Thanks for having a look at our first quarterly newsletter on behalf of the entire board of Investor Choice Advocates Network (ICAN). If you have any interest in the economy, financial markets, or investor empowerment, we hope you will find this newsletter and ICAN’s initiatives valuable. Let’s dive right in with a key case that has been painfully brewing for over ten years, and the decision that comes from it will have immense impacts.
Ten Years and Still Fighting for Fairness: SEC v Jarkesy
Many Americans may be surprised to discover that the SEC, CFTC, FTC, and other federal agencies have “in-house” administrative courts, which hear many cases brought by these agencies instead of going to a federal court. The judges presiding over these administrative courts are employees of the SEC and other agencies, not presidentially appointed federal court judges.
What may not surprise you is that federal agencies have an extraordinarily high win rate in their “home courts” compared to how the agencies fare in a federal court. The data support the obvious concern of a lack of partiality.
Two years ago, when the founders of ICAN filed an amicus brief in the 5th Circuit on behalf of Mark Cuban, Phil Goldstein, and Nelson Obus in SEC v Jarkesy arguing that the SEC should not be permitted to deny the right to a jury by forum-shopping enforcement matters to administrative proceedings, we had little expectation the government would be asking the Supreme Court to review a decision in Mr. Jarkesy's favor. We’re delighted that the Supreme Court recently granted the SEC's request and will hear the case.
The unconstitutional denial of jury rights will finally be evaluated by the Supreme Court when it hears SEC v Jarkesy. This matter has been going on for over ten years, which isn’t a journey most could or would take on. We hope you’ll watch this episode of our SEC Roundup series, where we talk with Mr. Jarkesy’s attorneys so you can hear firsthand the impacts of the SEC’s administrative proceedings.
Beyond being unconstitutional, one of the biggest concerns with the administrative proceeding system is that it all but guarantees settlements. Imagine knowing that the odds are not in your favor and that you’ll have to invest the time and money to get through the administrative court just to get to an appeal. This is years of time and perhaps millions spent. When settlements are all but guaranteed, this leaves the SEC’s pursuits unchecked.
SEC v Jarkesy is the type of case that represents exactly why an organization like ICAN is needed. We hope that our readers will consider spreading the word about our mission or donating directly to help us serve as legal advocates for small investors and entrepreneurs. These entrepreneurs and investors are often those who spur great economic advancements. Later on in this newsletter, we’ll introduce you to one of them.
SEC Expanding the Definition of Broker: ICAN Files Amicus Brief in Murphy v SEC
The Murphy case illustrates very clearly the consequences when the SEC uses litigation to expand its jurisdiction rather than engaging in the rulemaking process. This case would expand the definition of what it means to be a securities “broker” beyond what the statutes passed by Congress authorized. Had the SEC pursued this change through rulemaking or by seeking legislation from Congress, the public stakeholders, including retail investors, would have had a chance to provide input.
While the rulemaking process is not perfect and may leave some unhappy with the results, rulemaking is more fair and transparent than making changes through piecemeal litigation of individual cases not open to the public. With rulemaking, the public has an opportunity to comment and obtains advanced notice of changes, which increases the probability of avoiding unintended consequences.
As we note in our amicus brief:
“ICAN is concerned that the Ninth Circuit’s opinion may create just such a barrier to participation in the capital markets. Requiring registration as a securities broker imposes costs, costs ultimately borne by investors, and the Ninth Circuit’s ruling creates ambiguity regarding who must register and bear those costs. As a result, some potential market participants will simply not participate in some investment activity out of fear of violating an ambiguous regulatory requirement. Other market participants will incur the expense necessary to register as securities brokers in situations where such registration yields no corresponding benefits to investors. Preventing obligations (or the perception of potential obligations) to register as a broker beyond what the federal securities laws require is an issue of great importance for the public and ICAN.”
The SEC is an agency created to protect investors, but it silences the very people it is supposed to protect when it pursues jurisdictional expansion through litigation. This type of expansion is troublesome, and is further complicated when paired with the administrative proceedings we discussed above.
If investors and entrepreneurs perceive the rules to be unclear or prohibitive to good business and believe that the agency enforcing those rules is unfair, our capital markets–and the ingenuity and innovation that accompany those markets–will suffer.
AI and Improving Inclusion in Capital Markets
While ICAN’s mission is focused on fighting SEC overreach, we also appreciate and celebrate those innovators who create better public access to the capital markets despite that overreach. The impact of burdensome regulations falls disproportionately on everyday investors and favors market incumbents over those historically underrepresented.
So in addition to our SEC Roundup video series, we host “Capital Ideas” to introduce our followers to entrepreneurs, investors, and other experts to give real-life examples of those working to make investing and markets more inclusive.
We hope you’ll watch this recent episode I co-hosted with one of our board members, Dara Albright, that features Ramona Ortega, the founder of WealthBuild as our guest. Ramona was named one of 2020's Most Notable Women in Financial Advice by Crain's Business.
WealthBuild is utilizing AI to improve financial education and literacy, which are important first steps toward a more inclusive market. Ramona says in the video that “everyone should be able to get personalized financial advice on demand.” We agree and think many Americans also support more accessible financial advice. Can AI make that happen? Will regulation stand in the way? Tune in to understand what Ramona is working on at WealthBuild and how regulatory hurdles could impact their mission.
This first edition of our quarterly newsletter focused heavily on the fairness and transparency often lacking in the way the SEC operates. I thought it might be best to wrap up this message with one of the values of our organization.
“We believe that the right of average Americans to access information about the workings of government entities like the Securities and Exchange Commission, and the right to legally challenge the decisions of such entities, is one of the hallmarks of a healthy nation.”
You can read the rest of our values here. If you share in these values, we hope you’ll consider helping us by:
Sharing all or a part of this newsletter on social media with this link, or
Forwarding this newsletter to someone who might be interested in any of these topics, or
If you’re a member of the press and are covering a story where ICAN could contribute a comment or information, please reply to this email.
And last but certainly not least, consider donating to help us bolster our legal advocacy fund for small businesses and investors. Please reply to this email to discuss a donation.
Founder and President of ICAN