The Founder’s Blind Spot in SEC Scrutiny | with Nick Morgan | Founder’s Office™ Lunch & Learn

Hey there, it's, uh, Tom Powell here with Lunch and Learn. Joining me today is one of our co-founders, Candice Powell, uh, from our family office. And you guys have a release this week of WTF, Women Talk Finance.

We do. Yes. Thank you.

For a person who's not on social media, how the heck do you have a podcast and what are you doing?

There.

Yes, you're, you're correct. I pretend like it's actually a really good thing for me. All I do is I just have awesome conversations with one of my best friends.

That's true.

Really cool guests. Just like this, I'm just hanging out with my dad and awesome guests.

Kind of, kind of a cool experience. Well, I got to tell you, for those of you that have not checked it out, you can go to Spotify or wherever you like your podcast, Go check out WTF, Women Talk Finance. And I am probably the number one recruiter for their guests because I'm always finding super cool guests along the way.

You're our number one promoter.

I am.

You're our dance mom. I'm Honey Boo Boo.

You gotta see this stuff. So it's super cool. Women Talk Finance out there. We talk about women need to be more involved in the financial sector, as we know, uh, and that, uh, this is one of the ways we can do it. But let me tell you about— most founders spend years thinking about growth valuation, hiring, product, and capital. Very few spend enough time thinking about the regulatory architecture quietly building underneath the business until one day they have to. Because sometimes it's not the market that changes the trajectory of a company, it's one filing, one investigation, one disclosure issue, one misunderstanding around capital formation compliance or securities law, and suddenly the founder's no longer focused on scaling, they're focused on survival. That matters because most founders are not trying to break rules. They're trying to build companies while navigating increasingly complex regulatory systems with real consequences attached to them. I should know. And that brings us to today's conversation. Our guest has seen this world from both sides. Nick Morgan served as a senior trial counsel at the SEC. Today, as the founder and president of ICANN, he works with founders, investors, and operators navigating the growing intersection between regulation, capital formation, Enforcement Risk and Constitutional Boundaries. What I appreciate about Nick is this: he does not speak from theory, headlines, or commentary. He lived inside the enforcement system itself and also inside the defense system. He understands how investigations unfold, how decisions get made, where founders get exposed, and why understanding the structure matters long before the problems appear. So whether you're raising capital, serving on a board, scaling a company, managing investor communication, or simply trying to better understand the realities founders face in today's environment, This is going to be an important conversation and a timely one. Please help me welcome Nick Morgan.

Wow, Tom, that was a nice introduction. Thank you.

Isn't it great what my staff does for me?

Uh, well, I don't want to cut you off if you were going to ask me a question right out of the gate, but I'm going to take issue with one word in that introduction.

Please do. You're a lawyer, so you get to.

Yeah, that's my thing. Uh, navigating. So you alluded to the fact that I spent a long time at very large law firms. And I would say when I was at the large law firms, that was an accurate description. I helped clients navigate through the SEC process and specifically the enforcement process. Today at ICANN, I would use a different verb. I would say challenging, pushing back. I am no longer, thankfully, Although there is a good and proper place to help people navigate through these things, I am no longer in the navigation business. I am in the reform, change, challenge business at ICANN. It's a completely different model, as you know. I—

well, intimately. So to be on both sides, I've gone up against the SEC. I presently am going up against the SEC, hopefully in the Supreme Court, which, by the way, We had 16 amicus briefs, amicus briefs, either way. I apparently is okay to say it however you want to. I've been told, huh?

It's Latin or Greek.

You take Latin or Greek, whichever way you want to say it. But I have 16 with the most notable of all of them from Mr. Nick Morgan and I.

Thank you so much. Thanks. I don't know if it was the most notable, but we were happy to chime in. Uh, I don't know if you want to get into that case right away, but it's, uh, an insidious policy by the SEC that challenging, and I applaud you for trying to take it to the Supreme Court. It's a good rule to challenge.

I believe it's unconstitutional what they do. I am not saying the SEC is unconstitutional, and neither of us think that the SEC should be abolished or that you don't need to have regulators. Industry needs regulators. But like Madison would say, you know, humans are not angels. And so they— when they have absolute power, there definitely has to be checks and balances. And in many cases, the SEC enforcement in particular runs without checks and balances of any side. And so that's what ICANN does. And that's what I love about you guys. And that's why I agreed to sit on your advisory board. Right.

Glad to have you. Yes.

