Securities and Exchange Commission v. Ibrahim Almagarby, et al.

[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
____________________
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 1 of 39

-- 1 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 2 of 39

-- 2 of 39 --

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, N ASDAQ (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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 3 of 39

-- 3 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 4 of 39

-- 4 of 39 --

21-13755 Opinion of the Court 5
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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 5 of 39

-- 5 of 39 --

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 . C OMM ’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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 6 of 39

-- 6 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 7 of 39

-- 7 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 8 of 39

-- 8 of 39 --

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. S EC. & EXCH . C OMM ’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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 9 of 39

-- 9 of 39 --

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. S EC. & EXCH. C OMM ’N ( June 5, 2014),
https://perma.cc/H5L7-PK2P. Providing market liquidity is itself
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 10 of 39

-- 10 of 39 --

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, B LACK ’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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 11 of 39

-- 11 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 12 of 39

-- 12 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 13 of 39

-- 13 of 39 --

14 Opinion of the Court 21-13755
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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 14 of 39

-- 14 of 39 --

21-13755 Opinion of the Court 15
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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 15 of 39

-- 15 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 16 of 39

-- 16 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 17 of 39

-- 17 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 18 of 39

-- 18 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 19 of 39

-- 19 of 39 --

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 (A M . 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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 20 of 39

-- 20 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 21 of 39

-- 21 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 22 of 39

-- 22 of 39 --

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 Blatt1 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).
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 23 of 39

-- 23 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 24 of 39

-- 24 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 25 of 39

-- 25 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 26 of 39

-- 26 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 27 of 39

-- 27 of 39 --

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, B LACK ’S L AW 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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 28 of 39

-- 28 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 29 of 39

-- 29 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 30 of 39

-- 30 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 31 of 39

-- 31 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 32 of 39

-- 32 of 39 --

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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 33 of 39

-- 33 of 39 --

34 Opinion of the Court 21-13755
IV. CONCLUSION
We AFFIRM IN PART and REVERSE IN PART the judg-
ment for the Commission.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 34 of 39

-- 34 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 35 of 39

-- 35 of 39 --

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 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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 36 of 39

-- 36 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 37 of 39

-- 37 of 39 --

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
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 38 of 39

-- 38 of 39 --

21-13755 WILLIAM PRYOR , C.J., Dissenting in part 5
Chaos, 28 B US. L AW. 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.
USCA11 Case: 21-13755 Document: 84-1 Date Filed: 02/14/2024 Page: 39 of 39

-- 39 of 39 --