‘Tis The Season For Dismissals: Statement On Ending “Dealer” Lawsuits, SEC Commissioner Caroline A. Crenshaw, May 22, 2025

First came the abandonment of crypto lawsuits.[1] Now the dismissals of “dealer” lawsuits. What do these unprecedented dismissals of ongoing enforcement actions have in common? They ignore the laws enacted by Congress – namely fundamental registration requirements of the federal securities laws – as well as long lines of judicial precedent. And they harm investors, businesses, and the capital markets.

It is astonishing that an agency tasked with enforcing the law has decided the law does not matter.

Overview of dismissals

Today, the SEC dismissed three lawsuits that alleged that certain businesses broke the law by failing to register with the SEC as “dealers.”[2] Though seemingly mundane, one of our agency’s foundational statutes, passed in the wake of the Great Depression, defines a “dealer” and requires said dealers to register with the SEC.[3] The core of the dealer definition is written in plain terms: a dealer is any person or entity engaged in the regular business of buying and selling securities for their own account.

The allegations in these now-dismissed lawsuits were not a stretch. They concerned well-established businesses that made money by purchasing debt directly from small issuers and then converting that debt into stock they would sell on the open market at high volumes and frequencies.[4] The defendants in those lawsuits transacted in billions of shares of newly issued stocks for their own accounts, generating millions in profits. They had sophisticated marketing operations to maintain a pipeline of deals. That sure sounds like being in the regular business of buying and selling securities.

In two of these cases, courts have in fact already ruled that the SEC’s allegations were sufficient to support the charges that these entities violated the law.[5] These rulings were consistent with judgments the SEC has obtained in similar past enforcement actions holding that such activity requires registering as a dealer.[6]

Debunking arguments for dismissals

While favorable court precedent alone would, historically, be enough to continue litigating these cases, there are no other new or convincing reasons for the dismissals.

First, those who have advocated for dismissals of these types of cases seem to read a non-existent requirement – that dealers have customers – into the statutory definition.[7] They argue that, historically, dealers were understood to have customers and that enforcing the dealer registration requirement more broadly is arbitrary. However, the dealer definition concerns whether one is in the regular business of transacting in securities for one’s own account, not whether one has customers. A customer requirement is simply not part of the definition. As time-consuming (or inconvenient for some) as it may be, determining whether a person is a dealer is a fact-specific inquiry, and examination of all relevant facts is necessary. Enforcing the law relies on applying all the facts to the then-current law.

Second, those advocates also claim that, without a customer requirement, the statute will sweep into the dealer definition investment advisers, hedge funds, and others not traditionally understood as dealers. But that is not what the cases dismissed today did. An appellate court in SEC v. Almagarby spoke to this very issue in upholding a dealer registration violation:

To be clear, we do not mean to suggest that every professional investor who buys and sell[s] securities in high volumes is a “dealer.” [S]ignificant differences exist between Almagarby’s conduct and that of…investment advisor and fund members. For example, institutional asset managers do not rely on dilution financing or the rapid resale of microcap share issues as their sole source of income. Nor do they employ networks of finders to solicit microcap debtholders or operate without financial disclosures or regulatory oversight.[8]

Third, those who have advocated for dismissals also claim that these cases have stifled capital formation and the growth of small businesses. But this notion that, by ignoring the law we will facilitate capital formation and small business growth, turns logic on its head. Wholesale rejection of the rule of law never has, and never will, promote capital formation and business growth. And as the Almagarby court noted, the type of conduct at issue here “is called ‘toxic’ or ‘death spiral’ financing” and is “disfavored,” including by issuers and investors.[9] Today’s dismissals open the floodgates to this type of unsavory financing without regulatory oversight.

What is at stake?

So, what is at stake here? Registration “serves as a keystone of the entire system of broker-dealer regulations.”[10] Dealers perform important market functions, such as distributing securities, helping to balance supply and demand when there are order imbalances, and facilitating investor trading by providing liquidity to buyers and sellers who otherwise might not be able to immediately find other investors with whom to trade. The SEC has promulgated rules governing the operation of dealers, including by setting standards of conduct. These have been designed with market integrity and investor protection in mind. They also foster capital formation.

The defendants in the now-dismissed lawsuits were alleged to have eschewed applicable securities laws and regulations. Doing so leaves investors holding the proverbial bag. And it leaves them and the markets without the fundamental protections Congress envisioned for entities acting in a dealer capacity. That regime includes, among other things, certain financial responsibility and risk management rules,[11] transaction and other and reporting requirements,[12] operational integrity rules,[13] and books and record requirements.[14] These requirements enhance market stability by providing regulators with insight into firm-level and aggregate trading activity, which helps assess and mitigate market risks. In addition, dealers are subject to examination and enforcement for compliance with applicable laws and Self-Regulatory Organization (SRO) rules by the SEC and the SROs.[15]

Last but not least, dismissing these lawsuits encourages others to flout registration and other legal requirements. This undermines the securities law framework that has been constructed over the years to protect investors and facilitate capital markets. It is a worrisome world when we help participants evade the law because the law is inconvenient for their bottom line.

Conclusion

A lot of lip service is paid to the SEC’s mission: protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. But actions, or in this instance dismissals of actions, speak louder than words. Dismantling enforcement of across-the-board registration requirements – which has now reached every fundamental registration provision (exchange, broker, dealer, and offering) under the securities laws – undermines the mission.