Full disclosure on that. And it's because for those people that are out there and understand about raising capital at some point, and I've been sitting on regulatory boards for, I don't know, 35 years almost, I think, in various cases. So being in industry and also sitting on the regulatory boards is very important to me. And in this case, I'm actually not sitting on the regulatory board. I'm sitting on the board of somebody who I believe is a watchdog of the regulatory board because they have gotten way outside of their boundaries and their skis in certain ways. And you said something else important. You know, my wife made a really good point about our legal team, of which we spent over $4 million on an inquiry, right? And never got— went to court. That was— it was only administrative. We resolved it with a settlement. They made it look like we did all sorts of bad deeds even though nothing was adjudicated, right? They get to write these press releases over and over and over again, uh, type scenario. But she, she realized at the end of it that our basically legal counsel was just process. They were process-oriented. They believed that it's getting through a process with the SEC. There's checks, here's what it goes. And I I always was thinking as, you know, my civil kind of law person saying, well, no, they're looking for the truth.

Well, this is probably a bad time for me to come to the defense of big for-profit law firms, but having spent a large part of my career there, I can say that is both a good description that law firms and compliance folks are in the business of getting you through the process. And then a little bit in their defense, because it's what I did for a living. That's mostly a rational response to what most clients want. Most clients don't want to challenge or fight with the SEC. That's oftentimes not a rational approach. So most clients want— I'm not saying you fit this, but most clients, what they want to do is they want— if the SEC comes, they want to resolve whatever issue the SEC raises. They want to put it behind them and they want to get back to what they're best at, which is whatever line of business they're doing. So, so what has evolved is very much a process-oriented relationship between the regulator and the law firms representing people in front of the regulators. And that's what I did. So I'm, I'm, uh, but I mean, maybe this is a good segue into the, the reason we started ICANN. The reason we started ICANN is because we saw that, that phenomenon, and we said, who's, who's arguing for reform. We've got this big federal agency arguing on its own behalf to increase its authority, to increase its footprint. Who's arguing the other side? It's not the process-oriented law firms. And most defendants, respondents, clients are not arguing for reform. And so my then-law firm partner and I said, we need another voice. And in fact, we encountered— when we were starting to look for voices who were out there trying to change things, we encountered Peggy Little at NCLL. NCLA. She was fighting on behalf of someone we've come to know, Michelle Cochran. So there were a few voices out there, and I would single her out as one of them, trying to push back against the SEC. But we thought there weren't enough. And so while we were partners at a big law firm, we created ICANN as a 501. Hit that donate button. As a sort of side project when we were at the big law firm. So that we could have a vehicle that could make arguments that we just— they weren't being made by anyone. So one of our first things that we did at ICANN, we were still practicing law full-time at a law firm, so we couldn't do a lot. But one thing we could do is to file amicus briefs or amicus briefs or both in selected cases. And one of our very first things that ICANN did was to file an amicus brief in an NCLA case on behalf of Michelle Cochran. And we were able to get onto our brief along with ICANN, Mark Cuban, and got some notoriety and then filed a similar version of that brief in the Supreme Court. So that's really why we started ICANN, is because we wanted there to be a voice out there that was arguing, hey, the SEC has gone too far this time. This is really excessive. This should be trimmed back. And didn't see those arguments being made, uh, by and large by the existing structure.

How many SEC former, uh, enforcement and within the SEC in total were part of the amicus brief for Powell v. SEC?

It was another one we just filed. That one, I think we had a dozen. And if I wanted to— yeah, if I wanted—

could have had more. More.

Yeah. But most of them, if you, you look at each one of the the former SEC attorneys who joined, they tend to be at smallish firms. Not, not all of them, but I think there's a reason for that. I'm not, not saying that any large firm shied away from being critical of the SEC, but large firms have a variety of different clients who are trying to have a relationship with different parts of the SEC. And large law firms, like large organizations generally, tend to have more bureaucracy. So the dozen lawyers who joined us tended to come from smaller firms.

I loved— we would at times, and Brian, who was our counsel, our lead counsel for our stuff, we would joke at times with him that I know you wish to be the next SEC chairman appointed to the role, but sometimes you actually have to be my advocate. So he's worried about not getting invited to the Christmas parties and different things. And that's big law, right? I mean, it is the reality of it.

Yeah. And I maybe would put a little more gloss on that.

I know I'm kind of crass. I'm kind of crass.

No, not at all. But I mean, it may not be so much as trying to be a point of get a job in the revolving door back at the SEC. Might not be the goal. For some people it might be. But another objective of trying to maintain a good relationship with the SEC is that it's smart because you're going to have other clients, you're going to have clients who are dealing with different parts of the SEC. And so if you, in representing one client— and I think most lawyers do zealously represent their clients— but, oh yeah, if you do it in a way that offends the staff and then you have to turn right around and deal with them on another case under other matters, that doesn't go over well.

Yeah, I know. I just, I, I just was kidding with him in all truth because I know he was a good advocate for us and did his absolute best. But it is a process, and most people never, never, never understand that it's a process, and it's a long process. Ergo, after 4 years, $4 million, almost 5 years, $4 million, and the fact that they were calling my family and employees in for, uh, testimony type scenario where that is— that those depositions are just grueling. It's painful. So most people settle.

