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  • Writer's pictureNicolas Morgan

Spotlight: SEC v Barry et al. - ICAN Files New Appeal

March 21st, 2024

 

Dear ICAN Partners, 


The SEC currently enjoys an astonishing 98% settlement rate. With so many cases being swept under the settlement rug, the public rarely has an opportunity to see what is really going on. Defendants do not have an opportunity to share their side of the story. The SEC’s tactics and arguments are not made available for public scrutiny. And, case by case, the federal agency continues expanding its power and dominion. 


Thanks to your support, ICAN’s clients will not become yet more settlement statistics. They have the opportunity to fight back against the SEC in federal court, defending themselves and, at the same time, bringing into the light – for all to see – the true costs of the ruinous efforts being carried out by the federal agency in the name of “protecting investors.” 


In this month’s Spotlight, we’re featuring ICAN’s second direct representation case, a federal court appeal stemming from SEC v PacWest, a case of gross overreach by the SEC. In the appeal, SEC v Barry et al., ICAN represents the remaining defendants from the original case, Brenda Barry, Eric Cannon, and Caleb Moody. You can read our appeal here. Bloomberg Law has also covered the case, and you can find that article via this link. 


Before introducing you to our featured clients, I want to update you on SEC v Punch TV, the case we highlighted in our last Spotlight. As you know from that email, Joseph Collins, the founder of Punch TV, was scheduled to return to court earlier this month with his ICAN attorneys to challenge the SEC’s egregious pursuit. However, after reading ICAN’s brief, and recognizing that Joseph and his company are no longer an easy mark, the SEC asked the Court for an additional 30 days to respond. The Court accepted the request and postponed the hearing until the middle of April.


I look forward to continuing to share updates on Joseph’s case and the case you’ll read about below—the work your support makes possible.


With thanks, 

Nick Morgan

Founder and President of ICAN


 
At its heart, the story of SEC v Barry et al. is a story of three average Americans whose lives were destroyed after they inadvertently ran afoul of the SEC while simply doing their jobs. It is a story of how the SEC has spent the past eight years and untold millions of tax dollars pursuing a case that involves no allegations of investor harm or fraud by ICAN’s clients. It is a story that illustrates the dangers of an unrestrained government agency that is increasingly willing to use its inexhaustible resources and punitive powers to expand its scope and reach.


Meet Brenda, Eric, and Caleb


Brenda Barry, Eric Cannon, and Caleb Moody worked as sales agents for PacWest, a company selling an investment offering called life settlements. In 2016, the SEC sued PacWest, its founder, and other personnel, including our clients, alleging the life settlements arrangements should have been registered as a securities offering and that Brenda, Eric, and Caleb should have been registered as securities brokers.


In filing suit, the SEC did not allege that any investors were harmed or that any investor had complained. They did not allege that Brenda, Eric, or Caleb misled anyone about the investment. As sales agents, Brenda, Eric, and Caleb (non-lawyers certified to sell insurance products under California law) had no reason to believe they were violating any law. Nevertheless, when the SEC sued in federal court, they went after not just the company but individual employees caught up in the wide net they cast. While the other PacWest defendants are no longer litigating with the SEC (because they settled or were put into receivership) the amount of money being sought from our clients is financially ruinous. They don’t have the luxury of settling to escape the ire of the SEC. That is where ICAN comes in.


Before the establishment of ICAN, members of our team provided pro bono legal assistance to Brenda, Eric, and Caleb in their eight-year battle with the SEC. Now, under the auspices of ICAN, we can continue that fight. It is a fight not just to ensure Brenda, Eric, and Caleb receive justice but to begin building a legal bulwark against the kind of SEC overreach that harms investors and creates de facto barriers that stifle innovation and further limit engagement in the market by those who cannot afford to risk incurring the ire of the SEC.



Does the SEC Even Have Jurisdiction?


