Securities and Exchange Commission v. Ibrahim Almagarby

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[PUBLISH]

In the

United States Court of Appeals

For the Eleventh Circuit

____________________

No. 21-13755

____________________

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff-Appellee,

versus

IBRAHIM ALMAGARBY,

MICROCAP EQUITY GROUP, LLC,

Defendants-Appellants.

____________________

Appeal from the United States District Court

for the Southern District of Florida

D.C. Docket No. 0:17-cv-62255-MGC

____________________

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2 Opinion of the Court 21-13755

Before WILLIAM PRYOR, Chief Judge, and ROSENBAUM and ABUDU,

Circuit Judges.

WILLIAM PRYOR, Chief Judge, delivered the opinion of the Court

with respect to Parts I, II, III-A, III-B III-C, and IV, in which Circuit

Judges ROSENBAUM and ABUDU joined.

ROSENBAUM, Circuit Judge, delivered the opinion of the Court with

respect to Part III-D, in which Circuit Judge ABUDU joined.

This appeal concerns whether Ibrahim Almagarby violated

the Securities Exchange Act of 1934 by buying and selling securities

as an unregistered “dealer.” 15 U.S.C. § 78o(a). Almagarby was a

so-called “toxic” lender: he obtained the convertible debt of penny-

stock companies, converted the debt into common stock at a steep

discount, and sold the stock in high volumes. These transactions

can be lucrative—Almagarby made over $885,000 in profits in three

and a half years—but they are disfavored by other investors be-

cause they dilute the value of extant shares and often cause penny-

stock prices to plummet. And one cannot engage in these transac-

tions without being a registered dealer, which Almagarby was not.

The Securities and Exchange Commission filed this civil action

against Almagarby as part of a broader crackdown against toxic

lending. The district court granted summary judgment for the

Commission, ordered Almagarby to disgorge all profits, and per-

manently enjoined him from future securities law violations and

participation in penny-stock offerings. We conclude that Alma-

garby was a “dealer” under the Exchange Act and disgorgement

was an appropriate remedy, but that the district court abused its

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21-13755 Opinion of the Court 3

discretion by imposing the penny-stock ban. We therefore affirm

in part and reverse in part.

I. BACKGROUND

Ibrahim Almagarby was a college student when he formed

Microcap Equity Group LLC, a Florida limited liability company,

in January 2013. Almagarby was the sole owner, employee, and

“controlling person” of Microcap, and its profits were his sole

means of financial support. Almagarby’s business model involved

purchasing the debt instruments of penny-stock (also called micro-

cap) companies, converting that debt into common stock, and sell-

ing the stock rapidly.

In the investment industry, Almagarby’s conduct is called

“toxic” or “death spiral” financing. See Ari Zoldan, What Toxic Fi-

nancing Is and How Public Companies Can Avoid It, NASDAQ (Mar. 16,

2023, 10:31 a.m.), https://perma.cc/2GM3-BBXB. Toxic financing

is a form of predatory lending to microcap companies often strug-

gling to obtain capital. See id. A toxic lender provides financing in

the form of convertible debt—that is, debt that can be converted

into common stock, almost always at a discount to market price.

The lender then converts and sells in large volumes, typically liqui-

dating only a fraction of its debt holdings at a time to ensure that

an entire tranche is sold before the next is converted at a discount

to the new, still lower price. The influx of shares causes prices to

plummet, the share dilution drives good-faith investors out of the

market, and the issuing microcap company, or “issuer,” can no

longer access legitimate financing, a fact that may be the death

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4 Opinion of the Court 21-13755

knell of its business operations. See Crown Bridge Partners, LLC v.

Sunstock, Inc., No. 18 Civ. 7632 (CM), 2019 WL 2498370, at *1

(S.D.N.Y. June 3, 2019) (“When all is said and done, the . . . stock

price can drop to or near a zero-dollar value. And the death spiral

is complete.”). Although not illegal, this behavior is disfavored by

issuers, investors, and self-regulatory organizations.

Almagarby engaged in a variation of typical toxic lending.

Instead of obtaining convertible debt directly from an issuer, he

purchased existing instruments held by unaffiliated third parties.

Many of the instruments he purchased did not have an existing con-

version feature. So Almagarby negotiated directly with the issuers

to obtain agreements that allowed him to exchange existing, non-

convertible debt for convertible instruments. These agreements

provided for conversion at a significant discount to market price—

most often 50 percent—and many provided a “reset” feature, al-

lowing him to reset the instrument’s debt-to-stock conversion rate

if the issuer’s stock price dropped below a certain level. Almagarby

purchased only “aged” debt—that is, debt old enough to be exempt

from the registration requirements of the Securities Act of 1933 un-

der the Commission’s Rule 144. See 17 C.F.R. § 230.144 (providing

that Rule 144 exemptions provide a “safe harbor” from Securities

Act registration requirements if the security is held for over six

months or one year, depending on the exemption). He accordingly

did not need to register his holdings, and he could sell immediately

upon conversion without a further waiting period.

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Almagarby’s goal was to conduct transactions rapidly and at

high volumes. He did little to no research on the issuers of the

shares he acquired because his goal was “to turn [his] money

around as fast as possible.” He testified that he would “try [to] be

in and out of it as soon as possible” and that his “idea wasn’t to hold

on.” Soon after purchasing or negotiating an exchange agreement

for any convertible debt instrument, Almagarby would send a con-

version notice to the issuer; he converted most instruments within

10 trading days of receiving them. The issuer would arrange for its

transfer agent to deposit the requested shares into one of Alma-

garby’s six or more brokerage accounts. Almagarby would then im-

mediately instruct his broker to sell the shares—ordinarily, within

7 to 14 days of receipt.

The quick turnarounds paid off. From January 2013 to July

2016, Almagarby made over $885,000 in net profits. He purchased

over $1.1 million worth of outstanding aged debt and received over

$2.8 million in proceeds from stock sales, which he used to fund

further transactions. Almagarby engaged in at least 57 purchases of

aged debt, from the debtholders of 38 issuers. He received deposits

in his brokerage accounts on at least 167 occasions totaling around

8.5 billion shares, and he made at least 962 individual stock sales

totaling over 7.6 billion shares.

Almagarby never had any employees. He instead entered

into formal and informal agreements with “finders” who provided

him with referrals. These finders were essentially telemarketers

who located debt instruments available for purchase or cold-called

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6 Opinion of the Court 21-13755

issuers with outstanding aged debt who might be willing to enter

into convertible debenture agreements. Finders were a “large part

of [Almagarby’s] business,” and his most significant finder em-

ployed several subcontractor telemarketers, each of whom cold-

called 40 to 60 companies a day pursuing referrals. Almagarby told

another investor that his finders were “a sales force” and that they

“ha[d] been cold calling companies and bringing deals in consist-

ently.” He compensated his finders with a percentage of the

amount that he paid for debt acquired from a referral but did not

pay them any of the proceeds from stock sales.

Almagarby also retained counsel. He engaged at least 10 at-

torneys to provide opinion letters attesting that the shares he ob-

tained from converting aged debt were exempt from the registra-

tion requirements of the Securities Act under Rule 144. He also re-

lied on attorneys to draft the other documents necessary for his

transactions, including debt purchase agreements, exchange agree-

ments, convertible debentures, conversion notices, and reset no-

tices. In an email to another investor, Almagarby explained that

counsel were a part of his “loyal team.”

