SEC Pushes Back
The SEC counters that the system was legitimate evidence of distribution, especially since defendants refused to turn over their banking records, invoking the Fifth Amendment.
“They used the Fifth Amendment as a shield, and now they’re trying to use it as a sword,” SEC lawyer Kerry J. Dingle argued.
The regulator insists the records show allocations to defendants, including a coded tuition payment linked to one participant. But defense attorneys countered it was merely a request, not proof of an actual transfer.
Jury Trial and Disputed Records
Gasarch and Friesen were found liable after a 2023 jury trial, while Sexton, Veldhuis, and Kelln stipulated to liability earlier. Sharp himself faces a $53 million default penalty after failing to appear.
District Judge William G. Young admitted the Q system as business records, despite acknowledging the difficulty of tying exact amounts to individual defendants. Defense counsel now argues that admission was an error.
Appeals Panel Weighs the Case
Judges Gustavo A. Gelpí Jr., O. Rogerlee Thompson, and Lara E. Montecalvo heard arguments and pressed counsel on whether any entries in the Q system could reasonably link funds to the defendants.
The panel has taken the matter under advisement, leaving the fate of the $42M disgorgement order hanging in the balance.