Yeah, that's right.

For those— so we have— it's mostly founders on this, this Lunch and Learn, and a lot of these founders are, if they're not already actively in a capital raise or have had a capital raise in the past, maybe they're pursuing a capital raise in the future. Some of this may be a new conversation for some of the people on this call, and so we've kind of jumped ahead. Can you walk through the process of what actually— what we're talking about? Because people may not realize this isn't, um, like most investigations, and the process typically doesn't go in front of a judge, um, or comes to some sort of factual-based, you know, uh, let's— resolution. And, and, and your, you know, your peers are taking a look, or, you know, the kind of the process that I think a lot of us assume is what happens both in criminal and, and civil matters is kind of this like, you know, really deep investigative process. I, I think it'd be helpful for people to understand How much of this is actually more settlement-based than truly—

right, yeah, yeah, that's a great point. So, um, I think probably if I were trying to put my mind back into a layperson's understanding of the legal world, normally our encounter with a legal dispute is maybe we've got a counterparty, commercial party, a former employee, whatever, and we have a dispute brewing, and then somebody files a lawsuit, and that's, that's when the process starts. And there's a process in lawsuits called discovery where you can one side can give the other side, you know, a requirement to produce documents and you can have subpoenas and so forth. It's that whole process in a normal litigation dispute is all presided over by a judge. And if anyone feels like they're being mistreated, you can go to the judge and say, hey, this isn't the way it works. But as you alluded to, Candace, the SEC investigative process doesn't work like that. So first of all, when the SEC initiates an investigation, there is no lawsuit. There is no judge. This is the SEC, and they'll be the first to describe it this way, as a fact-finding job. They're trying to figure out if someone violated the law. They have subpoena power once it's a formal investigation, and they can send subpoenas to you, to your bank, to your clients, to your friends and neighbors, and they can compel testimony just like we see, like in the TV and in litigation, you see depositions. These are like that in that they are compelled testimony. They're on the record. But they're not like that in that there is no judge.

Right.

So if— not that this ever happens, but if the staff attorney is abusive on the record or goes on for too long, the federal rules of civil procedure that apply in courts don't apply to these proceedings, these deposition-like things. If the SEC issues document subpoenas to you, your bank, whoever, that are overly broad and ask for every piece piece of paper you've had for the last 5 years, that's okay. There's no judge to go to. I mean, technically you could go to federal court, but you would be outing the fact that there was an investigation and you're likely to lose anyway. So there's no judge overseeing the process. So what ends up happening is I think the average SEC investigation— remember, this is all pre-lawsuit— is 2.5 years, and it can go a lot longer than that. That's just an average. Um, so if you're on the receiving end of an SEC investigation, and, and remember that a lot of SEC investigations end with just being closed or the settlement, there's never a lawsuit, there's never, um, something like 98% of all investigations.

That's the stated, that's the stated fact from the SEC, and I don't know whether that refers to litigation or pre-litigation, but it's 98% of, of investigations end in settlement. Not investigations, but 98% of actions or pre-actions or whatever end in, in 98% in settlement. And they win when they do go to court on those 2%, they win 98% of the time. And that is because they bring the whole force of the U.S. government and the resources against whoever that is. That doesn't mean there's not bad actors, because there's absolutely bad actors.

Yep, yep. So for a founder, you could, uh, be subject to an investigation for a number of years that may— where the SEC doesn't really know what the violation is that they're looking into, and they may not and usually don't decide what the violation they think occurred. They don't decide that till the end of the investigation, and then they come to you and they say, okay, we think this violation occurred and, and we think you should settle And so you have that conversation with them before there's ever a lawsuit. And, um, they, the staff who conducts these investigations do have to get approval by the politically appointed commissioners, uh, to actually bring a lawsuit. Um, but they very much want to bring, uh, a whole settled package in a tidy bow. So there's a, there's a lot of pressure that they can put on someone to, um, enter into a settlement.

And if I can, so 2 and a half years, just kind of through this first process, do you have any idea of what the average cost of— I mean, and I mean, we all know council is— there's a spectrum, right? You can have your brother-in-law who does some, you know, land use, you know, attorney work, or you can hire a big firm. Who has— that's what they do, they do SEC, you know. Um, so I realize we have a spectrum here of like the attorneys that you may hire. Um, but do we have an average of cost that people are spending maybe per year or in that investigative period?

I don't have an average.

So Nick, she's asking how much does a big law firm attorney—

I know how much—

we know how much though, we know how much the pro bono attorney makes, but how much does the big law firm attorney work make in a range?