But apart from finders and attorneys, Almagarby operated

independently. He did not provide professional investment ser-

vices or engage in most of the conduct described in the public guid-

ance for defining broker-dealers. See Guide to Broker-Dealer Registra-

tion, U.S. SEC. & EXCH. COMM’N (last modified Dec. 12, 2016),

https://perma.cc/YN2X-TZED. Almagarby never advertised or

publicly held himself out as a buyer or seller of securities; never

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21-13755 Opinion of the Court 7

took on clients, provided investment advice, or invested money

other than his own; never attended investment conferences or

meetings with issuer representatives; never promoted or solicited

any other investor to invest in the securities of any issuer; never

extended credit, or issued or originated securities; and never loaned

securities, conducted repurchase transactions, or guaranteed or in-

demnified any other party.

In November 2017, the Commission filed a complaint

against Almagarby as part of a broader crackdown against toxic

lenders. Predatory microcap lending has proliferated over the past

decade amid rising interest rates and greater capital constraints. In

response, the Commission filed several enforcement actions alleg-

ing that the lenders are “dealers” required to register under the Ex-

change Act, 15 U.S.C. § 78o(a)(1). See, e.g., SEC v. Keener, 580 F.

Supp. 3d 1272 (S.D. Fla. 2022); SEC v. Fierro, No. CV 20-02104 (GC),

2023 WL 4249011 (D.N.J. June 29, 2023); SEC v. Carebourn Cap.,

L.P., No. 21-cv-2114, 2023 WL 6296032 (D. Minn. Sept. 27, 2023).

In Almagarby’s case, the district court granted summary

judgment for the Commission. It ruled that Almagarby, as the

“controlling person” liable for Microcap, 15 U.S.C. § 78t(a), oper-

ated as an unregistered dealer because he was “in the business of”

buying and selling securities, id. § 78c(a)(5)(A). It relied on our de-

cision in Securities & Exchange Commission v. Big Apple Consulting

USA, Inc. to conclude that the quick turnaround and sheer volume

of Almagarby’s sales proved that he was in the securities “busi-

ness.” See 783 F.3d 786 (11th Cir. 2015). The district court then

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8 Opinion of the Court 21-13755

adopted the magistrate judge’s report and recommendation on

remedies. It ordered Almagarby to disgorge $885,126.30 in total net

profits and $182,150.69 in prejudgment interest, for a total of

$1,067,276.99. It also permanently enjoined him from selling un-

registered securities and from any future participation in penny-

stock offerings.

After Almagarby filed this appeal, two sets of amici curiae

filed briefs in support of Almagarby. First, Trading and Markets

Project, Inc., an industry group representing public and private

funds, investment advisors, and others, filed a brief and participated

in oral argument as amicus curiae on behalf of Almagarby. Second,

the Small Public Company Coalition, Alternative Investment Man-

agement Association, and National Association of Private Fund

Managers filed an amicus brief.

II. STANDARDS OF REVIEW

We review de novo a summary judgment. Sutton v. Wal-Mart

Stores E., LP, 64 F.4th 1166, 1168 (11th Cir. 2023). We review de novo

the interpretation of a federal statute. Black Warrior Riverkeeper, Inc.

v. Cherokee Mining, LLC, 548 F.3d 986, 990 (11th Cir. 2008). We re-

view for abuse of discretion an order of disgorgement and an in-

junction. SEC v. Calvo, 378 F.3d 1211, 1216–17 (11th Cir. 2004).

III. DISCUSSION

We proceed in four parts. First, we explain that Almagarby

operated as an unregistered securities dealer. Second, we explain

that this enforcement action does not violate Almagarby’s right to

due process. Third, we explain that the district court did not abuse

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21-13755 Opinion of the Court 9

its discretion by ordering disgorgement. Fourth, we explain that

the district court did not abuse its discretion by enjoining Alma-

garby from future violations of section 15(a) of the Exchange Act,

though it abused its discretion in enjoining Almagarby’s participa-

tion in future penny-stock offerings.

A. Almagarby Operated as an Unregistered “Dealer”

in Violation of the Exchange Act.

Section 15(a) of the Exchange Act makes it unlawful for an

unregistered “dealer” to use interstate commerce to “effect any

transactions in . . . any security.” 15 U.S.C. § 78o(a)(1). A “dealer”

must register with the Commission. See id. Registration is one of

the primary enforcement mechanisms of the Exchange Act, and it

obligates dealers to provide regulators with adequate information

for oversight. See Eastside Church of Christ v. Nat’l Plan, Inc., 391 F.2d

357, 362 (5th Cir. 1968). Unregistered dealers are prohibited from

buying and selling securities in interstate commerce. See 15 U.S.C.

§ 78o(a)(1).

Section 3(a)(5)(A) of the Exchange Act defines a “dealer” as

“any person engaged in the business of buying and selling securities

. . . for such person’s own account.” Id. § 78c(a)(5)(A) (emphasis

added). In colloquial terms, a “dealer” is a professional market-

maker who matches the buyers and sellers of securities. See What

Is a Broker-Dealer?, U.S. SEC. & EXCH. COMM’N,

https://perma.cc/ABH6-AEUC (last visited Jan. 3, 2024). Typi-

cally, dealers profit from trade execution, either by charging clients

or counterparties a commission or by capturing bid-ask spreads. In

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10 Opinion of the Court 21-13755

other words, a dealer’s business model depends on his volume of

buying and selling because he profits from executing trades—that

is why he is “in the business of buying and selling securities,” 15

U.S.C. § 78c(a)(5)(A) (emphasis added).

Notably, the definition of “dealer” in the Exchange Act con-

tains a carveout commonly called the “trader” exemption. Sec-

tion 3(a)(5)(B) provides that a “dealer” does not include a person—

a trader—who transacts in securities “but not as a part of a regular

business.” Id. § 78c(a)(5)(B). A trader is often understood as a “pri-

vate investor,” who profits from the “appreciation in the value” of

his investment portfolio instead of from trade execution. See In re

Sodorff, 50 S.E.C. 1249, 1992 WL 224082, at *5 & n.27 (Sept. 2,

1992). Because a trader can make lucrative profits from a few good

investments, his business does not necessarily depend on high

transaction volumes. The section 3(a)(5)(B) carveout reflects a his-

torical difference between the functions of dealers and traders: a

dealer provided market liquidity, and a trader managed pools of

money and took investment positions based on views about asset

valuation.

Although the distinction between dealers and traders re-

mains crucial for regulatory purposes, dealers’ and traders’ func-

tions have somewhat converged. Today, high-frequency and algo-

rithmic traders represent most of the trading volume in public mar-

ket equities. See Mary Jo White, Enhancing Our Equity Market Struc-

ture, U.S. SEC. & EXCH. COMM’N ( June 5, 2014),

https://perma.cc/H5L7-PK2P. Providing market liquidity is itself

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21-13755 Opinion of the Court 11

a trading strategy, a fact that makes line-drawing between dealers

and traders difficult. But the line remains legally significant because

unregistered dealers are prohibited from interstate securities trans-

actions and unregistered traders are not. See 15 U.S.C. § 78o(a)(1).

