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  • Writer's pictureNicolas Morgan

The Ticker Tape: Issue 2

Fall 2023


Welcome to Our Second Issue

On behalf of the entire Investor Choice Advocates Network (ICAN) board, I’d like to thank you for reading our quarterly newsletter.

In our first issue, we featured stories about three main facets of our work in fighting overreach by the Securities and Exchange Commission:

  • submitting amicus briefs on cases that have reached litigation,

  • filing comment letters on rulemaking, and

  • highlighting the everyday entrepreneurs and investors impacted by the overreach.

As you saw in Issue 1, it’s rare for SEC cases to reach litigation in a public court. With a stunning 98% of cases being settled, today we want to highlight a recent cluster of situations where business owners are fighting back. Then, we want to update you on some rulemaking that could force some companies into going public. Lastly, we'll showcase a discussion that makes an excellent case for how SEC overreach is hurting Main Street.

SEC v Jarkesy Reaches the Supreme Court

Let’s begin with an update on SEC v Jarkesy, a case that, after a decade, has reached the Supreme Court and may be part of the inspiration for the entrepreneurs recently resisting the usual path of settling.

In our first issue, we were pleased (and surprised) to share that the Supreme Court had agreed to hear SEC v Jarkesy. We didn’t expect this when, two years ago, the founders of ICAN filed an amicus brief in the 5th Circuit with Mark Cuban, Phil Goldstein, and Nelson Obus.

On October 18th, we filed our amicus brief in the Supreme Court, which you can read on our website. Here is an excerpt:

“Unlike defendants in federal court proceedings, respondents in SEC administrative proceedings are not afforded the right to a jury trial or the benefits and protections of the federal rules of evidence and procedure. Instead, when the SEC elects to use an administrative proceeding, whether before an ALJ or the Commissioners of the SEC, the SEC itself is the sole fact finder and determines a respondent’s liability and punishment without the involvement of a jury. Such proceedings contravene the protections guaranteed to litigants by the United States.”

The filing of our brief caught the attention of the Washington Times. They wrote:

“Through a nonprofit group called the Investor Choice Advocates Network, or ICAN, Mr. Cuban and Mr. Musk filed a friend-of-the-court brief bashing the SEC for sometimes allowing jury trials while denying them at other times, depending on what the SEC thinks will lead to the better outcome for the agency.

“The unequal application of constitutional principles made possible by the SEC’s unfettered forum shopping discretion erodes faith in public institutions at a time of new lows in confidence in these institutions,” ICAN’s lawyers argued.”

Mr. Cuban's and Mr. Musk’s backing certainly helped to bring this case into the spotlight. To understand the experience of dealing with the SEC’s process more closely, 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. Oral argument in the Supreme Court is November 29, so stay tuned for more developments.

Is George Jarkesy’s case inspiring a wave of backlash against the SEC? According to recent news, Citadel may be preparing to push back on the regulator if they move against the hedge fund in the continued WhatsApp probe. According to a recent Wall Street Journal report (Wall Street is Furious over Rising Fines from SEC), high-speed trader Virtu is one of many firms deciding to litigate with the SEC rather than settle.

Let’s introduce you to another entrepreneur who, despite the incredible cost and time, decided to fight back.

How CapWealth Fought the SEC and Won

A common misconception is that “if they settled, they probably did something wrong.” Most people are unaware of the staggering statistics or procedures relating to SEC cases. Even if someone believes they did nothing wrong, it’s often a prudent business decision to settle anyway, knowing what lies ahead.

CapWealth founder Tim Pagliara knew that, as a matter of principle, he had to commit the resources to go to trial against the SEC. He won, and as he discusses with us in this interview, the trial exposed an extraordinary lack of merit for the SEC’s claims. We hope you’ll watch this episode and hear Tim’s profound experience.

Our co-founder, Thomas Zaccaro, also explains in this episode that the SEC is an “irrational litigant” in that it’s run by salaried government employees, knowing they can spend more to pursue the case than they’d get in remedies.

