IN THE UNITED STATES DISTRICT COURT 

FOR THE SOUTHERN DISTRICT OF FLORIDA

SECURITIES AND EXCHANGE COMMISSION

Plaintiff,

v.

JUSTIN W. KEENER D/B/A JMJ FINANCIAL, 

Defendant.

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No. 20-cv-21254 

Hon. Beth Bloom 

PLAINTIFF SECURITIES AND EXCHANGE COMMISSION’S RESPONSE IN 

OPPOSITION TO DEFENDANT’S MOTION TO COMPEL

AND MEMORANDUM OF LAW

INTRODUCTION

After a discovery hearing on June 18, 2021, Magistrate Judge Louis ordered the SEC to 

search for and produce certain documents relating to communications that SEC staff in the 

Division of Trading and Market’s Office of Interpretation and Guidance may have had with 

third-party members of the public. Mag. Judge Louis Order on Discovery Dispute, June 22, 

2021 (“June 22 Order”).1 

 1 The SEC had previously confirmed that none of the potentially responsive materials related to 

Defendant or his business activities. By their nature, these materials comprise informal 

questions the staff received—and any nonpublic and expressly non-binding answers they 

provided—over an eight-year period from the public at-large regarding an online Guide the SEC 

provides as a service to the public. Specifically, the materials concern questions and staff 

responses to questions about “Who is a Dealer” in the online Guide to Broker-Dealer 

Registration (“Guide”) at https://www.sec.gov/reportspubs/investorpublications/divisionsmarketregbdguidehtm.html. See Ex. 1. 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 1 of 20
The SEC has now produced the non-privileged documents that resulted from the two 

search terms Judge Louis ordered (“apple” and “convertible”). Searching for, reviewing, and 

compiling these documents from just those two search terms required manually reviewing over 

1,250 “hits” in the databases for the Office of Interpretation and Guidance, which took several 

SEC attorneys more than 36 hours. See Ex. 2, at ¶ 7 (Declaration of Bonnie Gauch) (“Gauch 

Declaration” or “Gauch Decl.”).

2

 

Defendant now has filed a motion to compel (“Def.’s Mot. Compel”) searches for 

documents containing any of 14 additional terms. Defendant’s motion should be denied. 

 2 While assisting in the preparation of this declaration, we discovered yesterday (July 8, 2021) 

that one of two databases in the Office of Interpretation and Guidance has more search 

functionality than we previously understood. We had previously informed counsel for 

Defendant on several occasions, and the Court during the June 18, 2021 discovery hearing, that 

no database for that office supported Boolean searches. That statement was accurate for the 

database that covers the period from January 2013 through February 2015. The statement was 

incorrect as to the database that covers March 2015 through the present. 

Yesterday, July 8, 2021, we learned that the more recent documents are in a database that may be 

searched using more than one term and with some Boolean operators (such as “and,” “or,” etc.). 

When we represented to defense counsel and the Court that Boolean searches were not possible 

for either database, we believed this was completely accurate. We regret this unfortunate error. 

In an effort to remedy this situation, we informed counsel for Defendant promptly (on July 8, 

2021, the same day that we learned of the error) and proposed to work with them to craft targeted 

searches of the current database that will identify the type of documents that they are seeking.

The process of pulling hits from even the current database remains very cumbersome, but the 

SEC offered to collaboratively develop targeted searches (with Boolean operators) that would 

result in a total of 1,000 hits. As part of this accommodation, we offered on July 8, 2021, to run 

a series of searches in the current database at the direction of Defendant’s counsel, give them 

estimated hit counts for each search, and help them identify which searches are likely to be the 

most productive in identifying documents that they seek. Counsel for Defendant rejected our 

offer on July 9, 2021, but it will remain open in the event that the Court denies the instant motion 

to compel. With sincere apologies to both counsel and the Court for this error, the SEC 

nonetheless urges the Court to deny the motion because Defendant’s fourteen proposed search 

terms are an ineffective vehicle to identify relevant documents. Our offer to collaborate on 

Boolean searches is a much more promising pathway for the parties to identify relevant 

documents, if any exist. 

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Production of documents based on the additional searches sought by Defendant would be 

extraordinarily burdensome and not proportional to the needs of the case. The SEC has provided 

a declaration from an official with personal knowledge of the burdens involved in such a search, 

clearly establishing the extraordinary burden that would be imposed by Defendant’s request. See

Gauch Decl. at ¶¶ 9, 12 (stating that Defendant’s 14 additional search terms generate more than 

54,000 hits, which is three times greater than the 18,000 hits for “dealer”). Weighed against this 

enormous burden, the relevance of the documents is small because searches based on the 

additional 14 terms proposed by Defendant are unlikely to produce anything relevant to any 

party’s claims or defenses. 