The Commission maintains that Almagarby was a “dealer”

under the Exchange Act due to both the kind and the amount of his

transaction activity. Specifically, the Commission argues that buy-

ing convertible debt for the purpose of immediate conversion and

resale, and underwriting microcap share issues are activities char-

acteristic of dealers. The Commission argues that the volume and

regularity of Almagarby’s transactions, and the fact that his entire

business was predicated on flipping penny stocks, preclude him

from qualifying for the trader exemption. We agree.

Almagarby engaged in the kind of activity characteristic of

securities dealers. A “dealer” is “one who buys to sell—not one

who buys to keep, or makes to sell.” Dealer, BLACK’S LAW DICTION-

ARY (3d ed. 1933). Our precedents confirm that acquiring stock for

the purpose of immediate resale is evidence of dealer activity. In

Eastside Church, our predecessor court held that a purchaser of

church bonds was a “dealer” under the Exchange Act because it

acquired those assets “at a discount,” for “its own account as a part

of its regular business,” and “sold some of them.” 391 F.2d at 360–

61. And in Big Apple, we held that the defendant was a dealer and

underwriter because its entire business model involved purchasing

“stocks at deep discounts” and “s[elling] those stocks for profit.”

783 F.3d at 810; see also Sodorff, 1992 WL 224082, at *5 (“Unlike an

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12 Opinion of the Court 21-13755

investor or trader,” a dealer’s “profits d[o] not result from appreci-

ation in the value of the securities.”).

This kind of stock-flipping is precisely what Almagarby did:

he acquired the shares of microcap companies by converting debt

at a discount, and then immediately resold the shares he obtained

for a profit. He testified that his goal was to turn his “money around

as fast as possible” and that he sold most of his holdings within days

or weeks of receipt. And he explained that his “business model

made money” by “buying the stock at a discount, selling it at mar-

ket[,] and the difference [was] the profit.” Unlike a trader or private

investor, Almagarby did little to no research, had no longer-term

views on the value of his holdings, and was not interested in taking

on price risk. See Sodorff, 1992 WL 224082, at *5. Instead, he relied

on high volumes of trade execution to profit.

That Almagarby brought new shares to the market is further

evidence that he operated as a dealer. The process of acquiring new

shares from an issuer “for the purpose of reselling them” is called

“underwriting.” See Big Apple, 783 F.3d at 807. Underwriting activ-

ity weighs in favor of the finding that an entity is a dealer. See, e.g.,

Definition of Terms in and Specific Exemptions for Banks, Exchange Act

Release No. 34-47364, 68 Fed. Reg. 8686, 8688 (Feb. 24, 2003)

(“[D]ealers normally . . . participate in the sale or distribution of

new issues.”); SEC v. River N. Equity LLC, 415 F. Supp. 3d 853, 859

(N.D. Ill. 2019) (finding it “particularly significant” that, “like an un-

derwriter,” the defendant “purchased stocks at a discounted price

directly from numerous issuers . . . [and] quickly res[old] at a

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21-13755 Opinion of the Court 13

marked-up price”); Keener, 580 F. Supp. 3d at 1287–88 (“As further

evidence that [d]efendant meets the statutory ‘dealer’ definition,

[d]efendant acquired newly issued stock directly from microcap is-

suers at a discount . . . and then resold the stock into the public

market.”). By converting aged debt, Almagarby created new secu-

rities and was responsible for the proliferation of issuers’ shares in

the market. His conduct more than doubled the share count of at

least five of the issuers with which he transacted.

Almagarby argues that because he never purchased aged

debt directly from issuers, he is not bound by any precedent that

describes underwriting as the purchase of new securities “from” is-

suers. But he cannot evade our precedents based on a technicality.

Under the Exchange Act, the “terms ‘buy’ and ‘purchase’ each in-

clude any contract to buy, purchase, or otherwise acquire” securities.

15 U.S.C. § 78c(a)(13) (emphasis added); see also Pittsburgh Terminal

Corp. v. Balt. & Ohio R.R. Co., 680 F.2d 933, 940 (3d Cir. 1982) (find-

ing that “the conversion option in a convertible debenture qualifies

as a contract for the purchase or sale of a security”). By sending

conversion notices to issuers and triggering the creation of new

shares that he then distributed, Almagarby behaved like an under-

writer. See Big Apple, 783 F.3d at 807 (finding that defendants en-

gaged in underwriting activity when they did not acquire securities

with “an investment purpose” but “for the purpose of reselling

them . . . with a view to distribution”).

The volume and regularity of Almagarby’s transactions sup-

port the ruling that he was “in the business” of buying and selling

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securities. See 15 U.S.C. § 78c(a)(5)(A). The “centerpiece” of the Ex-

change Act’s dealer definition is the word “business,” which is “a

particular occupation or employment habitually engaged in for

livelihood or gain.” Big Apple, 783 F.3d at 809 (quoting BLACK’S LAW

DICTIONARY (10th ed. 2009)). “While evidence of merely some prof-

its from buying and selling securities may alone be inconclusive

proof, the defendants’ entire business model was predicated on the

purchase and sale of securities.” Id.; see also SEC v. Ridenour, 913

F.2d 515, 517 (8th Cir. 1990) (a dealer’s “level of activity” made him

“more than an active investor”); Sodorff, 1992 WL 224082, at *4

(“[T]he primary indicia in determining that a person has ‘engaged

in the business’ within the meaning of the term ‘dealer’ is that the

level of participation in purchasing and selling securities involves

more than a few isolated transactions.”); Fierro, 2023 WL 4249011,

at *5; Carebourn, 2023 WL 6296032, at *9; Keener, 580 F. Supp. 3d at

1282.

Almagarby does not dispute that he engaged in high-volume

resales of microcap shares. Over a three-year period, he received

167 stock deposits totaling around 8.5 billion shares of stock and

made at least 962 individual sales totaling more than 7.6 billion

shares. He engaged in the distribution of 38 different issuers’ secu-

rities. And he made over $885,000 in net profits. Almagarby also

operated a professional business with contractors: he retained a

“network of deal finders” who “ha[d] been cold calling” companies

and “bringing deals in consistently.” Although these finders were

not formally employed, Almagarby does not dispute that they so-

licited market participants on his behalf to find securities available

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for his purchase. And flipping penny-stocks was Microcap’s “sole

source of funds.” Like the dealer in Big Apple, Microcap’s entire busi-

ness model relied on buying and selling securities, and its only

source of profit was purchasing aged debt and obtaining repayment

in discounted shares. See Big Apple, 783 F.3d at 809. Microcap’s prof-

its were Almagarby’s sole livelihood.

Almagarby argues that the district court erred by relying on

Big Apple because that decision interpreted the meaning of “dealer”

under the Securities Act, see 15 U.S.C. § 77b(a)(12), not the Ex-

change Act. To be sure, the definition of “dealer” under the Secu-

rities Act is broader because it contains no trader carveout. See id.