Would the SEC be as much of an “irrational litigant” if they didn’t settle 98% of cases? Or if they had to bring their actions to an impartial federal court with evidence and procedural protections for defendants?

We’re encouraged to see more regulated entities fighting back and speaking out. At ICAN, we’re actively working to raise funds to represent businesses that don’t have the financial resources to pursue litigation. You can contact us about donations by replying to this email.

Will SpaceX and Other Unicorns be Forced to Go Public?

Did you know that a company can be forced to go public? Current rules require a private company to follow SEC reporting and regulation protocols if they exceed a specified number of shareholders or non-accredited investors.

Of course, private companies have been aware of this rule and have been able to manage their shareholder counts accordingly to maintain their choice of staying private. But what if the definition of “shareholder” were to change?

There is current rulemaking under consideration by the SEC to do just that, and it could bring major changes–including forcing Unicorns like SpaceX to go public.

We discuss this situation and the potential consequences with John Gulliver in this episode of SEC Roundup. You may recognize John from his recent Opinion article in the WSJ: “The SEC Targets Private Capital.” In the article, John says:

“The SEC’s new private funds rule is only the beginning. The SEC realizes that public markets are shrinking and private markets are growing. To protect public markets from shrinking further, it has scheduled in its fall regulatory agenda a full frontal attack on private markets.”

John expands on this notion in our discussion with him. Is it possible that public markets have been shrinking due to burdensome regulations? As you saw in our previous section, even when companies like CapWealth adhere to demanding regulations, they can spend millions proving they were compliant.

Shrinking public markets also limits investment opportunities for everyday individuals. We’ll talk more about that in our next segment, featuring the latest episode of our Capital Ideas series hosted by myself and ICAN Board Member Dara Albright.

Our Talk with Omi Bell, CEO of Black Girl Ventures, on Microfinance and Access to Capital

We weren’t surprised to see Crowdfund Insider publish an article about our recent interview with Omi Bell because of the fantastic perspective she gave on a variety of topics. Our discussion ranged from the challenges accessing capital for black and brown female entrepreneurs to the changing finance needs of small businesses and the increasingly outdated SEC accredited investor definition hindering growth and opportunities for Americans.

Omi explains the changing landscape of small business creation in America, which was undoubtedly further shaped and accelerated by the pandemic. At Black Girl Ventures, Omi focuses on de-risking the organizations she works with to make them more attractive to investors. She noted the trend of an increase in business creation but with fewer employees per business. With this trend has come an increased demand for microfinance opportunities.

Unfortunately, the growth potential is hampered by the SEC’s accredited investor rules, which Omi herself has testified to Congress about. We think Crowdfund Insider captured the crux of the issue very well:

“Bell highlighted the need to reevaluate the SEC’s accredited investor definition, a reform she has advocated for passionately. She questioned the rationale behind the requirement of a million-dollar net worth, tracing it back to the 1980s when such a figure held more weight. She argued that this definition limits access to investment opportunities for a significant portion of the population. In an era of technological and economic advancement, it is crucial that financial regulations adapt to the changing landscape.

Approximately 99.7% of companies are private, limiting access for non-accredited investors. This statistic underscores the urgency to reevaluate regulations and provide more inclusive investment opportunities.”

As you’ll hear in the interview, Dara highlights that there are only about 4,000 publicly traded companies, limiting choice and opportunity for everyday investors who can’t access private opportunities because of the accredited investor definition.

While it can be easy to think that the SEC’s drag on the markets is just a “hedge fund problem,” one can understand by listening to the interview with Omi that this is very much a Main Street problem for everyday Americans, too.

Wrapping Up

While the overreach of the SEC can seem overwhelming for those regulated (or potentially regulated) by it, we’re incredibly energized by this recent wave of people trying to bring attention to the issues. With attention and public discussion can come improvements that make the regulated markets safe, fair, and productive for our country.

With this momentum, there is much for ICAN to do. Are you interested in helping our mission? Please consider:

  • 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. We have a convenient form here to donate by credit card, or please email me to discuss larger donations by check.

With thanks,

Nick Morgan

Founder and President of ICAN

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