Well, so first of all, you're absolutely right that there's a vast variety of levels of complexity in the underlying matter, a big variety in the type of law firm lawyer. But the answer to— let me answer it in two different ways. You can spend as much as you want to spend. There is no upper limit. So, if you go to one of the bigger law firms, you know, one of the biggest law firms, they are capable of putting together an army of lawyers on your behalf. Which could be very reassuring and could run you $1 million a month easily. So, so that's— put that sort of at the upper range. And this is all pre-litigation, you know. Oh, we're going to do our own parallel investigation. We're going to gather all the documents and more that the SEC might look at, and we're going to anticipate every move they might make so that we can position you as good as possible. So that's at one end. The other end, you might get a very talented sole practitioner who's doing the best they can, who's going to charge you you know, $500 an hour would be extremely cheap these days for an SEC.

Right.

You'd be hard pressed to find anybody charging that kind of hourly rate. So, so there's a— it's difficult to average that. But let me also just— for a typical SEC investigation, you're talking about hundreds of thousands of dollars at a minimum if you want to do it right. And if it's a matter of any sort of complexity, it's not going to be tens of thousands of dollars. And you probably could avoid getting into millions of dollars if you, you know, do it in a certain way and it's not too complex, but very easily gets into the millions of dollars for a, I would say, mid-tier, um, in terms of hourly rates firm, in a mid-tier complexity matter.

So the 98% settlement rate, how— I mean, and, and we're— this is fully like just us hypothesizing here, but like, how much of that is just fatigue, both financial fatigue and fatigue from fighting a battle after several years? Um, because several hundred thousand dollars, even if that's what you can keep it to on the lower side, I know, I mean, we— millions. Um, that's, that's a lot for founders, especially, you know, Really, any size founder, that's really difficult.

And that's just the dollar cost. In terms of disruption of the business, emotional cost, it is difficult to have to sit under, you know, testimony multiple days, maybe being called back for additional testimony, having to respond to additional requests for information. It's disruptive and it's emotionally exhausting too. So Now we know that because the SEC imposes gag orders on anyone who settles, that people are not free to say that once they settle. They can't settle and then go out and have a press conference the next day and say, oh, I only settled because it was super expensive. I was exhausted by the process. I wanted to get on with my life. You can't say that. So if you go looking for examples of that, you won't find it because people can't say it. but what you can do is you can look at people who had enough money to fight. So for example, uh, there's a billionaire you may have heard of named Mark Cuban. Um, he was sued by the SEC and he said, you know what, I didn't do anything wrong. I'm going to fight. So he famously said he spent something like $14 or $15 million to get through federal litigation, to get in front of a jury. The jury found him not liable. And he was free to say, I spent all this money. I'm, I'm privileged enough to have the resources to be able to do it, and I had the fortitude to go through with it and do it. Um, most people don't have that ability. But, um, and then, you know, he talked all about the shortcomings of the SEC's case in, in the litigation to the press. Um, but you don't hear stories like that from people who settle because people aren't allowed to say it.

No. And he was fighting a case that at total was $750,000 total.

Yeah, it was an insider trading—

12 to 14 $14 million, right? And most recently, you had Elon, who's just settled— his trust settled, he settled, or he's going to be released for $1.5 million, uh, on the Twitter, uh, you know, doing that, uh, scenario. And what's interesting on that is even Elon Musk signed the gag order, or at least his attorney signed it for him, which is really interesting because this has been an ongoing thing, which is— and by the way, only the The Commodities Trader Trading, uh, uh, CFTC. Yeah, CFTC. If I said that, nobody's gonna even know who that is in most cases. So, uh, and the SEC are the only two federal agencies that have this gag order, which is once we get done beating you up in the jailhouse confession, uh, and we put it in front of you— because by the way, they write the confession. They write the offer basically, and then they write whatever they want to say after the point, which I'm not— I'm, I'm saying a little bit tongue-in-cheek, but it's true. Uh, and then they put it in front of you, and in most cases you really can't negotiate much. Maybe a little bit of words here and there, but you don't get to negotiate much. So our settlement— and we're going to leave the subject— but our settlement, we were spending what my settlement was, which I settled for $75,000 I was spending that each month or more on our council. So it's just an economic scenario at the end of the day, right? It's like, we're not— we have no fault here at this point, as we were— as we're getting ready to sign that. Now, of course, now I have to say, no, we had no fault. We neither admit nor deny, uh, can't say anything else along that line. And that's what we're actually fighting in court. Um, let me tell— so let's move to this. Angela, will you pop up How You Give, because this is actually a, a couple cool things that's going on here. This is how you get in touch with Nick, and then, uh, he also is— it is a nonprofit. So he goes from working at big law making big money, uh, to, uh, now, um, working with me on how to raise money, which that little Donate Money Now button down there, uh, we'd love you guys to send in some money because Together, this office at ICANN and then with some other people out there, groups out there such as Cato and, uh, NCLA and a number of others that are good friends of the organization are helping to make the SEC a better, fairer, uh, regulator in, in that world and taking on cases not just at the federal level, but actually on the state level as well. So Nick, can you tell some of the ones that you've backed and have won, horses that you've put out there and, and they've ended up winning?