§ 78c(a)(5)(B). But Big Apple explains that the meaning of “dealer”

is “very similar” under both Acts. 783 F.3d at 809 n.11. Although

the Big Apple defendants forfeited their arguments against liability

for violating the Exchange Act, we explained that such an argu-

ment would fail “as a matter of law for the same reasons as it fails

under [the Securities Act].” Id. at 806. Big Apple reflects our under-

standing that the trader carveout is defined by the statutory text,

which provides that the trader must not transact in securities “as a

part of a regular business.” 15 U.S.C. § 78c(a)(5)(B). As we have ex-

plained, Almagarby does not qualify for that carveout because he

did buy and sell securities as part of his regular business.

Almagarby and amicus Trading and Markets Project also ar-

gue that the heavier regulatory burdens on Exchange Act “dealers”

relative to Securities Act “dealers” support a narrow reading of the

former term. Generally speaking, the Securities Act regulates the

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16 Opinion of the Court 21-13755

registration of securities during initial public offerings, and the Ex-

change Act regulates the secondary market, where existing securi-

ties are traded between members of the public. See Slack Techs., LLC

v. Pirani, 143 S. Ct. 1433, 1437–38 (2023). Securities Act “dealers”

must ensure that securities are initially registered, and Exchange

Act “dealers” are subject to ongoing heightened regulatory bur-

dens to protect the public. Id. For example, Exchange Act dealers

must keep records of financial activity for the Commission’s re-

view, see 15 U.S.C. § 78q(a)(1), (b); 17 C.F.R. §§ 240.17a–3(a),

240.17a–4, and file regular reports of financial information, see 15

U.S.C. § 78q(e)(1)(A). They must also comply with costly cus-

tomer-protection requirements—like antifraud provisions and cap-

ital and liquidity minimums, see 15 U.S.C. § 78o(c); 17 C.F.R.

§§ 240.15c1–2, 240.15c3–3, 240.15c3–5, which amicus argues have

no utility when applied to entities without customers. Indeed, ami-

cus submits that an entity must execute trades on behalf of custom-

ers to be a “dealer” under the Exchange Act. But a customer re-

quirement has no grounding in the statutory text; it is nowhere

mentioned in the relevant portions of the Exchange Act. Instead,

the Act considers whether an entity is transacting as a part of a “reg-

ular business.” And multiple Exchange Act requirements do apply

to a dealer “who does not carry customer accounts” “or hold funds

or securities for . . . customers.” 17 C.F.R. § 240.15c3–1(a)(2)(vi),

(6)(ii) (emphasis added).

To be clear, we do not mean to suggest that every profes-

sional investor who buys and sell securities in high volumes is a

“dealer.” We acknowledge amicus’s concern that an expansive

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21-13755 Opinion of the Court 17

definition might sweep in all manner of market participants not tra-

ditionally understood as dealers, including investment advisors,

mutual funds, pension funds, and other asset managers. But signif-

icant differences exist between Almagarby’s conduct and that of

amicus’s investment advisor and fund members. For example, in-

stitutional 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. Our holding that Almagarby operated as an unregistered

“dealer” in violation of the Exchange Act is based on his specific

conduct. And though Almagarby’s underwriting activity is cer-

tainly relevant to this determination, it is not the only factor on

which we rely.

B. The Commission Did Not Violate Almagarby’s Due-Process Right.

Almagarby argues that the Commission violated his Fifth

Amendment right to due process by bringing an enforcement ac-

tion under a novel interpretation of the term “dealer” that contra-

dicts longstanding agency guidance and policy. He protests that the

activity that allegedly rendered him a “dealer” is not described in

the Broker-Dealer Guide or in no-action letters. See, e.g., supra,

Guide to Broker-Dealer Registration; Acqua Wellington N. Am. Equities

Fund, Ltd., SEC Staff No-Action Letter, 2001 WL 1230266 (July 11,

2001). But we have never held that an agency violates a defendant’s

right to due process by bringing an enforcement action based on a

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18 Opinion of the Court 21-13755

legal theory not advanced in noncomprehensive public manuals or

party-specific letters.

Due process requires “fair notice of what was forbidden,”

especially when an agency action represents an “abrupt” change

from longstanding formal policy. FCC v. Fox Television Stations, Inc.,

567 U.S. 239, 254 (2012). An enforcement action may violate due

process if the defendant does “not have fair notice of the agency’s

interpretation” of a law or statute, even if that interpretation is rea-

sonable. Gen. Elec. Co. v. EPA, 53 F.3d 1324, 1331 (D.C. Cir. 1995).

The fair-notice principle applies to administrative actions, see Vil-

lage of Hoffman Ests. v. Flipside, Hoffman Ests., Inc., 455 U.S. 489, 498–

99 (1982), but it has been recognized in only a “very limited” set of

cases, Suburban Air Freight, Inc. v. Transp. Sec. Admin., 716 F.3d 679,

684 (D.C. Cir. 2013).

Almagarby argues that the Commission failed to give him

fair notice by relying on a novel enforcement theory that contra-

dicts longstanding agency guidance about who qualifies as a

“dealer.” But the Commission has never issued any guidance on

whether toxic lending is “dealer” activity. And though Almagarby’s

conduct is not described in the public Broker-Dealer Guide, the

Guide does not purport to be legally binding or exhaustive. See

River N. Equity, 415 F. Supp. 3d at 858. The Guide warns that “it is

not comprehensive” and that readers “may wish to consult a pri-

vate lawyer who is familiar with the federal securities laws” to de-

termine whether they are dealers. See supra, Guide to Broker-Dealer

Registration, § 1. Similarly, the Commission no-action letters are

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21-13755 Opinion of the Court 19

limited to the named individuals, and they disclaim being binding

legal interpretations. See, e.g., Davenport Mgmt., Inc., SEC No-Action

Letter, 1993 WL 120436, at *13 (Sept. 22, 1992) (stating that no-ac-

tion letters are “staff positions regarding enforcement action only

and do not purport to express any legal conclusions regarding the

applicability of the statutory provisions of the federal securities

laws”); Fairfield Trading Corp., SEC No-Action Letter, 1988 WL

233618, at *2 (Dec. 10, 1987) (same). Moreover, the letters cited by

Almagarby are fact-specific, and none are analogous to the specifics

of his situation. And he could have applied for a letter of his own

had he been concerned with compliance.

The Commission’s complaint against Almagarby accords

with our precedents interpreting the Exchange Act. For the reasons

we have explained, Almagarby is a “dealer” under section 15(a) of

the Act. He had notice that he might be subject to agency action,

and the Commission did not violate his constitutional right to due

process.

C. Disgorgement was an Appropriate Remedy.

Almagarby argues that the district court abused its discretion

by ordering disgorgement because the Commission’s enforcement

action was untimely; disgorgement was not “appropriate or neces-

sary for the benefit of investors,” 15 U.S.C. § 78u(d)(5); and there

was no causal link between Almagarby’s failure to register and the

profits that he was ordered to disgorge. These arguments fail.

The Commission’s action was timely. The Commission filed

its complaint in November 2017 and alleged that Almagarby acted

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20 Opinion of the Court 21-13755

as an unregistered dealer between January 2013 and July 2016. The

action was governed by a five-year statute of limitations, 28 U.S.C.

§ 2462, and was timely under that provision. See Kokesh v. SEC, 137

S. Ct. 1635, 1638 (2017). During litigation, Congress passed the Na-

tional Defense Authorization Act for Fiscal Year 2021, Pub. L. No.

