The U.S. Securities and Exchange Commission (SEC) has been successful recently in cracking down on problematic lending using an innovative legal interpretation—one that has stirred unease in investment firms apprehensive about being labeled as a securities dealer. Bloomberg Law reports that the SEC’s ‘dealer’ theory reaped victory in a federal appeals court, causing investment firms to question who is required to register.
In the past few years, the SEC has sued several entities who acquired shares in penny stock companies at a discount by loaning them money. District courts in New Jersey, Minnesota, and Florida have supported the regulatory agency and found these lenders to have acted illegally as unregistered securities dealers.
The SEC’s latest triumph came last week in the US Court of Appeals for the Eleventh Circuit, further solidifying the agency’s stance against these dubious lending practices. This legal development underscores the need for investment firms to understand their legal obligations in the ever-evolving landscape of securities enforcement.