In going after Brenda, Eric, and Caleb, imposing judgements of hundreds of thousands of dollars, the SEC is seeking to punish three individuals with no legal expertise for failing to recognize something the legal profession has not been able to conclusively determine for decades: whether life insurance settlement arrangements are securities.


You may be familiar with the Howey Test, a framework based on a landmark 1946 Supreme Court case that determines whether something is indeed a security and thus under the SEC’s purview. With the developments in cryptocurrencies over the last few years, the Howey Test has received increased attention.


In our appeal, ICAN outlines a compelling case for why PacWest's life settlement arrangements were not securities based on the Howey Test. PacWest had been selling its life insurance settlements for years before the SEC came knocking. While no statutes or regulations existed to classify whether they were securities, some courts had previously ruled (including the prominent federal appellate court for the District of Columbia, SEC v Life Partners in 1996) that life insurance settlement instruments very similar to those offered by PacWest were not securities.


Despite the SEC’s loss on the issue in SEC v Life Partners, the SEC continued to litigate the issue for the next thirty years trying to regulate this same issue through enforcement, determined to expand its jurisdiction to include yet another financial instrument.


Regulation through enforcement has become a dangerous pattern.
With nearly unlimited resources at its disposal, the federal agency can file case after case, in district after district, until it finds a court that will rule in its favor – or simply a defendant who settles or defaults before a court makes a final determination, incrementally expanding the agency’s jurisdiction and strengthening the SEC’s ability the next time it wants to redefine another financial product as a security.

With such egregious overreach, the SEC is creating uncertainty and risk that stifles market innovation and investor choice, betraying its own mission.


Eight years of government agency time and taxpayer dollars have been spent in an effort to pull yet another financial product under the ever-growing purview of the SEC, all in the name of “protecting” investors who are, by all indications, perfectly happy and satisfied with the life insurance settlement market as it is currently operating. If a life insurance settlement can suddenly be declared a security, what’s next? What’s to stop the SEC when it targets its regulatory ire in a new direction?


ICAN exists to build a precedent-based legal barrier to halt such SEC overreach. To ensure that the agency’s efforts to expand its domain do not advance uncontested. To ensure clients like Brenda, Eric, and Caleb have the opportunity to push back, not just for themselves, but for the next person who may unwittingly get caught in the SEC’s ever-expanding dragnet of regulation through enforcement.


No Victims, No Fraud, No Harm


Even if the courts were to find that the life settlements in question were actually securities, the allegations at hand are simple registration violations. The SEC has never claimed that ICAN’s clients acted fraudulently or caused any investors harm. Ironically, the court-appointed receiver in the case recently informed the court that investors will likely receive 100% of their investment even if ICAN’s clients are not required to pay a dime.


Saddling ICAN’s clients with federal court judgments for hundreds of thousands of dollars that they cannot pay will have little effect and also may run afoul of recent rulings from the United States Supreme Court.


Without ICAN empowering our clients to push back, SEC v Barry et al. would become yet one more easy win for the SEC—one more precedent-setting settlement strengthening the agency’s case for imposing ruinous financial judgments without even an allegation of investor harm or fraud by ICAN’s clients. (ICAN’s first direct representation case—SEC v Punch TV—also addresses this high-stakes issue.)


Why has the SEC been entangled for years, ruining lives over a technical infraction case? Because in most cases, the SEC doesn’t have to devote significant resources to the litigation–it can approach defendants with ruinous circumstances and the prospect of years of costly litigation, forcing most into a settlement or a default. ICAN is dedicated to fighting this absurd regulatory overreach and bringing such SEC efforts to light, allowing the public to judge whether such actions truly serve to protect investors.



How You Can Help


The more resources available to ICAN, the more cases the organization can take on. The larger the number of cases, the greater the legal bulwark we can build to corral back within its rightful boundaries the unwieldy powers of the SEC.


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.


Sharing this newsletter post with your networks is another great way to support our mission.












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