Yeah, yeah. And thanks for the plug. So you're right, we're a 501. Uh, I did take a vow of poverty to run ICANN, uh, when I left big law. Um, but really we're doing it because we want to make the capital markets better and not so terribly terrifying, uh, as it can be with the SEC, uh, acting the way it does sometimes. So our very first case, when we— when I left the law firm and was running ICANN full-time in 2024, we represented a founder and his name was Joseph. Joseph was just completed a Reg A+ offering. I think it was one of the first ones. And a requirement of that kind of offering was that he have a CPA involved. So he hired one. And he had raised about a million bucks. And the CPA, or the person he thought was the CPA, came to him and said, ah, uh, gee, I'm not a CPA. And so Joseph said, that's not good because we already raised money on my belief that you were a CPA. So Joseph went to the SEC and self-reported, uh, and said, hey, we've raised under this particular exemption, um, and, and we thought we had a CPA. We don't. So, uh, the SEC responded by suing Joseph in federal court. Did not allege that he committed fraud, did not allege that he had misused investor money. He was trying to start a company that would create streaming entertainment for urban audiences. They didn't suggest that that's not what he did. They said, like, like he told them, you raised money under this exemption, you didn't have a CPA, therefore you, you did not qualify for the exemption. And what the SEC was seeking in court was what's called disgorgement, which is where the SEC requires a person to give up that— what the SEC calls ill-gotten gains— and a penalty. So there are two different things. Um, we knew that the Supreme Court had put limitations on the SEC's ability to get disgorgement. Basically, they wanted Joseph and his company to write a check equivalent to every single dollar that he raised to the SEC, not to, not to the investors, but to the SEC. So we knew the Supreme Court had put limitations on that. So we fought back and, uh, the amount that the SEC requested from the judge was hundreds of thousands of dollars. I think it was about a million dollars, what was raised. And the judge, after we got involved, awarded $0 of disgorgement. So that was our first case out of the gate, and it really kind of exemplifies what we're trying to do. If you're out in good faith trying to start a business and raise money and you have an inadvertent foot fault, the consequences should not be life-ruining. You should be able to try and work something out and move on with the business. This SEC lawsuit destroyed the business. Because, and I tell you, there were two, two of the best phone calls in that case were when we heard about the case. Another lawyer told us about it. Joseph had run out of money. He paid his lawyer money. And about 6 months into the case, this is a federal court case, he ran out of money. The lawyer understandably resigned, not working for free. And so Joseph was representing himself in the case. The SEC, at a time when he had no lawyer, filed what's called a motion for summary judgment saying We win. The judge said, okay, uh, you win on the law, SEC, but I want to hear more about how much penalty and discouragement I should award. Joseph said, I'm looking for a lawyer. He couldn't find one. The court said, look, Joseph, if you don't get a lawyer before the end— it was like one of these high noon situations— you don't get a lawyer before December 31st, I'm just going to grant the SEC's motion on the basis that they've asked for. So we found out about it. And then like New Year's Eve day, I got to call Joseph and say, Joseph, hey, I'm with ICANN. We'd like to represent you in your SEC litigation. He said, that's great, except I don't have any money to pay you. And I said, well, good luck for you. We're a pro bono organization. We will charge you $0. And he's, ah, this is amazing. So that was phone call number one. Phone call number two was to the SEC litigators. Who just on the doorstep of winning the case and getting a massive monetary judgment, all of which would have gone to the Treasury, by the way, because there were no victims. And we had to call the SEC and say, hey, I, you know, gee, I know you're just waiting for the judge to sign the order you put in front of him, but we're going to represent Joseph and we will be filing our opposition brief shortly. And we did. And the judge ruled in Joseph's favor. So that's the kind of case that we're looking for, where it's a person not accused of fraud, not accused of stealing money. Uh, it's where the SEC is overreaching. In that case, we believe the SEC was ignoring Supreme Court precedent, uh, in pursuing this kind of victimless disgorgement. There's another case in front of the Supreme Court right now on that issue. Um, so we're looking to help individual people in SEC matters in cases that will benefit a much larger audience.

And I think that case Yeah, this isn't to scare the crap out of our listeners and people that are watching this, but you've got another one where the gentleman passed away, right? A reason.

Yeah, yeah.

Can you talk about that one as well?

