Washington, D.C., March 30, 2026 (GLOBE NEWSWIRE) -- Today, the New Civil Liberties Alliance urged the U.S. Court of Appeals for the Eleventh Circuit to grant en banc rehearing in SEC v. Spartan Securities Group, et al. An Eleventh Circuit panel upheld a liability finding and financial punishment that SEC secured in district court against NCLA clients Micah Eldred, Carl Dilley, Spartan Securities Group, and Island Capital Management. SEC brought this case in 2019, alleging NCLA’s clients participated in two schemes to aid and abet the creation of fake publicly traded companies and the issuance of over-the-counter (penny) stocks. After a 12-day 2021 trial, the jury cleared them on 13 of 14 counts, including all counts that alleged their participation in a scheme to defraud or deceive investors. Only the count on materially misleading statements or omissions in connection with the sale of stocks survived.
Despite SEC’s never identifying a single victim and failing to show that any investors were harmed, the judge ordered Island Capital Management to pay disgorgement—surrendering profits—to the U.S. Treasury. This order exceeds the permissible boundaries of equitable relief, because it operates as a penalty to deter rather than a means of compensating any victims. It also contradicts other circuits’ rulings, which have recognized that disgorgement requires a victim. NCLA’s petition for rehearing en banc raises a similar question to the one currently pending before the Supreme Court in Sripetch v. SEC. The Supreme Court will hear oral arguments in Sripetch on April 20. If the Court decides disgorgement requires a victim, then the disgorgement ordered in Spartan cannot stand.
The district court order and the Eleventh Circuit panel ruling appear to have wrongfully assumed that these Defendants participated in a fraudulent scheme, despite the jury’s “no liability” findings to the contrary. That error infects both the panel’s decision to uphold the district court’s Rule 50b ruling, as well as the remedies ordered by the district court. Disregarding the jury’s verdict also undermines the jury’s role as fact finder.
Finally, the petition asks the Eleventh Circuit to consider whether these SEC penalties are subject to the Eighth Amendment’s prohibition on excessive fines. The Excessive Fines Clause traditionally considers characteristics of the offense, as well as those of the offender—including his ability to pay the fine ordered. NCLA’s clients are asking the Eleventh Circuit to consider whether treating the ability to pay on an equal footing with other court-made factors fails to fully implement the Excessive Fines Clause’s constitutional requirements.
NCLA released the following statements:
“The Supreme Court has consistently said disgorgement exceeds the bounds of equity when it operates as a penalty. Despite clear evidence that the disgorgement ordered here acted as a penalty, the panel still upheld an order requiring disgorgement to the U.S. Treasury. En banc rehearing should be granted to address this issue.”
— Kara Rollins, Senior Litigation Counsel, NCLA
“When a jury has heard all the evidence and found there was no scheme to defraud, the judge should not inflict penalties that presume such a scheme.”
— John Vecchione, Senior Litigation Counsel, NCLA
For more information visit the case page here.
ABOUT NCLA
NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.
Joe Martyak New Civil Liberties Alliance 703-403-1111 joe.martyak@ncla.legal
