SEC's Accredited Investor Rule Challenged for Using "Wealth as a Proxy for Sophistication"

Plus regulators seek to crack down on "bilge bracket" aiding Chinese pump and dump scams.

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Bruce Carton
September 10, 2025

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Martin Wilczynski has rejoined FTI Consulting as a Senior Advisor in the firm’s Washington, D.C. office.

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SEC Sued Over Accredited Investor Rule

A new lawsuit challenges the Securities and Exchange Commission’s accredited investor rule as arbitrary and capricious under the Administrative Procedure Act because it “uses wealth as a proxy for sophistication without sufficient justification.”

The lawsuit was filed in the U.S. District Court for the Northern District of Texas by The Investor Choice Advocates Network (ICAN), a nonprofit public interest law firm headed by Nicolas Morgan, on behalf of Emily Kapszukiewicz, who is CEO of the health care startup Owl Therapy and has a master’s degree in applied economics.

Kapszukiewicz has a net worth of $850,000, an annual income of approximately $195,000, and is not an “accredited investor” according to SEC regulations, the lawsuit states.

by Corporate Counsel

👉 The Complaint (here) was filed by The Investor Choice Advocates Network (ICAN), which is headed by Nick Morgan. ICAN is “a nonprofit public interest litigation organization dedicated to serving as a legal advocate and voice for small investors and entrepreneurs whose efforts are too often impeded by government regulation.”

SEC targets US firms tied to suspected Chinese ‘pump and dump’ scams

US regulators have targeted professional services firms alleged to have ties to suspected Chinese “pump and dump” scams as part of a fresh crackdown on cross-border fraud.

A task force launched last week would take aim at US-based “gatekeepers, particularly auditors and underwriters” that facilitate “potential securities law violations related to companies from foreign jurisdictions such as China”, the Securities and Exchange Commission said.

The regulator’s announcement came a day after Nasdaq, the world’s second-biggest stock exchange, outlined plans to tighten trading standards to combat a surge of suspected pump and dumps, in which people with a vested interest artificially inflate a company’s share price before abruptly selling their own stake.

by FT

👉 The FT article continues:

“[Regulators] are going to crucify the bilge bracket,” said a person familiar with the SEC’s thinking, referring to the small white-collar groups that act as a “conduit” for Chinese companies applying to list in the US, as opposed to the so-called bulge bracket of prestigious banks and law firms.

Registered representatives beware: FINRA can discipline you for more than your securities business

FINRA only brings disciplinary actions against registered representatives (RRs) for their securities business, right? Wrong! FINRA often brings cases against RRs for conduct not related to their securities business. In fact, last month FINRA fined an RR $5,000 and suspended him for four months for actions he took in connection with a home insurance policy.

This case involved an RR who was registered with a broker-dealer and who also worked for an affiliated insurance company. In January 2024, he sold a home insurance policy to two customers. The next month, an animal kicked over a heat lamp, causing a fire that damaged a garage on their property.

The RR subsequently discovered that he had failed to include the garage in the home insurance policy. He then emailed his underwriter to get coverage for the garage added to the policy. All good so far—other than the garage fire. (The FINRA settlement didn’t include facts about how the animal fared.) The RR then took steps that led to his disciplinary action. He submitted an insurance claim on behalf of the customers for the fire, intentionally listing the date of loss as February 23, 2024—three days after the actual loss. The insurance company discovered the falsification.

by Eversheds Sutherland Insights

👉 Article by Brian Rubin of Eversheds Sutherland. Rubin notes that in this case, FINRA concluded that the RR violated FINRA Rule 2010, which requires members and associated persons to “observe high standards of commercial honor and just and equitable principles of trade” in the conduct of their business.

Interesting SEC settlement for fund industry observers

Interesting SEC settlement for industry observers: This Commission just announced its first Enforcement matter charging a negligence-based Rule 206(4)-8 violation, which among other things prohibits false or misleading statements to investors in a fund. This is notable given statements by Chairman Atkins when the rule was implemented concerning the state of mind requirement. More evidence that when this Commission says that it will focus on fraud, it doesn’t just mean “knowing” or “reckless” violations.

by Andrew Dean on LinkedIn

👉 The case Andrew Dean is discussing is SEC v. Vukota (here).

Arizona Sports Park Promoters Get Prison for $280 Million Bond Fraud

A father and son were each sentenced to years in prison for misleading firms like Vanguard Group Inc. and AllianceBernstein Holding LP about the prospects of an Arizona sports complex backed by $280 million in municipal bonds.

Manhattan US District Judge Lewis Kaplan on Tuesday gave Randy Miller six years behind bars and his son, Chad Miller, five years. The pair pleaded guilty four months ago to using fabricated documents to claim their Legacy Park development had deals with professional sports organizations, including British football powerhouse Manchester United, to use it for training.

by Bloomberg

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