Post–Loper Bright: No Deference to SEC Interpretations When Defining “Investment Adviser” Under the Advisers Act

1. Introduction

The Securities and Exchange Commission (“SEC”) sued Evarist C. Amah (pro se on appeal) alleging that he solicited investments from members of his religious community through materially false and misleading statements, violating the Securities Exchange Act, the Securities Act, and the Investment Advisers Act. The Southern District of New York granted summary judgment for the SEC on liability under all three statutes and imposed remedies: a permanent injunction, disgorgement of $10,000 (plus prejudgment interest) tied to two transactions, and a civil penalty of $669,667.

On appeal, the Second Circuit largely affirmed the Exchange Act and Securities Act liability and the disgorgement award. But it vacated and remanded the Advisers Act liability—and those remedial components premised on an Advisers Act violation—because the district court and SEC relied on an SEC interpretive position without the independent judicial statutory construction required by Loper Bright Enterprises v. Raimondo.

Key issues

• Whether Amah made materially false or misleading statements and acted with scienter under Exchange Act § 10(b)/Rule 10b-5 and Securities Act § 17(a).
• Whether Amah qualified as an “investment adviser” “for compensation” under 15 U.S.C. § 80b-2(a)(11), and whether the court could rely on the SEC’s interpretation (including 76 Fed. Reg. 39646, 39669 (July 6, 2011)).
• Whether the injunction, disgorgement, and civil penalties were appropriate and properly calculated.

2. Summary of the Opinion

3. Analysis

3.1 Precedents Cited

A. Standards of review and summary judgment framework

• Covington Specialty Ins. Co. v. Indian Lookout Country Club, Inc., 62 F.4th 748, 752 (2d Cir. 2023): The court restated de novo review of summary judgment, construing evidence and inferences for the non-movant—important given Amah’s pro se posture.
• Mhany Mgmt., Inc. v. County of Nassau, 819 F.3d 581, 620 (2d Cir. 2016): Summary judgment is appropriate when the record cannot lead a rational factfinder to rule for the non-movant; the panel used this to reject Amah’s conclusory “hypothetical scenario” explanation.
• SEC v. Fowler, 6 F.4th 255, 265 (2d Cir. 2021): Remedies after securities-law violations are reviewed for abuse of discretion; also supplies the civil-penalty factor test and maximum-penalty principles later used to reject the Eighth Amendment challenge.

B. Elements of fraud-based securities violations (materiality, scienter)

• SEC v. DiBella, 587 F.3d 553, 563 (2d Cir. 2009): Used for the Exchange Act § 10(b)/Rule 10b-5 framework; later also supplies the Advisers Act statutory definition of “investment adviser” (quoted at 587 F.3d at 567 n.10).
• SEC v. Frohling, 851 F.3d 132, 136 (2d Cir. 2016): Cited for Securities Act § 17(a) analysis.
• In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 250 (2d Cir. 2016): Materiality standard—whether the representations “taken together and in context” would mislead a reasonable investor.
• In Re Shanda Games Ltd. Sec. Litig., 128 F.4th 26, 46 (2d Cir. 2025) and Tongue v. Sanofi, 816 F.3d 199, 210 (2d Cir. 2016): Projections are “opinion statements,” yet actionable when omissions make them misleading to a reasonable investor—central to treating Amah’s optimistic projections as potentially fraudulent in context.
• Iowa Pub. Emps.' Ret. Sys. v. MF 13 Glob., Ltd., 620 F.3d 137, 141 (2d Cir. 2010): Bespeaks-caution doctrine: forward-looking statements with sufficient cautionary language may be nonactionable.
• Meyer v. Jinkosolar Holdings Co., Ltd., 761 F.3d 245, 251 (2d Cir. 2014) and Rombach v. Chang, 355 F.3d 164, 173 (2d Cir. 2004): Generic warnings do not immunize statements when “undisclosed facts on the ground” (or realized risks) would substantially alter investor assessment; the panel used these to reject Amah’s reliance on generalized risk disclosures once near-total losses had already occurred.
• SEC v. McNulty, 137 F.3d 732, 741 (2d Cir. 1998); Novak v. Kasaks, 216 F.3d 300, 311 (2d Cir. 2000); Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001): Scienter may be shown via reckless disregard; knowledge or access to contradictory facts supports scienter; and misrepresenting material facts one “should have known” were false satisfies the standard.

