ICAN, or Investors Choice Advocates Network, is a non-profit that advocates on behalf of underserved investors and those individuals deemed to be unfairly targeted by the Securities and Exchange Commission.
ICAN supports investors’ rights, which sometimes suffer from too much government and too little freedom. ICAN believes:
“… access to capital markets, and the freedom for individuals to make informed decisions about personal investments, is essential to ensuring a robust economy, helping to empower underrepresented populations and to close historic wealth gaps that have too often been exacerbated by excessive government regulation.”
A prime example is the definition of an Accredited Investor. This SEC rule disenfranchises the masses by equating sophistication to the size of someone’s bank account – something everyone knows is not valid.
While the SEC does very important work, it can sometimes cross the line, abusing its vast authority. Few people have the resources to defend themselves against the unlimited resources of the US government, compelling some to capitulate rather than be completely destroyed – even though they may have done little wrong.
ICAN was founded by a former senior trial counsel at the SEC, Nick Morgan, who had been working in big law until recently when he decided to dedicate his experience and legal expertise to ICAN full-time.
Morgan can be seen on the pages of CI for his periodic interviews of Fintech innovators as part of his Capital Ideas series.
Last week, CI contacted Morgan to ask his opinion on what needs to change at the SEC following the transition to the Trump administration and a shift to a Republican majority at the Commission, leading to the SEC going in a dramatically different direction. Our conversation is shared below.
Significant changes will be coming at the SEC following the election of Donald Trump. Almost immediately, Trump appointed Commissioner Mark Uyeda as acting SEC Chairman, and he quickly announced a Crypto Task Force. What are your thoughts on this? What can this type of Task Force accomplish?
Nick Morgan: The formation of this Crypto Task Force under Commissioner Hester Peirce’s leadership represents exactly the kind of regulatory reform ICAN has been advocating for. The Task Force’s commitment to developing clear regulatory lines and providing realistic paths to registration, rather than relying on regulation-by-enforcement, is particularly encouraging. I’m especially heartened by Acting Chairman Uyeda and Commissioner Peirce’s recognition that the current environment of regulatory uncertainty has been hostile to innovation while paradoxically creating conditions that enable fraud.
The Task Force’s mandate to work collaboratively with the public, coordinate across agencies, and provide technical assistance to Congress aligns perfectly with our vision for more transparent and efficient capital markets. Their focus on crafting sensible disclosure frameworks while deploying enforcement resources judiciously suggests a welcome shift from the SEC’s recent approach of treating technical violations as major enforcement priorities.
This Task Force can accomplish significant positive change by providing the regulatory clarity the crypto industry has long sought. The commitment to hold roundtables and gather input from investors, industry participants, and academics suggests we’ll finally see the kind of thoughtful, balanced approach needed to protect investors while fostering innovation. This is exactly the type of reform that can help break down barriers to capital markets while maintaining appropriate safeguards.
Paul Atkins should soon be the Chairman of the SEC. What are the top items you would like to see addressed?
Nick Morgan: Having had several substantive discussions with Paul Atkins, including during our SEC Roundup interview in 2023 and during a sit-down meeting with him before my testimony before the House Financial Services subcommittee last May, I’m particularly optimistic about his understanding of the need for principled regulatory reform. His track record shows a deep appreciation for clear standards and the importance of avoiding regulatory overreach.
Based on ICAN’s mission and our comprehensive analysis of SEC reform opportunities, I believe the top priorities should be:
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- First, ending excessive punishments. The SEC must stop turning technical violations into legal nightmares that destroy careers and businesses. Commissioner Atkins has consistently emphasized the importance of proportional enforcement responses, which aligns perfectly with our goal of ensuring enforcement actions remain proportional to violations.
- Second, restoring clear standards and due process. As Atkins articulated in our SEC Roundup discussion about regulatory standards, we need clear, consistent frameworks rather than malleable interpretations that can shift with political winds. This means implementing mandatory timelines for reviews, ensuring transparent processes, and maintaining constitutional protections for all market participants.
- Third, expanding capital market access by dismantling artificial barriers that lock everyday Americans out of wealth-building opportunities. This includes modernizing outdated crowdfunding regulations and reforming counterproductive restrictions like the Accredited Investor Rule.
- Fourth, halting mission creep – something Commissioner Atkins has long warned about. We must challenge the SEC’s continuous expansion of regulatory authority through overly broad interpretations of foundational terms like ‘dealer,’ ‘security,’ and ‘broker.’ His experience as a commissioner gives him unique insight into how to establish clear, reasonable boundaries that provide certainty for market participants while preventing regulatory overreach.
These reforms would help create the kind of principled, predictable regulatory environment that protects investors while fostering innovation and growth in our capital markets.
Access to capital was ignored during the tenure of former Chair Gary Gensler; how can the SEC improve the ecosystem, including exempt offerings?
Nick Morgan: The SEC needs to significantly expand the use of exempt offerings with a greater emphasis on protecting investor choice.
Specifically, we advocate broadening exemptions under Regulation A+ and Regulation Crowdfunding. The current restrictions create unnecessary barriers to entrepreneurial growth and stem from the pernicious idea that the best way to protect investors is to prohibit them from accessing certain investments. Small businesses need efficient pathways to access growth capital without excessive regulatory burden. This would increase capital formation opportunities while providing investors with more diverse investment options.
