from those efforts.” The petition argues that this approach is in tension with the rule the Commission defended in this case.
“Whether something is a security shouldn’t depend on which courthouse the SEC picks,” said Nicolas Morgan, Founder and President of ICAN Law and a former SEC senior trial counsel. “Brenda, Eric, and Caleb sold a product they didn’t design, under a rule the D.C. Circuit has rejected for thirty years, and they’ve spent eleven years defending themselves. Buying a finished product is not the same as investing in someone else’s ongoing work. Everyone who builds, sells, or buys these assets deserves one answer, and only the Supreme Court can give it.”
Nicolas Morgan of ICAN Law is counsel for the petitioners with Igor V. Timofeyev, Joseph E. Graziano, and Alexander Sweet of Paul Hastings LLP.ct: info@icanlaw.org
About ICAN: The Investor Choice Advocates Network (ICAN Law) is a nonprofit organization dedicated to breaking down barriers to entry to capital markets and pushing back against regulatory overreach. ICAN advocates for fair and transparent regulatory practices, ensuring all individuals have equal access to investment opportunities and due process in the financial markets.
Contact Information: Investor Choice Advocates Network (ICAN) Email: info@icanlaw.org Website: www.icanlaw.org
Comments