Yeah, uh, so JD, uh, purchased in a small microcap company, purchased a convertible debenture, which I'm sure your audience knows is convertible into common stock. Um, he hired a lawyer, to determine whether or not this, uh, convertible debenture could be converted and sold into the public marketplace. The lawyer, uh, wrote up an opinion letter saying yes, it can. So he bought it, he converted it, he sold it, and he made a bunch of money. Um, the SEC then came in, of course, years after the fact, and said that the people he bought it from had engaged in fraudulent backdating of documents that made it appear, even to JD, our client, that it was okay to sell this into the public marketplace. So the SEC sues those people alleging that they committed this fraud to backdate some documents and sued JD. And in the case against JD, they explicitly said he was not aware of any of this stuff. They actually sued his lawyer that gave the opinion letter and said the lawyer missed a bunch of red flags in issuing the opinion letter. And they sued JD saying, you know what, when you converted and sold, That should have been a registered transaction. You didn't file a registration statement, so we want disgorgement of every penny that you got from those transactions. Uh, JD sadly passed away during the case. He was over 80 years old and, uh, you know, not accused of fraud, not accused of harming anyone. In fact, we got an expert witness who said none of his trades had any adverse impact on the public market at all. Um, And so it was another case where we had a number of reasons we wanted to take the case on, but he couldn't afford counsel. He didn't commit fraud, didn't steal anyone's money, didn't harm investors. And there were issues in his case that applied to a broader part of our community, our capital markets community.

Nick, you mentioned discouragement. Can we talk a little bit about that? Because I think that we see that in the You know, it's, it's put out there in articles, and I think a lot of us go, great, the investors are getting— they're getting— the little guy's getting their money back. Can we talk a little bit about that?

Yeah.

And is that the case every time?

Yeah. So there is a case pending in front of the Supreme Court right now. Uh, the gentleman's name is Sripetch. Uh, so Mr. Sripetch is presenting an issue to the Supreme Court. Can the SEC get this disgorgement if it's not for the benefit of victims? In other words, does the SEC have to show that someone was harmed before they can get this disgorgement? And these disgorgement numbers, that's— it's separate and apart from penalties. So if someone violates the law and no one's harmed, you can still get penalized. You can still have to pay a monetary penalty even if no one was harmed. So that's penalties. Disgorgement is any money that you got as a result of the violations in the SEC's view. So yeah, I think there's a common belief that, um, this is the SEC's way of getting money back to harmed people. But the issue is, can the SEC get disgorgement even if there are no harmed investors? And that's the issue that's in front of the Supreme Court right now. Um, my view is the Supreme Court already answered that question about 5 years ago in a different case, but the SEC sort of ignored And so here we are back at the Supreme Court. But there's, there's a massive amount of money that the SEC collects with the idea that it's going to be returned to investors because the SEC has such a hard time finding victims and getting the money back to victims that there's an account at the U.S. Treasury Department called Held for Distribution. And if you look at the, the SEC reports this every year, what the balance is in that account, if you look over the last 5 years, It has ballooned. The most recent report from the SEC was in January. The held-for-distribution account currently has $5.1 billion with a B. With a B. Yeah, with a B. So even in scenarios where the SEC says it is going to distribute the money to victims, and that sets aside all the cases where it says, oh, we don't need to prove that there were victims, the money goes to the Treasury. And in the vast majority of cases, it sits in this held for distribution account.

And I'm sure it's— I'm sure it sits there kind of like, you know, your money sits in your checking account because it's actually there, right?

Yeah. Oh, this is—

it's there on paper.

Yeah, yeah.

By the way, uh, having watched those accounts, which is very interesting, the SEC then appoints outside counsel to help in the distribution who bills that account monthly. And draws down the balances, never seemingly finding many investors who actually get paid. But it's another— I mean, maybe that's the part of the game to get into is be on the other side of that where you get appointed by the SEC to be outside counsel to manage it. All right. I'm changing. I'm changing tactics.

Okay.

This show a lot of times is about raising capital for our founders because we believe no matter where they are in the process, even if it's just putting in their own money, they're constantly raising capital all the way through the point that all founders exit. Most not on their timeline or choices, but they do exit. And so how do we maximize that capital so that it's capital aligned? And you and I had this conversation, actually, believe it or not, Nick and I are friends. We're doing work together, different things. I'm a donor to Icahn, and he has somebody call me up and say, hey, we want to get your feedback because you're a donor to Icahn. You know, can we go through this? And I'm like, well, yes, we need to go through this methodology for raising capital because this is what they need to do as a nonprofit. And I had done as much capital raising in the nonprofit as for the for-profit world. And so all of a sudden Nick's like, wait, you know how to do this?

Let's— right. Had I only known. How do we get you on board?

So it really comes down to having that, you know, what is the challenge Uh, you know, Nick Morgan, what problem are you solving at ICANN?

Yeah, we're solving the, uh, the fear that SEC overreach creates in people who just stay away from the capital markets altogether. Uh, you know, if you, if you know, you read stories about people who interact with the capital markets and the SEC, and you say, that sounds terrible, um, because the process is bad, the punishments far outweigh the violations. Yeah, we want to take that fear away. If you're a founder, you can go to a bank and get a business loan. That's not accessing the securities markets. So you can avoid all this problem by going to a bank. There are really good reasons to not go to a bank and do a capital raise. But if people, all they know about the SEC is that it's a scary, overreaching, you know, Goliath. That's not good. It's not good for our economy. It's not good for small business owners who are looking to raise capital. So we're trying to solve that. We want to push back so that people understand that the SEC has a proper role and it's staying within that proper role.