116-283, § 6501, 134 Stat. 4625, 4626 (2021), which provides that a

disgorgement claim by the Commission may be brought until “5

years after the latest date of the violation that gives rise to the action

or proceeding in which the Commission seeks the claim occurs.”

15 U.S.C. § 78u(d)(8)(A)(i) (emphasis added). That Act applies to

this case. See Pub. L. No. 116-283, § 6501(b) (applying the amend-

ment “to any action or proceeding that is pending on . . . the date

of enactment [January 1, 2021]”). Because the Commission filed

suit within five years of Almagarby’s latest culpable act, Alma-

garby’s timeliness argument is meritless.

Disgorgement also accords with the requirement that an eq-

uitable remedy under the Act be “appropriate or necessary for the

benefit of investors.” 15 U.S.C. § 78u(d)(5). The Supreme Court re-

cently reiterated in Liu v. Securities & Exchange Commission that dis-

gorgement sounds in equity and that stripping wrongdoers of ill-

gotten profits is consistent with equitable practice. 140 S. Ct. 1936,

1943 (2020) (disgorgement is a “profit-based measure of unjust en-

richment” (quoting Restatement (Third) of Restitution and Unjust

Enrichment § 51, cmt. a, p. 204 (Am. L. Inst. 2010))). But the Court

clarified that disgorgement must “not exceed a wrongdoer’s net

profits” and must be “awarded for victims” to be permissible under

section 78u(d)(5). Id. at 1940.

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21-13755 Opinion of the Court 21

Almagarby argues that the district court violated Liu’s vic-

tim-benefit requirement by never explaining how “anyone was

harmed” and by not identifying a “class of victims” or a “method-

ology to calculate losses.” But the Commission did explain that it

planned to distribute awards to counterparties who had purchased

shares from Almagarby and were negatively affected by the price

impact of his selling activity. A Commission expert attested that it

was possible to track the counterparties to Almagarby’s sales using

the “Electronic Bluesheet System,” which records trading data ob-

tained from broker-dealers and clearing firms. The expert ex-

plained that “the vast majority of counter-parties to the relevant

sales of shares by [Almagarby] can readily be identified.”

Post-Liu, our sister circuits have held that the victim-benefit

requirement is satisfied under similar conditions. See, e.g., SEC v.

Blackburn, 15 F.4th 676, 682 (5th Cir. 2021) (affirming disgorgement

post-Liu when the “[the Commission] has already identified” the

victim-recipients of the “money [that] the defendants [will] re-

turn”). Indeed, the Tenth Circuit has held that the Commission

need not even link loss amounts to specific instances of investor

harm to satisfy the requirements of section 78u(d)(5). See SEC v.

GenAudio Inc., 32 F.4th 902, 952–53 (10th Cir. 2022). When the

Commission is able to identify investors who have suffered pecu-

niary harm, disgorgement satisfies the requirement that disgorge-

ment be “for the benefit of investors.” 15 U.S.C. § 78u(d)(5).

Finally, Almagarby’s profits were causally linked to his fail-

ure to register. Section 15(a) prohibits unregistered dealers from

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22 Opinion of the Court 21-13755

using interstate commerce “to effect any transactions in . . . any se-

curity.” Id. § 78o(a)(1) (emphasis added). Almagarby was alto-

gether prohibited from making transactions as an unregistered

dealer, so any profits generated from his prohibited transactions

were causally linked to his failure to register. See SEC v. Teo, 746

F.3d 90, 103 (3d Cir. 2014) (providing that the Commission’s civil

enforcement actions need not show “proximate causation”); see

also SEC v. Apuzzo, 689 F.3d 204, 212–13 (2d Cir. 2012).

The district court did not have to speculate about the profits

of any lawful transactions that Almagarby might have made had he

chosen to register as a dealer. See Calvo, 378 F.3d at 1217 (“[A]ny

risk of uncertainty should fall on the wrongdoer whose illegal con-

duct created that uncertainty.” (citation and internal quotation

marks omitted)). Indeed, had Almagarby registered, he likely

would have faced significant restraints on his toxic lending activity.

For example, dealers must comply with self-regulatory organiza-

tions’ rules, and the Commission asserts that Almagarby likely

would have been limited by regulations such as the industry prohi-

bition on “unfair or unreasonable” underwriting activity. See

FINRA Rule 5110(c)(2)(A). So the district court did not abuse its

discretion by ordering Almagarby to disgorge the profits causally

linked to his failure to register.

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21-13755 Opinion of the Court 23

D. The District Court Properly Enjoined Defendants from Future Ex-

change Act Violations but Abused its Discretion in Ordering a Penny-

Stock Bar.

Finally, Almagarby challenges the district court’s injunction,

both the portion prohibiting future unregistered securities transac-

tions in violation of section 15(a)(1) of the Exchange Act and the

portion prohibiting future participation in penny-stock offerings.

The Commission may obtain a permanent injunction if it

shows “a prima facie case of previous violations of federal securities

laws, and . . . a reasonable likelihood that the wrong will be re-

peated.” SEC v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004) (per cu-

riam). We assess the likelihood of a repeat violation by considering

the following factors:

[the] egregiousness of the defendant’s actions, the

isolated or recurrent nature of the infraction, the de-

gree of scienter involved, the sincerity of the defend-

ant’s assurances against future violations, the defend-

ant’s recognition of the wrongful nature of the con-

duct, and the likelihood that the defendant’s occupa-

tion will present opportunities for future violations.

Id. (quoting SEC v. Carriba Air, Inc., 681 F.2d 1318, 1322 (11th Cir.

1982)) (“the Blatt 1 factors”). And “[w]hile scienter is an important

1 Our predecessor Court identified these factors in SEC v. Blatt, 583 F.2d 1325,

1334 n.29 (5th Cir. 1978).

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24 Opinion of the Court 21-13755

factor in this analysis, it is not a prerequisite to injunctive relief.”

Id.

We begin with the district court’s injunction prohibiting De-

fendants from engaging in future violations of section 15(a)(1) of

the Exchange Act. In ordering this relief, the district court perma-

nently enjoined Defendants from transacting in securities without

registering as dealers or associating with a registered broker-dealer.

The district court did not abuse its discretion in imposing this por-

tion of the injunction.

To be sure, it is “not enough” to reason that “past miscon-

duct gives rise to an inference of future misconduct.” Steadman v.

SEC, 603 F.2d 1126, 1140 (5th Cir. 1979). But Defendants’ engage-

ment in securities transactions without registering as “dealers” vi-

olated the Exchange Act at the time of the transactions, and repeat-

ing that conduct in the future would continue to violate the Ex-

change Act. In other words, even in the absence of an injunction

barring Defendants from conducting future unregistered securities

transactions in violation of the Exchange Act, the Exchange Act it-

self bars that conduct. Here, as the district court found, Defend-

ants engaged in hundreds of unregistered transactions—all of

which were unlawful at the time and continue to be so—and Mi-

crocap plus two of Almagarby’s similar business entities remain

listed as active. Under these circumstances, the district court did

not abuse its discretion in enjoining Defendants from engaging in

further violations of the law they already broke.

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21-13755 Opinion of the Court 25

But we cannot say the same for the penny-stock bar. That

bar prohibits both unlawful and lawful penny-stock transactions.

