SEC v. Gasarch: Retroactive 10-Year Disgorgement, Concerted-Wrongdoing Joint Liability, and Rule 65(d) Limits on “Obey-the-Law” Injunction Drafting

I. Introduction

SEC v. Gasarch (1st Cir. Feb. 19, 2026) arises from a long-running “pump-and-dump” enterprise orchestrated by Frederick (“Fred”) Sharp and his “Sharp Group,” which sold a bundled “white glove” fraud service: shell/nominee structures, offshore accounts, encrypted communications, and fabricated paperwork designed to conceal beneficial ownership and evade federal securities regulation. Over nearly a decade, the scheme accumulated penny stocks, paid promoters to generate misleading market hype, and “dumped” shares at inflated prices—generating more than $1 billion in gross proceeds.

The Securities and Exchange Commission brought a civil enforcement action in the District of Massachusetts against multiple participants. Two defendants—Zhiying Yvonne Gasarch (a Sharp Group employee and “master of finance” handling wires and internal records) and Jackson Friesen (a Sharp Group client)—went to jury trial and were found liable. Three others—Mike K. Veldhuis, Paul Sexton, and Courtney Kelln—waived trial rights, consented to judgments, and litigated only remedies.

On appeal, the First Circuit confronted: (1) the admissibility and authentication of the Sharp Group’s seized encrypted ledger (“Q system”); (2) aiding-and-abetting jury instructions and sufficiency of the evidence; (3) the scope and calculation of disgorgement (including joint-and-several liability and limitations periods under the NDAA amendments); (4) civil penalties; and (5) the permissibility and specificity of permanent injunctions under Rule 65(d).

II. Summary of the Opinion

  • Trial rulings affirmed: The “Q system” was properly authenticated and admitted as a business record; aiding-and-abetting instructions were lawful; evidence sufficed to sustain Gasarch’s primary and aiding-and-abetting liability.
  • Disgorgement largely affirmed: The court upheld disgorgement amounts and the district court’s use of joint-and-several liability with Sharp under Liu’s “concerted wrongdoing” exception, even though imposed sua sponte, because it did not prejudice appellants and did not expand their caps.
  • NDAA limitations holding: The court held the NDAA’s 10-year disgorgement statute of limitations applies to actions “commenced on or after” Jan. 1, 2021, rejecting the argument that only “pending” cases get retroactive reach.
  • Civil penalties affirmed for Gasarch and Sexton.
  • Injunctions mostly affirmed, one vacated: The court upheld broad securities-law injunctions generally but vacated the injunction barring violations of Section 13(d) and Rule 13d-1 because it impermissibly required Sexton to look beyond the “four corners” of the order, violating Rule 65(d)(1).

III. Analysis

A. Precedents Cited

1. Securities-law “table setting” and breadth of antifraud provisions

The opinion situates the fraud within the disclosure-and-registration architecture of federal securities law. It invokes Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund (quoting Pinter v. Dahl) to underscore that registration and disclosure are the Securities Act’s “linchpin,” framing why evasive nominee/offshore structures are not mere technicalities but attacks on investor-protection mechanisms.

It cites Tax-Free Fixed Income Fund for P.R. Residents, Inc. v. Ocean Cap. LLC (citing Gen. Aircraft Corp. v. Lampert) for the practical purpose of Section 13(d): identifying large beneficial owners and their motivations and funding. It also emphasizes the breadth of antifraud provisions via United States v. Naftalin, reinforcing that Congress wrote “fraud” expansively in the offer/sale context.

2. Authentication and hearsay: ledgers, distinctive characteristics, business records

The court’s evidentiary analysis relies on foundational First Circuit authentication principles from United States v. Blanchard (Rule 901(a)) and United States v. Paulino (authentication distinct from admissibility; distinctive contents may authenticate). The court also draws support from United States v. Ceballos (5th Cir.) for the proposition that conspiracy ledgers can be authenticated by contents and discovery circumstances when paired with participant testimony.

For hearsay, the court addresses the business records exception using U.S. Bank Tr., N.A. as Tr. for LSF9 Master Participation Tr. v. Jones (Rule 803(6) “reliable enough” standard) and United States v. Doe (Rule 803(6) criteria). It rejects the argument that only the person who made each entry can qualify, relying on Jones (quoting Wallace Motor Sales, Inc. v. Am. Motor Sales Corp.) that a “qualified witness” is one who can explain the making/keeping of records and be cross-examined.