What about the definition of an Accredited Investor and access to Reg D securities?
Nick Morgan: This is a critical issue that ICAN has been leading the charge on through multiple channels.
In November 2022, we filed a rulemaking petition asking the SEC to replace the current net worth and income requirements with non-financial metrics. When the SEC failed to act on our petition during its 2023 Mandatory Quadrennial Review of the accredited investor definition – and continued its inaction for over two years – we recently filed a petition for writ of mandamus with the Ninth Circuit seeking to compel the SEC to address these crucial reforms.
The current accredited investor definition arbitrarily restricts market access based on wealth thresholds, preventing sophisticated investors from accessing private markets solely because they don’t meet rigid financial criteria. This particularly impacts communities that have been historically underrepresented in capital markets. As we detailed in our rulemaking petition and mandamus filing, we advocate shifting focus from wealth-based qualification to knowledge and risk awareness.
Specifically, we propose replacing net worth and income requirements with non-financial metrics like educational credentials and professional certifications. This would democratize access to private markets while maintaining appropriate protections through enhanced disclosure and risk acknowledgment requirements. The sweeping economic benefits of investor-based diversification will result in better products, stronger businesses, more jobs, and greater confidence in capital markets.
The SEC’s two-year delay in acting on our petition, despite having a statutory duty to review the definition every four years, demonstrates why judicial intervention through mandamus may be necessary to achieve these vital reforms. We’re hopeful that either through the SEC’s voluntary action or the court’s intervention, we’ll soon see meaningful progress toward a more inclusive definition that serves both investor protection and market access goals.
You represent and have represented individuals targeted by SEC enforcement actions. Can you discuss how the SEC may abuse its position as a regulator with effectively unlimited resources? The SEC is always quick to post their actions but rarely acknowledges lost cases.
Nick Morgan: Our experience shows how SEC enforcement can turn technical violations into legal nightmares that destroy careers, businesses, and families. One of our current cases in the 9th Circuit perfectly illustrates this issue.
The SEC sued our clients, three insurance sales agents – Brenda Barry, Eric Cannon, and Caleb Moody – over purely technical registration violations involving whether life settlements are securities. There were no allegations of fraud, no investor complaints, and no investor harm related to our clients’ conduct. In fact, the court-appointed receiver has indicated investors will likely receive 100% of their investment back regardless of what happens with our clients.
Yet the SEC, with its virtually unlimited resources, has pursued these individuals since 2015, seeking financially ruinous judgments simply because they failed to recognize something even courts have struggled to definitively determine – whether life settlements qualify as securities under the Supreme Court’s Howey test. The D.C. Circuit previously ruled similar instruments were not securities in SEC v. Life Partners in 1996, but the SEC continues trying to expand its jurisdiction through enforcement actions.
This case exemplifies a troubling pattern we’ve observed: The SEC can file case after case, in district after district, until it either finds a favorable ruling or – more commonly – forces defendants into settlements through the sheer cost and burden of litigation. Most defendants simply cannot afford to fight back against an agency with effectively unlimited time and resources. The result is a steady expansion of SEC jurisdiction through enforcement rather than proper rulemaking, creating uncertainty that stifles innovation and market participation.
What makes this particularly concerning is how the SEC wields this power against individuals who lack legal expertise and cannot afford protracted litigation. Brenda, Caleb, and Eric were state-licensed insurance professionals who had no reason to believe they were violating securities laws. They’re now facing hundreds of thousands in financial judgments, not because they harmed anyone but because they couldn’t afford to settle.
This is precisely why ICAN was established – to provide pro bono legal representation in cases that can help establish precedent-based legal barriers against SEC overreach. When the SEC brings enforcement actions, they prominently announce the charges but rarely publicize when they lose. By helping defendants like our clients fight back, we aim to ensure the SEC’s efforts to expand its domain through enforcement don’t go uncontested.
Do you anticipate Regtech or Suptech improving the regulatory environment for covered firms? Individuals?
Nick Morgan: Regtech will be transformative, but the regulatory framework needs to evolve to fully realize its benefits. Let me give a concrete example around custody rules.
Currently, custody rules are highly prescriptive, mandating specific processes and controls. This prescriptive approach can actually inhibit innovation in custody solutions while imposing disproportionate costs on smaller firms.
A principles-based framework would be more effective. This would allow firms and customers to mutually agree on custody arrangements based on their specific needs while requiring clear disclosure of the arrangements and risks. For example, rather than mandating specific control procedures, regulators could require firms to demonstrate how their chosen technological solutions achieve the core objectives of asset segregation and protection.
This would enable innovation in several ways:
- New technological platforms could emerge that provide more efficient custody verification
- Better data integration solutions could improve transparency and monitoring
- Improved operational models could reduce costs while maintaining security
- Firms could more rapidly adapt to changing technology and market practices
The key is coupling flexibility in implementation with robust disclosure requirements and clear principles around investor protection. When firms can leverage technology investments across both compliance and operational functions, it leads to better outcomes – fewer customer complaints, less misconduct, and potentially lower costs in the long run.
However, the regulatory framework needs to evolve to support this.
The current prescriptive rules can force firms to maintain outdated systems and processes rather than adopting innovative solutions. A principles-based approach focused on outcomes rather than specific procedures would better enable firms to leverage advancing technology while still protecting investors.