The district court permanently enjoined Defendants from future

participation in all penny-stock offerings based on its conclusion

that “absent an injunction, there is little to stop Defendants from

resuming their unlawful activity.” SEC v. Almagarby, 479 F. Supp. 3d

1266, 1274 (S.D. Fla. 2020). In reaching that result, though, the dis-

trict court abused its discretion in its treatment of the Blatt factors.

We have already acknowledged that Blatt’s “recurrence” fac-

tor supports an injunction here. We also recognize that while Al-

magarby is currently employed in the home-repair business, his

maintenance of Microcap and two similar companies as active busi-

ness entities would allow him the opportunity for future securities-

law violations with respect to penny stocks, if he chose to engage

in that misconduct. But on this record, none of the other factors

weigh in favor of an injunction. The district court’s finding other-

wise was an abuse of discretion.

We begin with scienter, which we have characterized as “an

important factor in this analysis.” Calvo, 378 F.3d at 1216; see also

Aaron v. SEC, 446 U.S. 680, 701 (1980) (reasoning that, when decid-

ing whether to enjoin a defendant, the district court should con-

sider the “degree of intentional wrongdoing evident in a defend-

ant’s past conduct,” including “scienter or lack of it”). It is undis-

puted that section 15(a) of the Exchange Act does not contain a

scienter element. See 15 U.S.C. § 78o(a). And neither the district

court nor the partial dissent attributes scienter to Defendants.

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26 Opinion of the Court 21-13755

Indeed, Almagarby’s actions cannot fairly be characterized as in-

volving scienter, especially given that he consulted numerous attor-

neys and appeared to at least try to follow the law.2 Without any

“degree of intentional wrongdoing,” this factor counsels against an

injunction. See Aaron, 446 U.S. at 701.

Next, we consider the sincerity of Defendants’ assurances

against future securities-law violations. See Carriba Air, 681 F.2d at

1322. In his remedy-phase affidavit, Almagarby attested that he

would “respect the Court’s ruling,” “appreciate[s] the importance

of the securities laws,” and would “never again place [himself ] in a

position where [he would] be acting as a dealer, unless [he became]

registered.” The record provides no reason to question the

2 The partial dissent characterizes this statement as “optimistic,” contending

that Almagarby consulted attorneys only to “immunize” himself from liability

for violating Securities Act reporting requirements through the Rule 144 safe

harbor. Dissent at 2–3. The partial dissent cites nothing in the record for its

conclusion, and it would make little sense for Almagarby to seek counsel’s

advice on registration requirements under the Securities Act and not the Ex-

change Act. Nor do we think it fair to characterize Almagarby as having re-

tained counsel to “circumvent” the Securities Act’s registration requirements.

Dissent at 6. The record suggests Almagarby retained counsel to ensure his

compliance with an express and often-invoked regulatory exception. Invoking

the Rule 144 exception—which exempts certain transactions from registration

and certain sellers from “underwriter” status, see 17 CFR § 230.144—is not the

same as “circumvent[ing]” the securities laws. To be sure, one can consult

counsel and still violate the securities laws, but at the very least, Almagarby’s

retention of counsel here reflects some effort to comply with the securities

laws rather than a willful or reckless violation.

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21-13755 Opinion of the Court 27

sincerity of these assertions.3 The partial dissent speculates that

“the district court implicitly found wanting Almagarby’s sincerity

in disavowing future misconduct.” Dissent at 3. But that requires

an inferential leap from either the district court’s initial opinion or

the magistrate judge’s report and recommendation, neither of

which expressly addressed the sincerity factor. And while we do

not reweigh credibility determinations on appeal, neither do we in-

vent them.

The next factor, recognition of the wrongful nature of the

conduct, likewise does not weigh in favor of an injunction here.

The partial dissent asserts that “Almagarby continues to deny that

he violated any securities laws” and “refus[es] to recognize wrong-

doing.” Dissent at 3. But the partial dissent bases its argument

solely on the fact that Almagarby maintains on appeal that he was

not required to register as a “dealer” under section 15(a)(1) of the

Exchange Act. So the partial dissent penalizes Almagarby for ap-

pealing. Yet making a non-frivolous argument on appeal is not the

same thing as refusing to accept and respect the law once it has

been settled. If Almagarby’s arguments were patently

3 The partial dissent states that “[a] defendant’s ‘assertions . . . that he would

cease his wrongful conduct are by no means dispositive[.]’” Dissent at 3 (quot-

ing Carriba Air, 681 F.2d at 1322). We agree. But we don’t suggest the con-

trary. Rather, under our precedent, sincerity of reassurances against future

violations is one factor relevant to the propriety of an injunction, Carriba Air,

681 F.2d at 1322, and this record provides no reason to question Almagarby’s

sincerity here. So while not “dispositive,” this factor certainly does not compel

an injunction, especially not one based on nothing more than speculation as

to sincerity.

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28 Opinion of the Court 21-13755

unreasonable or clearly contrary to law, or if he lacked candor be-

fore the Court, this could be a different case. But that is not a fair

description of the proceedings here.

We conclude with the “egregiousness” factor. The district

court acknowledged the Commission’s “argu[ment] that Defend-

ants’ conduct qualifies as egregious because it spanned over three

years and thousands of transactions.” But this collapses the “egre-

giousness” determination into the recurrence factor. What’s more,

Defendants’ conduct is markedly distinguishable from other cases

in which we have found “egregious” conduct.

Our caselaw does not expressly define “egregiousness” in

this context. 4 But the common meaning of “egregious” is

“[e]xtremely or remarkably bad; flagrant <the defendant’s egre-

gious behavior>.” Egregious, BLACK’S LAW DICTIONARY (11th ed.

4 The partial dissent claims that “conduct is egregious when a defendant ex-

hibits ‘a pattern of past and present questionable business practices.’” Dissent

at 1–2 (quoting Carriba Air, 681 F.2d at 1322). But the partial dissent bases this

assertion solely on Carriba Air. And even the most cursory review of that case

reveals it never defined “egregiousness.” Rather, Carriba Air’s discussion re-

flects that we found the combination of the following facts to qualify as “egre-

gious”: “The SEC had demonstrated a pattern of past and present questionable

business practices. Blatant and inexcusable violations of the securities laws

occurred. The [defendants] knowingly made material misrepresentations and

at least recklessly made material omissions on documents submitted to the

SEC. The [defendants] took no action to correct these misrepresentations and

omissions. Indeed, the public offer was withdrawn only after the SEC

launched its investigation. It is further likely that the [defendants] will remain

in a position where opportunities for future violations of the securities laws

will be abundant.” Id.

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21-13755 Opinion of the Court 29

2019). And our securities precedent affirming injunctions confirms

that that’s precisely the definition of “egregious” we had in mind

when, in Blatt, we referred to the “egregiousness of the defendant’s

actions.” 583 F.2d at 1334 n.29. We therefore review that precedent

here.

We begin with Carriba Air. There, the defendants distrib-

uted a false and misleading prospectus, which they used to sell

shares to the public. See Carriba Air, 681 F.2d at 1321. We said that,

among other conduct, they had engaged in “[b]latant and inexcus-

able violations of the securities laws,” that they “knowingly made

material misrepresentations and at least recklessly made material

omissions on documents submitted to the SEC,” and that they

withdrew their public offering “only after the SEC launched its in-

vestigation.” Id. at 1322. And only after noting that the Blatt factors

were “virtually all present in the . . . case” did we opine that “the

trial judge could properly have concluded that absent an injunction

there was a reasonable likelihood of securities law violations in the

future despite the mea culpas and protestations of reformation on

the part of the [defendants].” Id.