Yeah. So that's— so for everybody that's out there, we asked that question, as you— as anybody who's come on and had to make a presentation to us, We really get it finite. It's got to be big. It's got to be hairy. It's got to be scary. And so in Nick's case, when it's like, you know, imagine you started your business, you've gone to a handful of friends to raise that money to open the doors. You're building something serious and you get a letter and you do not have the money or the time to be dealing with this. This is where Investor Choice comes in and they are able to help guide you through that. And the reason that it's important is because all free enterprise is based on the free flow of capital. And we need regulators, but we need regulators to play by the rules. And so what ICANN does is use the court system to get the SEC to play by the rules. And what that means for all of us is that we have more capital available in the markets to be able to grow our businesses.

All right, well put. What he said. That's what we're doing.

And we're actually doing a luncheon on this down in San Diego coming up here in June. Is that right?

Right, right. So, uh, I'll be in Del Mar to present ICANN to a thing called Best Ideas Dinner.

Oh, we're getting there. You know, you're now— you're pulling my secret out.

Oh, jumping ahead. Well, okay. But so, uh, while we're down there, um, uh, Ray Lucia and his son Ray Lucia are sponsoring a, uh, fundraiser lunch in Del Mar, uh, and if, uh, if anyone's in the, in the neighborhood and would like to come, we'd love to—

contact me.

Yep, contact Tom.

Reach, reach out to me. And as Candace said, no, you probably won't actually get me.

We'll put the proper contact source into the chat, so please don't contact—

I'd love you to be our guest. Uh, I will be down there actually with Nick because Then the next day, which is the reason we're doing this first event, is because we have been invited to— now you.

Oh, now me. I'll say what I said. Uh, it is, uh, uh, and some of your, some of your audience may be familiar with this event. It travels around different locations. It's called the Best Ideas Dinner. Um, and that's an opportunity for people who are looking to raise money, people who are looking to invest money, to get together. Um, it's a little bit Shark Tanky, but, um, at every one of these events that they have— they do it quarterly, and so this one's in Del Mar— um, they profile or feature one nonprofit. So at the, at the quarterly meeting in Del Mar in June, uh, ICAN will be the profiled, uh, nonprofit. So I'm there to present at that, uh, that event on June 18th in Del Mar.

So if any of you are planning on going We'd love to have you come on down. Yeah, if you're going to be at the event, please make sure and stop by, say hi. We didn't get any questions, which is kind of interesting because we oftentimes do get questions. Everybody was like deeply intimidated. They're like, what?

I do want to say the reason I love what ICANN is doing is it aligns with our belief. We do need regulators. As my dad mentioned, we've had wonderful relationships with our regulators for decades. He was very involved in a number of regulatory bodies in our home state. My husband was a healthcare regulator for a long time. And sorry, my dog's having a sneeze attack. I don't know if you can hear it. But the, you know, one of the things I loved watching my husband do, he always wanted to make people better, especially in healthcare. He didn't want that person or agency to make the mistake again. His was not about being punitive. It was about being being better and helping them improve. And when he had to be punitive, it was not a good day for him either. That was not his goal. He didn't want to take healthcare providers out of our, of our state. That was never his goal. And so the idea that we have groups like ICANN out there holding our regulatory bodies to a higher standard and saying, be better, do better, keep good people in the business. Imagine if we— that $5 billion that's sitting at the Treasury, plus the unbelievable amount that has been spent on attorneys, which, I mean, it probably makes that number, the $5 billion, look piddly, right? Imagine if those founders and those business owners still had that capital to be, to be putting back into their businesses and improving, right? And imagine if we had agency that was actually focused on helping people grow and do better and actually raise capital better and not make the same mistakes again. And if money does need to go back to investors, get that money back to the investors. Absolutely. Imagine if that was still— if that had happened where we would be, plus the time and mental load that we've taken of incredible people who are doing incredible things around our country and globally. That were taken out of the game because they're so focused on fighting an SEC battle. So I think it's incredible what you're doing. Um, you do have resources on your website, and I think that's a great place for people to start, is after they make their donation, go and take a look at the, the resource page, right?

Yeah, thank you. It's ICANNlaw.org.