3. Aiding-and-abetting: scienter and instruction content

Gasarch’s reliance on SEC v. Apuzzo is rejected as incomplete given Dodd-Frank’s amendment of 15 U.S.C. § 78t(e) to include “recklessly.” The court ties the instruction to its own aiding-and-abetting framework as described in SEC v. Tambone (reinstated in relevant part en banc), and uses Davignon v. Hodgson to frame when refusal of a requested instruction warrants reversal. It finds waiver of a “law of the case” theory under Sparkle Hill, Inc. v. Interstate Mat Corp. and Seafreeze Shoreside, Inc. v. U.S. Dep't of Interior.

4. Disgorgement and equitable limits: Liu, joint-and-several, uncertainty allocation

The remedies analysis is anchored in Liu v. SEC (disgorgement must be tethered to “net profits” and “awarded for victims,” and joint-and-several liability is generally disfavored but permitted for “partners engaged in concerted wrongdoing”). The First Circuit then integrates its own recent disgorgement jurisprudence, notably SEC v. Navellier & Assocs., Inc. and SEC v. Commonwealth Equity Servs., LLC, to reaffirm the “reasonable approximation” standard and burden shifting: once the SEC reasonably approximates unjust enrichment, defendants must show the amount is not reasonable.

The opinion relies on SEC v. Happ and SEC v. MacDonald for the principle that uncertainty in calculation is borne by the wrongdoer whose illegality created the uncertainty (“doubts are to be resolved against the defrauding party”).

On joint-and-several disgorgement, the court distinguishes BioPoint, Inc. v. Dickhaut, where the First Circuit reversed joint-and-several liability against a non-owner employee when profits accrued to the company and were not shown to accrue to him. Here, by contrast, allocation data tied proceeds to each appellant’s Q account, and caps prevented liability for profits “accrued to another” (the Liu concern).

5. Limitations retroactivity: Landgraf framework and “pending or commenced” text

The court applies retroactivity principles from Landgraf v. USI Film Prods. and its own approach in Lattab v. Ashcroft. It also aligns with out-of-circuit treatments in SEC v. Ahmed (2d Cir.) and SEC v. Hallam (5th Cir.) on the NDAA’s “pending on, or commenced on or after” clause, and uses Landgraf’s own example language to show Congress can clearly command retroactivity.

6. Consent judgments and waiver

The court relies on Coughlin v. Regan and Swift & Co. v. United States to reinforce that parties to consent judgments waive objections within the judgment’s scope absent an unequivocal reservation. It cites SEC v. Hallam for the basic rule that a party ordinarily may not appeal issues decided by consent judgment, and endorses district-court practice (citing SEC v. Engler and SEC v. Rooney) of accepting complaint allegations as true for remedies where the defendant agreed not to contest liability.

7. Civil penalties and injunction specificity

For civil penalties, the court uses SEC v. Sargent (factors for penalty assessment) and acknowledges the 5-year clock under Gabelli v. SEC.

For injunctions, it invokes SEC v. Lemelson (likelihood of recidivism; review for abuse of discretion), general injunction power from NLRB v. Express Publ'g Co. (quoted in Brown v. Trs. of Bos. Univ.), and “obey-the-law” acceptability where proclivity is shown from McComb v. Jack. Paper Co.. Critically, the Rule 65(d) defect is illustrated through SEC v. Goble (11th Cir.): an injunction is improper if a defendant must look beyond the order to determine obligations.

B. Legal Reasoning

1. The Q system: authentication and business-record admissibility in a fraud enterprise

The court’s evidentiary method is practical: it recognizes the “Q system” as an internal ledger built for secrecy but still used for operational precision. Authentication was supported by (i) creator testimony (how it was designed and who accessed it), (ii) seizure chain-of-custody evidence (servers labeled “Bond” in Curaçao), and (iii) participant-user testimony confirming contemporaneous entry and periodic reconciliation. The court also treats internal code names and matching timeframes as “distinctive characteristics” supporting authenticity (Rule 901(b)(4) logic).