From Carriba Air, we discern several facts indicating egre-

giousness: (1) “blatant” securities-law violations, (2) knowingly or

recklessly making material representations or omissions (fraud),

and (3) scienter. See id. None of these facts are present here.

First, this record does not allow us to characterize Defend-

ants’ failure to register as “blatant.” Rather, though we ultimately

reject it, Defendants put forward a non-frivolous argument that

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30 Opinion of the Court 21-13755

they were not required to register as “dealers” under the Exchange

Act.

Second, Defendants’ conduct involved no false statements,

misrepresentations, or material omissions. And unlike securities

fraud, which is never lawful, had Defendants been registered as

dealers, their conduct would not have violated the law. To be sure,

it’s unlikely that, as a registered dealer, Almagarby would have in-

volved himself in the same activity. But the point is that, unlike the

defendants’ acts in Carriba Air, Almagarby’s underlying securities

deals, in and of themselves, were not unlawful. Nor, as we’ve dis-

cussed, did Defendants’ violations involve scienter.

So none of the facts that reflected egregiousness in Carriba

Air are present here.

The same is true with respect to other cases in which we’ve

found egregiousness. In SEC v. Ginsburg, 362 F.3d 1292, 1295 (11th

Cir. 2004), the defendant CEO was found liable for insider trading

after repeatedly providing material nonpublic information to fam-

ily members, who then traded on the information. In other words,

he “breached his fiduciary duty to his company and shareholders .

. . for the financial gain of his family members.” Id. at 1304. We

said the defendant’s conduct of “[d]eliberately tipping material

nonpublic information for family members’ financial gain is a bad

thing, and doing it twice in a year is doubly so.” Id. Indeed, we

described the defendant’s behavior as “knowing and intentional

misconduct.” Id. at 1304–05. And as in Carriba Air, we said that

“every one of the factors to be considered weigh[ed] in favor of

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21-13755 Opinion of the Court 31

enjoining [the defendant].” Id. at 1304. As a result, we explained,

the district court’s failure to enjoin the defendant in Ginsburg was

an abuse of discretion. Id.

Ginsburg emphasizes the intentionally dishonest nature of

the conduct that we’ve found is egregious. Ginsburg involved (1)

the CEO defendant’s breach of his fiduciary duty to his own com-

pany and shareholders to their detriment, to enrich his family

members, and (2) scienter. But the facts here satisfy neither of

these conditions. So Ginsburg does not support a finding of egre-

giousness here.

Finally, in Calvo, we found egregiousness when the defend-

ant engaged in a fraudulent “pump and dump” scheme. 378 F.3d

at 1213. That “recidivist” defendant had previously been found li-

able for securities fraud and enjoined from future violations. Id. at

1216. Yet he remained in the investment business, even employing

“a convicted felon with past securit[ies] law violations.” Id. So on

the list of factors supporting egregiousness, we note again (1) fraud-

ulent conduct and (2) scienter, and we add (3) past adjudicated se-

curities violations, and (4) the knowing employment in the opera-

tion of a convicted felon with past securities violations. As with

Carriba Air and Ginsburg, Defendants do not qualify for a finding of

egregiousness under any of these factors.

To the contrary, as we explained in Ginsburg, “[i]t is this type

of intentional, knowing conduct [at issue in Carriba Air, Calvo, and

Ginsburg], as opposed to more minor, technical violations, for which

injunctions are reserved.” Id. at 1305 (emphasis added); see also SEC

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32 Opinion of the Court 21-13755

v. Steadman, 967 F.2d 636, 648 (D.C. Cir. 1992) (“Injunctive relief is

reserved for willful lawbreakers or those whose operations are so

extremely or persistently sloppy as to pose a continuing danger to

the investing public.”).

Exactly. Defendants’ acts, though wrong, did not come

close to the misconduct of the Carriba Air, Ginsburg, or Calvo de-

fendants. While those defendants engaged in “intentional, know-

ing conduct” involving fraud and scienter, Defendants’ violations

were “more minor, technical violations” without fraud or scienter.

See Ginsburg, 362 F.3d at 1305. So our precedent does not support

a finding of egregiousness here.

The partial dissent would affirm on the same ground as the

district court imposed the injunction, asserting that “[w]e routinely

affirm when voluntary cessation is the only impediment to an of-

fender’s recidivism.” Dissent at 3. In support of this proposition,

both the district court and partial dissent rely on Carriba Air and

Ginsburg. But for the reasons we have explained, Carriba Air and

Ginsburg cannot bear that weight. And were the uncertainty of vol-

untary cessation dispositive, Carriba Air’s multi-factor frame-

work—which we’ve employed for nearly fifty years—would be

meaningless.

Instead, the district court was required to consider each of

the Blatt factors and order a permanent injunction only if the bal-

ance of those factors supported an injunction. To be sure, the dis-

trict court nominally “applied the correct legal standard.” See Gins-

burg, 362 F.3d at 1305. But since we identified the Blatt factors more

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21-13755 Opinion of the Court 33

than forty years ago, we have not, to the best of our knowledge,

approved of enjoining a defendant from participating in otherwise-

lawful behavior when that defendant had not already exhibited his

unlikeliness to comply with the law going forward—either through

prior adjudicated securities violations or through conduct border-

ing on (if not amounting to) criminal.

Contrary to the partial dissent’s contentions, our recogni-

tion of this fact does not somehow create a “new test” for when a

district court may enjoin a defendant from engaging in otherwise-

lawful conduct. Rather, it simply applies more than forty years of

our precedent using the Blatt factors to determine when such an

injunction may be appropriate. Indeed, no Circuit precedent we’re

aware of—including the only cases the district court cited in sup-

port of its penny-stock bar—supports the enjoining of otherwise-

lawful behavior under the circumstances here.

In short, although the district court otherwise did an admi-

rable job sorting through the issues in this case, it “made a clear

error of judgment in the result it reached applying that standard.”

See Ginsburg, 362 F.3d at 1305. We acknowledge that “the burden

of showing that the trial court abused its discretion is necessarily a

heavy one,” SEC v. Caterinicchia, 613 F.2d 102, 105 (5th Cir. 1980),

but it is not an insurmountable one. So we conclude that the dis-

trict court abused its discretion in ordering the penny-stock bar.

We vacate that portion of the injunction, though we affirm the por-

tion enjoining future Exchange Act violations.

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34 Opinion of the Court 21-13755

IV. CONCLUSION

We AFFIRM IN PART and REVERSE IN PART the judg-

ment for the Commission.

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21-13755 WILLIAM PRYOR, C.J., Dissenting in part 1

WILLIAM PRYOR, Chief Judge, dissenting in part:

My colleagues and I agree that the Commission had the au-

thority to prosecute Almagarby for securities law violations and

that the district court properly ordered him to disgorge over

$885,000 in ill-gotten gains. I write separately because I would also

affirm the penny-stock ban, which is aimed squarely at curtailing

the kind of egregious conduct for which Almagarby has been found

liable. The district court did not abuse its discretion when, after

recognizing Almagarby’s extensive illegal participation in penny-

stock offerings, it enjoined him from future participation in such

offerings.

