February 22nd, 2024
Dear ICAN Partners,
These Spotlights are designed to give ICAN’s network of partners a deeper look at the individuals and issues your support is helping ICAN defend. Below, we're bringing you the details of our very first case, SEC v Punch TV. You can find our court filings in this potentially precedent-setting matter here.
With thanks,
Nick Morgan
Founder and President of ICAN
Joseph Collins and his company Punch TV are a frightening example of how easily a small entrepreneur can find themselves tangled up in the regulatory labyrinth of an overzealous SEC, and the power of that government agency to destroy lives over technical infractions.
Meet Joseph Collins, a Los Angeles entrepreneur who set out in 2014 to create a production studio that would provide film and television content for an underserved diverse urban audience. When, in 2016, the Obama administration announced its intentions to expand opportunities for startup businesses to raise much-needed capital through the JOBS Act, Joseph was one of the first entrepreneurs to seize the chance to grow his business while giving members of his community the opportunity to put their money to work as investors.
A key provision of the JOBS Act waived the normally prohibitively high accreditation bar for investors wanting to support certain types of private startup businesses, like Punch TV. This meant average men and women would have the opportunity to invest in the early stages of a promising private venture, a privilege SEC rules had long limited to high-net-worth individuals. At first, Joseph’s efforts provided a shining example of what is possible when small entrepreneurs and small investors aren’t held back by unnecessarily onerous government regulation. In a relatively short period, Punch TV was able to raise funds from hundreds of small investors – many of them middle-income Los Angeles residents who believed in the project's value and wanted to contribute to its success.
Then the SEC got involved. Because of an unintentional technical violation of an SEC registration requirement, which Joseph himself brought to the SEC’s attention, the regulator threw the proverbial book at him. Without ever alleging that Joseph or his company had committed any type of fraud, harmed investors, or misused investor funds, the SEC ultimately took Joseph to federal court seeking a ruinous $1.6 million judgment that included the funds the company had raised, plus penalties and interest.
Despite facing the full force and weight of the federal government, Joseph did not back down. He fought the charges for years, spending thousands on legal fees. But by last spring, he ran out of money. As a result, he lost his legal representation. The SEC quickly moved to have the case terminated with a summary judgment that would have given the government a quick win without a trial. Without counsel, Joseph had little recourse. By December 2023, the judge in the case was prepared to rule in favor of the SEC, a move that would have bankrupted Joseph and his company with no input from Punch TV’s investors regarding the best use of their investment.
At the 11th hour, thanks to the generosity of ICAN donors and the pro bono support of ICAN’s network of legal partners, ICAN was able to step in and halt the SEC steamroller. Joseph will now have the opportunity to continue his fight with experienced legal counsel at his side. We talked with Joseph shortly after taking his case, and published this video, where you can hear from him in his own words about the ordeal.
Why is this case so important?
ICAN’s first priority in taking on SEC v Punch TV is to ensure our client, Joseph Collins, has the opportunity for a fair hearing. We seek to help him resolve his issues with the SEC in a fair and reasonable manner that will help him restore his good name and that will protect his interests and those of his investors.
In its press release regarding the case, the SEC referred to Punch TV as a “Recidivist TV Production Company,” – implying to the average person that some type of criminal activity had occurred. Nothing could be further from the truth. The SEC has never alleged that Joseph or Punch TV ever committed fraud, harmed investors, or misused investor funds–and certainly never committed any criminal violations. In fact, the SEC has acknowledged that much of what it complained about was reflected in public filings by Punch TV itself. Despite those facts, the SEC elected for what amounts to its scorched earth option, demanding Joseph and Punch TV turn over all the funds it had raised–the hard-earned money invested in the company by Punch TV supporters–plus penalties and interest.
But it is important to remember that had ICAN not stepped in when we did, not only would Joseph and his investors have suffered the consequences of the judgment the SEC machine was pushing through, but so would the rest of us. We would all have been saddled with what the SEC would cite in future cases as “precedent” that the agency has the right to confiscate investor funds without their input and impose penalties even in the absence of fraud or investor harm.
You might assume that since the SEC’s duty as a regulator is to protect investors, its strategy would put investors’ interests first. In fact, it is up to the SEC how to distribute any funds that a defendant is ordered to pay, and the SEC is not required to return money to investors or take their preferences into account. Funds that the SEC does not return to investors go into a variety of accounts, including the Investor Protection Fund or special accounts at the US Treasury. In 2023, the SEC’s fund at the US Treasury totaled billions of dollars including confiscated funds not distributed to investors. It begs the question if the SEC is actually serving those it has been tasked with protecting.
Whether ICAN’s last-minute intervention in this case will change the outcome remains to be seen, but one thing is certain: without representation to push back, defendants like Joseph and Punch TV don’t stand a chance in federal court, and the SEC will be free to continue to push the law in a pro-regulatory direction in one case after another with little resistance.
If the SEC is successful, will other entrepreneurs be wary of crowdfunding, concerned that every infraction could turn into a legal nightmare? That wariness would mean fewer opportunities for everyday investors beyond publicly traded companies and mutual funds.
It is essential that small entrepreneurs like Joseph have the opportunity to stand up to the SEC. It is essential that we challenge the SEC’s assertion that it can simply confiscate investor funds when there is no allegation of fraud or investor harm. It is essential that we continue to push the SEC to help expand opportunities for everyday investors, encouraging a more robust economy.
At ICAN, we see the possibility of a better way. We think the SEC could handle technical infractions where there is no fraud or harm in a manner that upholds the law but leaves businesses intact and has a better outcome for investors. We also think market participants (the people the SEC is charged with protecting!) deserve a chance to have essential matters settled through fair judicial processes with the benefit of experienced counsel in their corner.
How You Can Help
ICAN’s defense of Joseph and Punch TV would not be possible without supporters like you and the generous pro bono services of ICAN’s network of legal partners, like Ed Totino and his firm Baker & McKenzie, our partners in SEC v Punch TV.
You can click here to help support this case and others like it. You can also reach out to ICAN President Nick Morgan to discuss a donation or other ways you can support ICAN’s efforts at info@icanlaw.org.