Yeah, you know, Candace, to that point, I even love that although they've changed this recently, they've made it a little bit more tough sounding, but it is on the SEC site. Part of their statement is it promotes fairness and efficiency in the securities market and facilitates capital formation for those looking to hire, innovate, and grow. And I would argue that, uh, there's, there's just not true in most cases. I think they may come with the intent, even especially when they're hired, But pretty quickly it becomes, you know, hammer, nail. And how do we get it? And with the big guys, the Wells Fargo, Schwabs, even Warren Buffett, if you look, you know, in the past, everybody has essentially gotten a fine at some time. Jamie Dimon with Chase, you know, they were coming very quickly there during the meltdown, a number of others. And of course, after the 2008 I think all of 3 people had to serve prison sentences at the federal level, but there were billions of dollars in fines out there that were collected, uh, at that point. But the, the small investors are the ones who take the biggest brunt of the actions on that. We do have a question, uh, from Ernest. Let's see, with the outlook of potential SEC issue, what are the best practices to consider now before the capital has been raised? Do we need to be aware of investors not being as protective or productive to not have to deal with the potential issues. Or else, I'm not sure if what you're saying is, you know, let me cover it this way. In a lot of times, especially with the smaller deals, the investors are making self-attestation, meaning they say they're an accredited investor, or they say that they're a suitable investor, or they're a qualified client, all of those different things. There are other ones that actually have systems to where they have to prove that they're there. And the more you get them to prove it, the better you are. But even with our stuff, we had very solid suitability questionnaires and very solid, uh, putting the responsibility back on the investor. And at times those are deemed inappropriate and that you let someone in who wasn't appropriate. And to that matter, in a civil, uh, case, little old lady comes rolling in in a wheelchair I'm not sure that the wheelchair was real. Don't know that it wasn't, but don't know that it was. And to the judge, it's like, I wasn't an accredited investor. It was a total scam. I told them I wasn't. It's like, you've got your documents right here that you signed. This is your signature. Yeah.

So I don't know. Yeah. So one, one thing that's sort of embedded in that response, I think, is implicit, is only deal with accredited investors, assuming they can prove that they are. So that in itself is a sad commentary. It's good advice. Like, don't try to deal with unaccredited investors because you're going to have a bunch of problems. But at ICANN, we're actually challenging the accredited investor rule because why shouldn't you deal with unaccredited investors? Like, why should we exclude them from the capital markets? So good advice.

I've had a lot of really intelligent, financially savvy people who maybe didn't qualify as an accredited investor. And then I've certainly met plenty of accredited investors who had no business making the investments that they were making. I think we've all met people who a dollar amount does not mean you are knowledgeable enough to be making certain decisions, right?

Well, the time— the timing is just the opposite, right? A 28-year-old who is earning a good income, maybe not the quarter million dollars a year, but they're earning a good income. Certainly has the, the long window of an investor taking an investment, taking longer time for liquidity event, or having lost a small amount of, of money relative to that, versus the retiree that puts a bunch in because they're enticed by a 12% stated possible return, right?

You know, uh, anyone who's interested in this accredited investor issue should go to our website and go read the case we brought against the SEC in the federal district court in Texas on behalf of our client named Emily. She fits the profile that you just described there, Tom. And we've had people say, but wait a minute, these, these private placement offerings are risky. Like, we should keep people out of these risky offerings who aren't accredited. To which Emily says, wait a minute, who is better positioned to make the risk analysis than me? I'm— she's a millennial She's got a master's in applied economics. She has worked for a healthcare company. She's looking to invest in the healthcare sector. It's like, thank you very much. I will decide if I have the risk tolerance. And given her age, to your point, Tom, like, she has a big horizon in front of her. So, um, yeah, I encourage anyone who's interested in this issue to go read our complaint on behalf.

And it excludes our primary residence, which is where a lot of us millennials— that's where, right?

Right.

You know, that's— yeah, it's not easy to get into a house now. So, right.

So it's good, it's good advice to Ernest. I think it was the person asking the question, like, to stay out of trouble, stay away from people who cannot prove they're accredited investors. That is it. That is also— it's good advice and it's a sad commentary.

I think it's a sad, sad commentary. In fact, in 2014, when we got involved with our service side of the business, which is what we actually did. We didn't actually issue securities, right? We were servicing a company who was issuing securities. And so in that case, it was all about helping democratize these because the JOBS Act came out. Well, Nick Morgan, one more time, this is how you get a hold of him. This is how you give money to his organization, which benefits all of us because it helps keep the regulators regulated, and so we can have better markets here. And that I very much appreciate. I also appreciate Nick as a friend, although he, he does have a house relatively close to our house up in Tahoe, and yet we still have yet to ski together. I don't know how that has happened.

That's because you're too good at skiing, Tom. I'd embarrass myself, my snowplow behind you. It'll happen.

Yeah, it's gonna happen. Well, Nick, thank you so much. I look forward to joining you in June. And Candice, as always, thank you and Angela for running this. We appreciate it. This will be out on copy. These donation forms are there. And if anybody is interested in joining us in San Diego, just ping our office. And we look forward to having you here again on Lunch and Learn. Have a great day. Thanks, everyone.