Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—11th Cir.: $1.5 million verdict reversed due to illegal advisory contract, (Apr 13, 2026)

By Rodney F. Tonkovic, J.D.

An adviser's failure to register led the appellate court to reverse its unjust-enrichment win, which was based on illegal investment advice.

Online firearms marketplace GunBroker.com will not be required to pay $1.5 million in fees to an unregistered investment adviser. An Eleventh Circuit panel concluded that Tenor Capital Partners should not have won its unjust enrichment claim for advisory work because its contract violated the Investment Advisers Act and was void in its entirety as a matter of law. The panel also found that Tenor owed fiduciary duties to GunBroker that were created by the Act and could not be waived by contract. The district court's judgment was accordingly affirmed in part and reversed and remanded in part. The opinion is unpublished (Tenor Capital Partners, LLC v. GunBroker.com, LLC, No 22-13911 (11th Cir. Apr. 10, 2026)).

ESOP misfire. Online gun marketplace GunBroker.com hired Tenor Capital Partners to help with an employee stock ownership plan ("ESOP"). The parties set up a three-stage process whereby Tenor would work with GunBroker from analysis of the ESOP to closing the transaction.

The parties went through the first two stages. Tenor first presented an analysis of the ESOP and an estimated valuation of GunBroker. Tenor was eventually able to attract a lender to provide financing to help create the ESOP, and GunBroker entered into a deal with this lender.

At no time during this process, the court noted, was Tenor registered as an investment adviser with either the SEC or the state of Georgia. Upon learning this, GunBroker terminated its partnership with Tenor and forged ahead with the ESOP transaction on its own. Failing to secure a good deal, GunBroker abandoned the ESOP and negotiated a different, non-ESOP financing agreement.

Suit filed. When Tenor learned about the financing agreement, it demanded a payment of $1,050,000 under its agreement with GunBroker. GunBroker sued, alleging that Tenor violated the Investment Advisers Act and the Georgia Securities Act by acting as an unregistered investment adviser and seeking rescission of the agreement. The complaint alleged further that Tenor breached its fiduciary duties by manipulating its valuation of GunBroker to induce it to enter into a transaction that Tenor would profit from and by failing to disclose that it was not a registered adviser. For its part, Tenor counterclaimed for unjust enrichment and attorney's fees.

The district court granted summary judgment to GunBroker on its registration claim under the Advisers Act and for rescission. Tenor was also entitled to summary judgment as to the claim under the Georgia Securities Act as a "federal covered investment adviser" that was exempt from registration. The district court also granted summary judgment for Tenor on GunBroker's breach of fiduciary duty claim based on a fiduciary-duty disclaimer in the agreement. Eventually, a jury rejected Tenor's request for attorney fees but returned a $1.5 million verdict in Tenor's favor on its unjust enrichment claim.

Fiduciary duty. On appeal, GunBroker argued that Tenor owed it fiduciary duties under the Advisers Act. The panel agreed. While the district court concluded that the duty was created—and disclaimed—by the parties' contract, looking to Georgia law, the panel found a duty that was created by law, that is, the Investment Advisers Act. The panel accordingly found that the district court erred in finding that Tenor owed GunBroker no fiduciary duty and reversed and remanded this claim.

Georgia Securities. Next, the district court found that Tenor was exempt from state registration because it had fewer than six clients in Georgia. GunBroker maintained that this exemption was an affirmative defense that Tenor had waived. The panel disagreed, finding that GunBroker was on notice that Tenor planned to rely on the exemption and affirmed the district court on this issue.

Unjust enrichment. Finally, GunBroker argued that Tenor could not pursue an unjust enrichment claim to recover on a contract that was void for illegality. Any work Tenor performed cannot be severed from the illegality of its initial advisory work, the panel said, concluding that the district court should have granted GunBroker judgment as a matter of law on Tenor’s unjust-enrichment claim. A contract involving a violation of the Advisers Act is void in its entirety as a matter of law, the panel explained, and this illegal advice was also integral to the financing stage of the process. The judgement was reversed and remanded for the district court to enter judgment for GunBroker.

The case is No. 22-13911.

Judge: Luck, R.

Attorneys: Richard L. Robbins (Robbins Firm) for Tenor Capital Partners, LLC. John H. Goselin, II (Pierson Ferdinand LLP) for GunBroker.com, LLC

Companies: Tenor Capital Partners, LLC; GunBroker.com, LLC

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