The disproportionate nature of Defendant’s request is particularly evident because: (1) 

the responsive documents the SEC has already produced underscore the informal, practical and 

consistent nature of staff advice—there is no “confusion” as to the relevant requirements for 

dealers to be registered, (2) Defendant has yet to articulate any basis for a Due Process argument, 

(3) the materials at issue—communications about a section of the Guide—are expressly 

informal, non-binding and are not a statement of law, and (4) Defendant relies on inapposite case 

law.

GOVERNING LAW

Before the SEC searched for materials containing the terms “apple” and “convertible” 

and produced the resulting documents that were responsive to Defendant’s discovery requests for 

Office of Interpretation and Guidance documents, Judge Louis determined, after oral argument 

on June 18, 2021, that “the information sought is relevant” and that Defendant’s “request is 

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intuitive with respect to Defendant’s due process argument.” June 22 Order at 3.3

 Judge Louis 

found, however, that “[p]roportionality is more difficult to determine absent more complete 

information about the database.” Id. 

Determining whether a discovery request is proportional “requires counsel and the court 

to consider whether relevant information is discoverable in view of the needs of the case. In 

making this determination, [courts are] guided by the non-exclusive list of factors in Rule 

26(b)(1).” Koster v. Landmark Am. Ins. Co., No. 5:14-CV-689-OC-37PRL, 2016 WL 3014605, 

at *2 (M.D. Fla. May 20, 2016) (quoting Graham & Co., LLC v. Liberty Mut. Fire Ins. Co., No. 

2:14-cv-2148-JHH, 2016 WL 1319697, at *3 (N.D. Ala. April 5, 2016)). Federal Rule of Civil 

Procedure 26(b)(1) states that even if they are relevant, the materials a party seeks in discovery 

must be “proportional to the needs of the case, considering the importance of the issues at stake 

in the action, the amount in controversy, the parties’ relative access to relevant information, the 

parties’ resources, the importance of the discovery in resolving the issues, and whether the 

burden or expense of the proposed discovery outweighs its likely benefit.” 

As stated in Fox v. Gen. Motors LLC, No. 17-CV-209-MHC, 2019 WL 3503754, at *1 

(N.D. Ga. Jan. 18, 2019): 

As the commentary to Rule 26 explains: “A party claiming that a request 

is important to resolve the issues should be able to explain the ways in 

which the underlying information bears on the issues as that party 

understands them.” Fed. R. Civ. P. 26. Then, of course, it is the “Court's 

responsibility, using all the information provided by the parties...to 

consider these and all the other factors in reaching a case-specific 

determination of the appropriate scope of discovery.”

(quoting Koster, 2016 WL 3014605, at *2).

 3 Accordingly, the SEC does not take the position that Defendant has failed to bear his “initial 

burden of proving that the information sought is relevant.” See Diamond State Ins. Co. v. His 

House, Inc., No. 10-20039-CIV, 2011 WL 146837, at *5 (S.D. Fla. Jan. 18, 2011).

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 4 of 20
ARGUMENT

I. The Defendant’s Requested Searches Would Be Extraordinarily Burdensome

A. The Gauch Declaration demonstrates the extreme burden.

The Gauch Declaration establishes the extraordinary burden associated with 

Defendant’s request to compel the SEC to search, review and produce documents based on 14 

additional terms. Ms. Gauch estimates that it would take more than 1,500 hours of staff time to 

complete this work. Gauch Decl. at ¶ 12. Both the cumbersome nature of the databases that the 

Office of Interpretation and Guidance uses, and the fact that the office provides guidance to the 

public about a wide range of matters (not just dealer registration), contribute to this time 

estimate. Id. at ¶¶ 14, 22, 23. The legacy database is not searchable with more than one term. 

Id. at ¶ 21. The current database does not easily return an accurate number of search results 

without the staff manually scrolling through pages that contain only 10 results each. Id. at ¶ 23. 

Both the legacy database and the current database require a manual process to download search 

results. Id. at ¶¶ 22, 24. In the case of the legacy database, the staff must pull emails from an 

Outlook archive file that does not support accurate searching. Id. at ¶ 19. Reviewing the 

materials for responsiveness requires actually reading them carefully. Id. at ¶ 26. For all of 

these reasons, it would be less burdensome to use “dealer” as the search term, because it returns 

“only” an estimated 18,000 hits and would consume approximately 470 hours of staff time. Id. 

at ¶¶ 12, 13. And even then, it would take all four people on the staff of the Office of 

Interpretation and Guidance approximately three weeks of “doing nothing but responding to 

Defendant’s request.” Id.

B. Defendant mischaracterizes the burden on the SEC, and cannot demonstrate 

that the burden for any additional searches is justified.

