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SEC v. Spartan Securities Group

SEC accused market-maker Spartan Securities Group and transfer agent Island Capital Management of involvement in filing Form 211 applications with the Financial Industry Regulatory Authority to publicly list 19 issuers’ common stock to be traded and available to investors. SEC eventually discovered the issuers had been involved in fraud, subsequently faulting Spartan and Island for failing to discover the misconduct. The agency also claimed the companies failed to investigate certain SEC “red flags” FINRA raised. However, SEC has repeatedly emphasized the limited nature of the obligation of market-makers and rejected any view that they have a special due diligence requirement to look beyond the statements made to them by issuers of securities. 

Neither Spartan, Island, nor any of their employees were involved in creating or operating the issuers named in the complaint. They amply complied with statutory obligations, gathered all required information, and compiled reams of documents supporting the applications above and beyond the lawful requirements. NCLA argued SEC was attempting to hold the defendants liable under an arbitrary expansion of the requirements of applicable rules set out by Congress and the Commission itself. SEC’s Division of Enforcement would have held the market-makers responsible, despite both FINRA regulators and SEC examiners analyzing the same information and declaring it valid and genuine. 

In July 2021, federal jurors in the Middle District of Florida delivered a favorable verdict in the case, fully exonerating NCLA clients David Lopez, former Chief Compliance Officer for Spartan and Island. The jury also ruled in favor of NCLA’s other clients, Spartan and Carl Dilley (on 12 out of 13 charges), and Micah Eldred and Island Stock Transfer (on 11 counts out of 12), rejecting multiple allegations of fraud, aiding and abetting, as well as regulatory violations of the 1933 Securities Act and the 1934 Securities Exchange Act. 

Carl Dilley and Micah Eldred, Defendants

Kara Rollins
Litigation Counsel
John J. Vecchione
Senior Litigation Counsel
NCLA FILINGS

Defendants-Appellants' Supplemental Brief

May 14, 2024 | Read More

Rule 28(j) Letter

November 2, 2023 | Read More

Response to Rule 28(j) Letter

October 3, 2023 | Read More

FRAP 28(j) Letter

October 3, 2023 | Read More

Response to Rule 28(j) Letter

August 18, 2023 | Read More

PRESS RELEASES

NCLA Calls on 11th Cir. to Vacate District Court’s Judgment in Case SEC Never Should Have Brought

January 17, 2023 | Read More

Judge Enters Reduced Penalty for NCLA Clients Exonerated from Excessive SEC Charges

August 10, 2022

NCLA Celebrates Jury Verdict Exonerating Our Clients from a Dozen Inaccurate SEC Charges

July 30, 2021 | Read More

Jury Trial Begins in Case Challenging SEC’s Arbitrary Expansion of Rules for Securities Companies

July 13, 2021 | Read More

NCLA Files for Summary Judgment in Case Where SEC Is Seeking to Enforce Guidance Instead of Law

August 21, 2020

IN THE MEDIA

SEC Loses Jury Trial Against Spartan In Shell Factory Case

Law360

February 7, 2023

Week Ahead in Securities

Reuters

February 7, 2023

SEC Fights To Call Spartan Shell Factory At Trial

Law360

February 7, 2023

Broker-Dealer Says SEC Overstepping In Sham Cos. Suit

Law360

February 7, 2023

CASE HIGHLIGHTS

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