Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—11th Cir.: Eleventh Circuit upholds affirms fraud verdict and sanctions against Spartan Securities, (Jan 20, 2026)

By Rodney F. Tonkovic, J.D.

The panel affirmed liability, remedies, and disgorgement order against Spartan Securities and a transfer agent affiliate in a long running blank check scheme.

An Eleventh Circuit panel affirmed a district court's ruling against a broker-dealer and transfer agent charged with a microcap shell factory fraud. The defendants challenged the district court's imposition of sanctions and a later denial of a motion for judgment as a matter of law. The court upheld the jury’s finding that the defendants made material misrepresentations in FINRA applications that enabled nearly 20 blank check companies to enter public markets, The panel also affirmed the district court’s imposition of injunctions, penny stock bars, civil penalties, and disgorgement, rejecting all challenges to the expert testimony, liability, and remedies. In a lengthy dissent, Judge Tjoflat said that the SEC and the district court had "abused the process" to the point that affirming the judgment was a "manifest miscarriage of justice" (SEC v. Spartan Securities Group, Ltd., No. 22-13129 (11th Cir. Jan, 16, 2026)).

Blank check fraud. In 2019, the Commission charged Spartan Securities Group with fraud under the Exchange Act based on its taking part in the creation of nearly 20 "blank check" companies between 2009 and 2014. Spartan, a broker-dealer, with the aid of an affiliated transfer agent. Spartan effectuated he scheme by filing fraudulent listing applications with FINRA. The fraudsters then sold the companies' securities at inflated prices when they became public.

Before trial, the defendants moved to exclude an SEC expert witness and for special interrogatories on facts to determine maximum penalties. The district court denied these motions, and the case eventually ended in a jury verdict in favor of the SEC on the Exchange Act fraud count (out of fourteen counts).

Judgment as a matter of law was then denied, with the court concluding that the jury could reasonably find that the defendants made material misrepresentations. During the remedies phase, the court enjoined the defendants from violating the antifraud provisions, barred them from having any involvement with penny stocks, ordered that each defendant pay civil penalties, and ordered the transfer agent to disgorge ill-gotten profits to the U.S. Treasury.

Appeal.. On appeal the defendants argued that the district court erred in denying their motion to exclude the expert witness and the motion for judgment as a matter of law. They also maintained that most of the remedies were time-barred and that the disgorgement imposed was inequitable and the civil penalty amount should have been examined by the jury. The panel affirmed the district court's judgment.

Expert testimony. The defendants challenged the expert witness's qualifications, contending that he was a jack-of-all-trades, but not an expert on the role of transfer agents and argued that his opinions were not reliable. The panel said that the district court reasonable relied on the expert's forty-years of regulatory experience, including with the NASD, and his later experience as a consultant. As to the witnesses experience with transfer agents, he oversaw investigations were transfer agents were involved, and there is no requirement that a witness have formal education on a topic to be an expert on it. The panel similarly took the expert's experience into account in affirming that his opinions were reliable.

Judgment as a matter of law. Next, the defendants maintained that no reasonable jury could have found that the SEC proved two elements of fraud: (1) material misrepresentations or omissions (2) in connection with the purchase or sale of securities. The district court disagreed, denying the motion for judgment as a matter of law.

The panel concluded that for these two elements, sufficient evidence supported the jury's verdict.

According to the panel, there was sufficient evidence showing that made materially false statements in FINRA Form 211 applications (and in one case, communications to obtain DTC eligibility) about who was behind the issuers, the nature of the companies' business operations, and whether the entities were shell companies.

These misrepresentations were material because they concealed that the issuers were secretly controlled by individuals who intended to sell them as public shells, which a reasonable investor would consider important. While the statements were directed to regulators rather than investors directly, they were still made "in connection with" the sale of securities because they enabled the securities to trade publicly and facilitated later transactions.

The panel rejected the defendants' arguments that they merely passed along issuer statements, that the information was not public, and that the statements were too far removed from the transactions. Instead, the evidence showed they had ultimate authority over the filings, the forms could be accessed by investors, and the misrepresentations were integral to getting FINRA clearance to initiate quotations in the stock.

Remedies. The defendants made several challenges to the remedies imposed by the court. First, they contended that most of the sanctioned were barred by the five-year statute of limitations. The district court, however, had only relied on conduct that the defendants had already conceded was timely when imposing the civil penalties. And, while this case was pending, Congress had extended the statute of limitations for equitable remedies to ten years, clearly stating that the amendment applied to pending actions. As a result, none of the district court’s ordered relief was barred by limitations.

Disgorgement. The transfer agent was ordered to disgorge approximately $150,000 in disgorgement and prejudgment interest to the U.S. Treasury. The defendants argued that the Exchange Act bars disgorgement to the Treasury because equitable relief is "for the benefit of investors." The panel rejected this assertion based on its reading of the statutory text and context of Section 21(d), which—in amendments made post-SEC v. Liu— authorizes the SEC to seek disgorgement but does not limit where or to whom those profits must go. There was also no abuse of discretion as a result of repaying the harmed investors in this case being infeasible.

Civil penalties. Finally, the defendants took issue with the district court, rather than the jury, finding the facts to determine the civil penalty amounts and in not considering the defendants' ability to pay. According to the panel, the jury had already found each defendant liable for deceit, so the district court could order the penalties without additional factfinding. Plus, the panel said that the district court expressly stated that it had considered all facts and circumstances, including the defendants' financial condition.

Dissent. Dissenting, Judge Tjoflat remarked that the SEC's complaint was "repugnant to every Federal Rule of Civil Procedure governing the filing of complaints." In a nutshell, the complaint was "a quintessential shotgun pleading" that should have been dismissed at the outset. The district court ignored the defects and then took "extraordinary measures" to fill in the blanks left by the deficient pleadings when crafting the jury instructions and "in effect, prosecuting the SEC's case; this, the dissent suggested, was a reason to question the judge's impartiality. The dissent also took issue with the SEC's tactics, stating that the SEC intended to harass the defendants and put them out of business. The dissent further said that the defendants had preserved their right to appeal these issues

The majority addressed the dissent in its opinion. The defendants never argued on appeal that the case should be reversed on the grounds of shotgun pleading or judicial disqualification. Even if they were raised, adverse rulings alone are almost never a basis for recusal, and any pleading defect concerns dissipate once the case has been fully litigated through trial.

The case is No. 22-13129.

Judge: Per Curiam.

Attorneys: Daniel Staroselsky for the SEC. Kara Mckenna Rollins (New Civil Liberties Alliance) for Spartan Securities Group, Ltd.

Companies: Spartan Securities Group, Ltd.

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