On hearsay, the key move is the court’s acceptance that the system was kept as part of a “regularly conducted activity”—even if the activity was unlawful—and that reliability was corroborated by external brokerage records matching transaction entries “near perfectly.” The court treats the ledger’s allocation mechanics (debit/credit batch IDs and commissions) as part of the same reliable recordkeeping practice, reinforced by the economic incentives of conspirators to keep the books accurate so everyone got paid.

Doctrinally, the opinion reinforces that illegal enterprises can generate “business records” for Rule 803(6) purposes if the recordkeeping is systematic and reliable; the exception turns on reliability and regular practice, not the legitimacy of the business.

2. Aiding-and-abetting: recklessness is statutorily sufficient; “specific violation” knowledge is not the demanded formality

The court rejects Gasarch’s attempt to hardwire a “knowledge only” standard into 15 U.S.C. § 78t(e), pointing to Dodd-Frank’s explicit addition of “recklessly.” It also reads the charge “as a whole,” emphasizing that the instruction referenced the underlying violations and required that Gasarch understood her role was part of improper activity and that she knowingly or recklessly provided substantial assistance. The court treats selective quotation of a single instruction clause as insufficient to show instructional error.

3. Sufficiency: Section 17(a)(3) is negligence-based and conduct-focused

The court’s sufficiency analysis draws a sharp line between scienter-based antifraud provisions and Section 17(a)(3). Citing Aaron v. SEC and SEC v. Johnston, it reiterates that Section 17(a)(3) does not require scienter; it focuses on conduct operating as a fraud on purchasers. That framing matters: Gasarch’s “I made no public statements and didn’t trade” defense does not meet the statute’s scope, which can reach “course of business” deception (including fabricating invoices, orchestrating “safe” payment channels for promotions, and directing disbursement of proceeds through nominee accounts).

For aiding and abetting, the court finds sufficient evidence of knowing/reckless substantial assistance through encrypted messages discussing “safe accounts,” staging loan agreements to explain suspicious payments, and her central role in moving money to keep the scheme functioning.

4. Disgorgement: (i) “reasonable approximation” can be ledger-based, (ii) uncertainty is charged to wrongdoers, (iii) joint-and-several may be used to capture hub-and-spoke concerted wrongdoing

The disgorgement analysis is the opinion’s remedial core. The court endorses the district court’s reliance on Q system allocations to approximate each defendant’s proceeds, treating the ledger accounts “just like a bank account would” (credits, debits, statements, and access on request). It emphasizes that the SEC’s burden is “reasonable approximation,” not mathematical certainty, and that defendants must rebut with evidence (e.g., showing allocations did not in fact accrue to them).

On “actual receipt” objections, the opinion adopts a policy-inflected equity principle: sophisticated schemes built to avoid paper trails cannot benefit from the evidentiary gaps they engineered. That is the functional application of the Happ/MacDonald maxim that doubts are resolved against the defrauder.

The joint-and-several holding is explicitly tethered to Liu. The court treats a hub-and-spoke conspiracy as a paradigmatic “concerted wrongdoing” scenario and distinguishes BioPoint, Inc. v. Dickhaut because here the record contained individualized allocations and caps that prevent liability for profits purely “accrued to another.” It also rejects a categorical rule that a court cannot impose joint-and-several disgorgement sua sponte, emphasizing lack of prejudice where caps were unchanged and the designation could only reduce defendants’ exposure if the hub (Sharp) pays.

5. NDAA: “pending or commenced” language as an express retroactivity command

The statute-of-limitations holding is straightforward: the NDAA amendment says the 10-year period “shall apply” to any action “pending on, or commenced on or after” Jan. 1, 2021. Applying Landgraf and Lattab, the court treats this as the kind of clear temporal instruction that ends the retroactivity inquiry. It also deploys the absurdity canon (citing Bostock v. Clayton Cnty., Ga. (Kavanaugh, J., dissenting) for the canon’s formulation) to reject a reading that would perversely give broader reach to cases filed before the statute existed than to cases filed after.

6. Injunction drafting: broad antifraud injunctions can stand, but Rule 65(d) forbids “look elsewhere to know what you must do”

The injunction analysis draws a pragmatic line. The court accepts that broad securities-law injunctions are not per se unlawful and can be appropriate where recidivism risk is shown. But it vacates the Section 13(d)/Rule 13d-1 injunction because, unlike the other injunctions that restated prohibited conduct, this one effectively incorporated external regulatory materials (Schedule 13D and CFR definitions) by reference. That violates Rule 65(d)(1)’s requirement that the injunction itself describe restrained/required acts “in reasonable detail” without referencing other documents.