C. Advisers Act linkage to fraud findings—and the “investment adviser” threshold

• Dembski v. SEC, 726 F. App'x 841, 844 (2d Cir. 2018) (summary order): Notes that facts supporting § 17(a) or § 10(b) violations also support Advisers Act § 206 violations—but only if the defendant qualifies as an “investment adviser.”
• Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 394, 413 (2024): The fulcrum of the remand: courts must exercise independent judgment and may not defer to agency interpretations simply because a statute is ambiguous.
• Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir. 2006): Pro se filings are construed liberally; the court relied on this to find Amah’s statutory objection sufficient despite not citing Loper Bright.
• Schonfeld v. Hilliard, 218 F.3d 164, 184 (2d Cir. 2000): While appellate courts can affirm on alternative grounds, remand is preferred for issues not fully developed below—used to justify sending the Advisers Act interpretive question to the district court first.
• Hodge v. Police Officers, 802 F.2d 58, 60-61 (2d Cir. 1986): Addresses discretionary appointment of counsel under 28 U.S.C. § 1915(e)(1); the panel flagged the Advisers Act question’s complexity as a reason to consider appointing counsel on remand.

D. Injunction preservation, waiver, and remedial standards

• SEC v. Cavanagh, 155 F.3d 129, 135 (2d Cir. 1998): Standard for SEC injunctive relief—“substantial likelihood of future violations”—and relevant factors (scienter, recurrence, denial of wrongdoing, occupation).
• Green v. Dep't. of Educ. of City of N.Y., 16 F.4th 1070, 1078 (2d Cir. 2021) and In re Nortel Networks Corp. Sec. Litig., 539 F.3d 129, 133 (2d Cir. 2008): Reinforce the rule against raising new arguments on appeal; used to reject Amah’s belated “collateral consequences” theory for limiting injunctive relief.

E. Disgorgement and net profits

• SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006): Disgorgement prevents unjust enrichment from violations.
• Liu v. SEC, 591 U.S. 71, 75, 91-92 (2020): Disgorgement must not exceed net profits and must deduct legitimate expenses; the panel applied this structure and placed the burden on Amah to substantiate offsets.
• SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1478 (2d Cir. 1996): Supports disgorgement as equitable relief (consistent with later constraints recognized in Liu).
• SEC v. Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013): Burden-shifting: SEC provides reasonable approximation; defendant must show gains were unaffected or should be reduced.

F. Civil penalties and the Excessive Fines Clause

• United States v. George, 779 F.3d 113, 122 (2d Cir. 2015) and Reese v. Triborough Bridge & Tunnel Auth., 91 F.4th 582, 589 (2d Cir. 2024): Framework for proportionality under the Eighth Amendment’s Excessive Fines Clause; used to uphold the penalty amount as not “grossly disproportional” (though the Advisers Act-based component was vacated for statutory reasons).

3.2 Legal Reasoning

A. Materially false or misleading statements (Exchange Act / Securities Act)

The panel agreed that two performance reports were straightforwardly false: a June 2018 report claiming a $439,751 value and 5.96% YTD return when contemporaneous account statements reflected near-total losses, and a July 2019 report claiming ~$325,794 value and -36.74% return since inception when brokerage records reflected roughly $1,742 and an approximately -99.66% return. On Amah’s “hypothetical scenario” defense, the court emphasized that the report and accompanying email characterized the numbers as actual “performance,” not a hypothetical.

As to projections, the court treated them as opinion/forward-looking statements but found them misleading in context: Amah “double[d] down” on positive projections and “guarantee[d]” returns while withholding actual performance information and while account statements showed catastrophic losses. Generic risk warnings did not cure omissions once the warned-of risk had effectively materialized.

B. Scienter

The panel found “strong circumstantial evidence” of at least recklessness because Amah knew (or had ready access to) the true performance, approved statements reflecting massive losses, and nonetheless circulated rosy or less-negative performance reports. The court also treated evasive responses to investor questions and failure to correct inaccuracies as reinforcing scienter rather than good faith.

