As part of the Wells Report in 1972, the Securities and Exchange Commission adopted its no-admit/no-deny policy. The SEC, in agreeing to settle a case, relinquishes the opportunity to present the case in court. The defendant relinquishes the right to defend the case in court, in the press, and in the eyes of the public.
The New Civil Liberties Alliance as part of its many attacks against administrative law has challenged the policy. It started in 2018 with a petition to amend the rule. Six years later, the SEC denied the petition on January 30, 2024.
The NCLA also took its legal attack to court, supporting an appeal by Christopher Novinger to get out from under this part of his settlement with the SEC. The Fifth Circuit denied his appeal this week on procedural ground. The decision is based deep on federal civil procedure and does not really get to the substance of the appeal. But the procedural hurdles may not allow an appeal.
The SEC complaint charged that Mr. Novinger fraudulently offered and sold life settlement interests by knowingly (or with severe recklessness):
- misrepresenting the purported safety and security of the investment;
- making false and misleading representations to prospective investors about his business experience ;
- failing to disclose to investors the sanctions imposed, and adverse actions taken, against them by multiple regulatory agencies;
- creating and using phony, meaningless titles for himself that were not actual, recognized designations in the financial industry – such as “licensed financial consultant,” “licensed financial strategist,” and “licensed consultant” – to create a false air of legitimacy; and
- providing investors with a net worth calculator that improperly inflated investors’ assets.
Mr. Novinger settled the case in 2016 and as part of the settlement was barred from association with an broker, dealer, investment adviser and was barred from participating in any penny stock offering. Of course, he agreed to not deny the charges against him.
Sources:
- SEC c. Novinger Fifth Circuit March 19, 2024
- SEC’s ‘Gag Order’ Policy Survives Challenge at Fifth Circuit by Matthew Bultman and Evan Weinberger
- Statement on the Denial of a Rulemaking Petition Regarding the Commission’s No-Admit/No-Deny Policy Jan. 30, 2024
- Unsettling Silence: Dissent from Denial of Request for Rulemaking to Amend 17 C.F.R. § 202.5(e) Jan. 30, 2024
- SEC Rule 202.5
- Wells Report
- NCLA Petition to Amend
- In the Matter of Christopher Novinger