C. Impact

1. SEC enforcement and proof tools: encrypted ledgers can be “business records”

The opinion materially strengthens the SEC’s ability to rely on seized internal systems from clandestine operations. By affirming both authentication and Rule 803(6) admissibility, the First Circuit signals that encrypted or offshore-hosted accounting systems—if systematically kept and corroborated—can substitute for missing bank records, especially when wrongdoing was designed to avoid traditional documentation.

2. Disgorgement after Liu: joint-and-several remains viable for conspiracies, if capped and tied to participation

The case provides a workable post-Liu model: joint-and-several disgorgement is sustainable when (i) “concerted wrongdoing” is found, (ii) defendants’ participation and benefit are evidenced (here, via ledger allocations), and (iii) caps prevent converting disgorgement into an untethered penalty. The opinion also reduces the litigation value of “we lack bank records” defenses where defendants helped build the opacity.

3. NDAA clarity: ten-year disgorgement window in newly filed cases

The ruling adds First Circuit authority to the growing consensus that the NDAA’s 10-year disgorgement window applies to cases commenced after Jan. 1, 2021, even for conduct that would have been time-barred under Kokesh v. SEC’s five-year default. For future litigants, the center of gravity shifts from “is it time-barred?” to “is it scienter-based?” and “is the SEC’s approximation reasonable?”

4. Injunction practice: Rule 65(d) as a real constraint in SEC cases

The vacatur of the Section 13(d)/Rule 13d-1 injunction is a drafting warning: even where “obey-the-law” injunctions are permissible, courts must restate obligations within the order itself. This will likely push future SEC proposed judgments—especially involving reporting/filing obligations—toward more detailed, self-contained injunction language.

IV. Complex Concepts Simplified

  • Pump and dump: Acquire low-priced stock, artificially hype demand/price (often via paid promotions), then sell into the inflated market—leaving later buyers with losses when the price collapses.
  • Beneficial owner (Section 13(d)): Someone with power to vote or dispose of shares, even if shares are held in someone else’s name.
  • Authentication (Rule 901): Showing evidence is what it claims to be (e.g., a company’s ledger), through witness testimony, distinctive features, or chain-of-custody.
  • Business records exception (Rule 803(6)): Hearsay can be admitted if it’s part of a regularly kept record system made near the time of events by someone with knowledge, and is trustworthy.
  • Scienter: A mental state such as intent or recklessness. Some provisions require it (e.g., 10b-5), while Section 17(a)(3) can be satisfied by negligence.
  • Disgorgement: An equitable remedy to return ill-gotten gains (net profits) so wrongdoers do not benefit from violations; post-Liu, it must be victim-focused.
  • Joint and several liability: Multiple defendants can be responsible for the same obligation; the plaintiff can collect from any one of them (subject here to caps). Post-Liu, it is limited but permissible for “concerted wrongdoing.”
  • Rule 65(d) specificity: An injunction must tell the defendant, in the order itself, what they must do or not do—without forcing them to consult outside documents to figure it out.
  • Retroactivity (Landgraf): Courts generally avoid applying laws to past events unless Congress clearly instructs that the new rule applies to pending or newly commenced cases.

V. Conclusion

SEC v. Gasarch is a consequential First Circuit securities-enforcement decision in three respects: it validates the SEC’s use of a seized encrypted ledger as authenticated, admissible business-record evidence; it confirms robust disgorgement authority post-Liu, including joint-and-several liability for conspiracy-based “concerted wrongdoing” and a defendant-bears-uncertainty approach to opaque schemes; and it adds First Circuit weight to the view that the NDAA’s 10-year disgorgement limitations period applies to cases commenced after Jan. 1, 2021.

At the same time, the court enforces a meaningful procedural boundary on SEC injunction practice: even when broad injunctions are appropriate, Rule 65(d) forbids injunctions that merely point to external regulatory provisions without describing prohibited or required conduct in the order itself. The net result is an opinion that expands effective remedial reach against sophisticated market-manipulation networks while tightening the drafting discipline required for enforceable, fair-notice injunctions.