C. The Advisers Act: “investment adviser” and post–Loper Bright methodology

The district court found the SEC had not established that Amah received (or expected) compensation from MOSI-IT investors and acknowledged uncertainty about fees from non-MOSI-IT clients. It nevertheless held Amah met the “investment adviser” definition based on an SEC position that an expectation of compensation can suffice and that once a person qualifies as an adviser (by compensation from any client), the Advisers Act governs all adviser-client relationships even if uncompensated.

The Second Circuit vacated because the SEC and district court treated the SEC’s interpretation as “authoritative” without independently defending it under the statute’s text—an approach no longer permissible after Loper Bright Enterprises v. Raimondo. Notably, the panel flagged the absence of controlling Second Circuit or Supreme Court precedent interpreting the “for compensation” language in this context, making the question “novel and important.” Rather than decide the statutory meaning in the first instance on a thinly developed record and cursory appellate briefing, the court chose remand under Schonfeld v. Hilliard.

D. Remedies

• Injunction: Affirmed as to Exchange Act/Securities Act under SEC v. Cavanagh factors (recurrent conduct, scienter, denial of wrongdoing, risk of future violations). Vacated insofar as it rested on an Advisers Act violation.
• Disgorgement: Affirmed as $10,000 net profit (two transactions), with no substantiated legitimate-expense offsets under Liu v. SEC and SEC v. Razmilovic.
• Civil penalties: Third-tier penalties were justified by fraud/recklessness and substantial losses; Eighth Amendment proportionality challenge failed under United States v. George and Reese v. Triborough Bridge & Tunnel Auth.. But because the district court imposed one equal penalty “for each of the three federal securities acts,” the Advisers Act component was vacated and remanded.

3.3 Impact

Although nonprecedential, the order signals three practical developments:

• Operationalizing Loper Bright in SEC enforcement litigation: Courts in the Second Circuit should not accept SEC interpretive positions as “authoritative” on statutory meaning (including definitional thresholds like “investment adviser” and “for compensation”) without conducting independent textual and structural analysis.
• Higher litigation burden for the SEC on Advisers Act coverage questions: Where the SEC’s theory relies on expansive readings of “compensation” (including “expectation of compensation” or “once an adviser always an adviser as to all clients”), it should be prepared to defend that reading on statutory grounds, not by citation to agency materials alone.
• Remedy tailoring to surviving predicates: Injunctions and penalty computations that allocate components by statute (as here, one penalty per Act) become vulnerable if one statutory predicate is later vacated.

4. Complex Concepts Simplified

• Material misstatement/omission: A statement is “materially misleading” if it would mislead a reasonable investor when read in context (e.g., calling a document a “performance report” implies real results, not hypotheticals).
• Scienter: The required wrongful state of mind for fraud-based securities claims; it can be shown by recklessness—speaking as if true while ignoring (or consciously disregarding) readily available contradictory facts.
• Bespeaks-caution doctrine: Warnings can sometimes neutralize forward-looking statements, but not where (i) warnings are generic, or (ii) the issuer fails to disclose that the warned-of risk has already occurred or is already unfolding.
• Disgorgement: Returning ill-gotten net profits; under Liu, legitimate expenses must be deducted, but the defendant must substantiate them.
• Third-tier civil penalties: The most severe statutory level, reserved for fraud/recklessness plus substantial losses (or risk thereof). Courts consider egregiousness, scienter, recurrence, harm, and ability to pay.
• Loper Bright’s core command: Courts must independently interpret statutes and cannot defer to an agency interpretation merely because a statute is ambiguous.

5. Conclusion

The Second Circuit’s order largely upheld the SEC’s fraud case against Amah under the Exchange Act and Securities Act, affirming findings of material misstatements and scienter and sustaining disgorgement and most remedial determinations. The pivotal development is the vacatur and remand on the Advisers Act: post–Loper Bright, courts must independently determine whether a defendant is an “investment adviser” “for compensation,” rather than treating SEC interpretive positions as controlling. This re-centers Advisers Act coverage disputes on statutory text and judicial construction and may reshape how the SEC pleads and proves threshold status in future enforcement actions.