The Commission is entitled to a permanent injunction when

it establishes “a prima facie case of previous violations of federal

securities laws” and “a reasonable likelihood that the wrong will be

repeated.” SEC v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004). The

“reasonable likelihood” of reoccurrence is the touchstone of the in-

quiry, which considers the following factors:

[the] egregiousness of the defendant’s actions, the

isolated or recurrent nature of the infraction, the de-

gree of scienter involved, the sincerity of the defend-

ant’s assurances against future violations, the defend-

ant’s recognition of the wrongful nature of the con-

duct, and the likelihood that the defendant’s occupa-

tion will present opportunities for future violations.

Id. (internal quotation marks omitted) (quoting SEC v. Carriba Air,

Inc., 681 F.2d 1318, 1322 (11th Cir. 1982)). Conduct is egregious

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2 WILLIAM PRYOR, C.J., Dissenting in part 21-13755

when a defendant exhibits “a pattern of past and present question-

able business practices.” Carriba Air, 681 F.2d at 1322. Although sci-

enter—that is, a defendant’s awareness that his egregious conduct

violates the law—is an important factor, it is not a prerequisite to

injunctive relief. Calvo, 378 F.3d at 1216.

The grant or denial of injunctive relief “rests within the

sound discretion of the trial court and will not be disturbed unless

there has been a clear abuse of it.” SEC v. Blatt, 583 F.2d 1325, 1334

(5th Cir. 1978) (citation and internal quotation marks omitted).

And “the burden of showing that the trial court abused its discre-

tion is necessarily a heavy one.” SEC v. Caterinicchia, 613 F.2d 102,

105 (5th Cir. 1980). Although it cites our precedents, the majority

nevertheless invents a new test that requires an injunction to either

(1) be a preceded by a “prior adjudicated securities violations” or

(2) involve “conduct bordering on (if not amounting to) criminal.”

Maj. Op. 32. But that test is not the legal standard articulated in our

precedents and against which we must evaluate an abuse of discre-

tion. To be sure, our precedents have affirmed injunctions where

the majority’s factors are present, but we have never held that

those factors comprise the universe of circumstances where an in-

junction is warranted.

The district court’s tailored injunction was not an abuse of

discretion. It correctly applied our precedents. And it considered

the full range of relevant factual predicates: the district court or-

dered the penny-stock ban only after it “reviewed” and expressly

“adopted” the magistrate judge’s report, which it found “to be

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21-13755 WILLIAM PRYOR, C.J., Dissenting in part 3

clear, cogent, and compelling.” SEC v. Almagarby, No. 17-62255-

CIV, 2022 WL 832279, at *1 (S.D. Fla. Feb. 15, 2022). That report

recognized that Almagarby’s “conduct qualifies as egregious”; that

his “violations spanned multiple transactions over a three-year pe-

riod generating $2,601,383.09 from the sale of shares”; that he “has

two other business entities like [Microcap] that remain active”; that

his youth supports an inference of recidivism; and that “nothing

will prevent [Almagarby] from returning to the violations other

than . . . voluntary cessation.” These considerations speak to the

full panoply of factors relevant to an injunction.

The majority would have us take at face value Almagarby’s

reassurances against future securities-law violations and his prom-

ise to “never again” operate as an unlicensed securities dealer. Maj.

Op. 26. But we have explained that a trial judge may “properly []

conclude[] that absent an injunction there [is] a reasonable likeli-

hood of securities law violations in the future,” even if a defendant

promises to stop. Carriba Air, 681 F.2d at 1322. A defendant’s “as-

sertions . . . that he would cease his wrongful conduct are by no

means dispositive,” and for good reason. Id. (citing Mitchell v. Pid-

cock, 299 F.2d 281, 286–87 (5th Cir. 1962)); see also SEC v. Ginsburg,

362 F.3d 1292, 1305 (11th Cir. 2004). Were we to credit the “mea

culpas and protestations of reformation” of every liable defendant,

it would be the rare instance in which we could affirm an injunc-

tion. Carriba Air, 681 F.2d at 1322. In imposing the penny-stock ban,

the district court implicitly found wanting Almagarby’s sincerity in

disavowing future misconduct. And we must “give weight to the

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4 WILLIAM PRYOR, C.J., Dissenting in part 21-13755

trial court’s opportunity to judge the credibility” of Almagarby’s

assurances that he will not recidivate. Id. at 1323.

Almagarby also continues to deny any misconduct. No-

where in the record does he acknowledge the illegality of his activ-

ity or that his toxic lending was a “questionable business prac-

tice[].” See id. at 1322. His refusal to accept responsibility is not en-

couraging, nor is his tepid reassurance on appeal that his past illegal

conduct “doesn’t mean [he] will repeat the conduct in question.”

Almagarby’s refusal to recognize wrongdoing weighs in favor of

the need for injunctive relief to restrain future wrongdoing. Gins-

burg, 362 F.3d at 1305 (“Promising to stop doing wrong while deny-

ing any wrongdoing is the wrong way to establish that wrongdoing

will not reoccur.”); SEC v. MacElvain, 417 F.2d 1134, 1137 (5th Cir.

1969) (that violators “maintained and continue to contend” that

their illegal securities offering “d[id] not involve a ‘security’”

weighed in favor of a permanent injunction).

Nor does the record support the majority’s optimistic inter-

pretation that Almagarby “consulted numerous attorneys” in an at-

tempt to “follow the law.” Maj. Op. 26. Indeed, Almagarby admits

that he engaged “no fewer than ten attorneys” to “provide Rule 144

Opinion Letters”—that is, letters advising that Almagarby was ex-

empt from the Commission’s Rule 144 reporting requirements, for

which he has not been prosecuted. But those letters may reflect

only Almagarby’s desire to immunize himself from liability, as much

as any desire to follow the law. Cf. James J. Fuld, Legal Opinions in

Business Transactions—An Attempt to Bring Some Order out of Some

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21-13755 WILLIAM PRYOR, C.J., Dissenting in part 5

Chaos, 28 BUS. LAW. 915, 918 (1973). Almagarby retained counsel to

obtain legal documents that corroborated his exemption from the

Commission’s regulation and reporting requirements. We have

recognized that “continual[] attempt[s] to circumvent the registra-

tion requirements [of the Securities Act] rather than comply with

them” suggests a greater need for injunctive relief. MacElvain, 417

F.2d at 1137 (emphasis added).

As the district court recognized, Almagarby engaged in the

practice of toxic lending over the course of years. He illegally sold

over $2 million of securities and has never admitted any wrongdo-

ing. And he still maintains two active business entities that he

formed to trade penny stocks. See Ginsburg, 362 F.3d at 1305 (de-

fendant’s board position would offer “future opportunities to vio-

late the securities laws”); Calvo, 378 F.3d at 1216 (defendant’s “cur-

rent occupation—which is investment-related—presents opportu-

nities for future securities violations”). Voluntary cessation is the

only impediment to Almagarby’s recidivism. I cannot agree that

the penny-stock ban was an abuse of discretion under these circum-

stances. I respectfully dissent as to Part III-D.