U.S. Securities and Exchange Commission dismisses three enforcement lawsuits alleging unregistered dealer activity

SEC Commissioner Caroline A. Crenshaw issued a statement following the U.S. Securities and Exchange Commission’s dismissal of three lawsuits that alleged firms acted as securities “dealers” without registering, criticising the decision as a retreat from enforcing statutory registration requirements and related judicial precedent. The dismissed cases alleged that established businesses purchased debt from small issuers, converted that debt into newly issued stock, and then sold the shares on the open market at high volumes and frequencies, transacting in billions of shares and generating millions in profits. Crenshaw noted that courts had already found the SEC’s allegations sufficient in two of the matters and rejected arguments advanced for dismissal, including that the dealer definition implicitly requires “customers” or that applying it to the fact patterns at issue would improperly sweep in investment advisers and hedge funds; she also pointed to the investor protection and market oversight functions tied to dealer registration, including financial responsibility and risk management rules, reporting obligations, operational integrity requirements, books and records rules, and examination and enforcement by the SEC and self-regulatory organizations.