In his motion, Defendant makes numerous unsupported contentions, including that 

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“apple” and “convertible” “together hit on only eleven document families.” Def.’s Mot. Compel 

at 14. From this, Defendant makes the leap to concluding: “[g]iven the minimal, if any review 

that would be required of additional OIG documents, the burden of producing more documents—

even substantially more—is also minimal.” Id. Defendant’s premise and conclusion are 

incorrect. In reality, the two search terms produced almost 1,250 hits, and the search for 

responsive documents required 36.5 hours of staff time. Gauch Decl. at ¶ 7. 

Defendant has now completely changed his original document requests, contending—

without foundation or support for why the additional search terms he now seeks would produce 

relevant information and be proportional to the needs of the case—that the SEC “should be 

compelled to produce documents from its OIG database that hit on the 14 terms set forth above.” 

Def.’s Mot. Compel at 7. 

But as Ms. Gauch explains in her declaration, searching for these terms would return

“approximately 54,000 hits” and “it would take enormous resources to review that number of 

documents because it is a manual process.” Gauch Decl. at ¶ 12. Ms. Gauch adds that, “This 

dataset would be almost 44 times the size of the dataset for ‘convertible’ and ‘apple,’ which took 

us 36.5 hours to identify, compile, and review.” Id. at ¶ 11. She concludes that, “it would likely 

take less time to just search for the term ‘dealer,’ for which we originally estimated 470 hours 

based upon approximately 18,000 hits.” Id. at ¶ 12. 

In other words, the burden required to produce documents responsive to Defendant’s new 

list of 14 favored search terms would dwarf the initial burden the SEC has been resisting. 

Moreover, virtually any question the Office of Interpretation and Guidance receives from the 

public could include words like “statute,” “trader,” business,” “investment,” “invest,” “factors,” 

and “hold.” See id. at ¶ 14 (the office provides guidance to the public on a wide range of 

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matters). Indeed, the term “144” relates to Rule 144, which concerns the registration of 

securities, not broker-dealers. The Gauch Declaration provides concrete evidence that 

responding to the 14 new search terms proposed by Defendant would be extraordinarily 

burdensome. 

It would be far more productive for the parties to collaborate, as we propose in footnote 1 

above, on targeted Boolean searches of the Office of Interpretation and Guidance database that 

covers the period of March 2015 through the present. The SEC will offer this accommodation in 

the event that the Court denies Defendant’s motion to compel.

Finally, Defendant is simply wrong to suggest that the SEC does not need to review the 

documents before producing them. Def.’s Mot. Compel at 12 (“The SEC has not provided any 

clear reason why the documents could not be quickly produced without further review.”). This 

sort of conclusory assertion runs throughout the motion to compel, and it is utterly lacking in 

support. There are ample reasons the SEC should review documents for responsiveness before 

simply turning them over to a Defendant who is charged with violating securities laws. For 

instance, some of the documents in the databases are purely internal communications between 

and among attorneys in the Office of Interpretation and Guidance and would fall under the 

attorney-client privilege or be protected by the work product doctrine. Other documents may

include privileged whistleblower materials. Under the Dodd-Frank Act, 15 U.S.C. § 78u6(h)(2)(A), the identity of whistleblowers cannot be disclosed except under limited 

circumstances not applicable here, so at a minimum, any information identifying a whistleblower 

would have to be redacted. The documents might also contain non-public information about 

third-parties’ businesses, that also might have to be redacted, or other steps might have to be 

taken to protect it. For these reasons, the SEC must review the documents and produce only 

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those that are responsive, non-privileged, and that the SEC is allowed to produce under 

applicable law.

II. The Requested Materials Would Have Little If Any Relevance

The minimal relevance of the documents sought by Defendant pales in comparison to the 

enormous burden of locating, reviewing and producing the documents, as discussed above. 

A. Office of Interpretation and Guidance staff referred third-parties to the law 

and did not create any confusion in the industry.

Contrary to Defendant’s assertions, the documents produced by the SEC thus far hardly 

substantiate Defendant’s Due Process arguments. Defendant asserts that “[i]n none of the

[Office of Interpretation and Guidance] communications did the SEC ever tell market 

participants to read Big Apple or the Exchange Act’s dealer definition” and that by filing the case 

against Mr. Almagarby, the “SEC created confusion in the marketplace” about who qualifies as a 

dealer that it refused to clarify when asked. Def.’s Mot. Compel at 5. These assertions are 

factually incorrect and otherwise do not support any kind of a Due Process argument.4

When responding to questions, the Office of Interpretation and Guidance staff routinely

directed the public to consult the Guide. See Gauch Decl. at ¶ 16. Notably, in the second 

sentence of the Guide’s section “Who is a ‘Dealer,’” the Guide quotes the definition of “dealer” 

from the Exchange Act. See Ex. 1 at 4. Defendants thus cannot reasonably contend that this 

would not be sufficient to alert the public to the plain language of the statute. More importantly, 

 4 For example, although the Office of Interpretation and Guidance staff generally did not provide 

case citations to the public, they did refer at least one questioner to the district court’s decision in 

Big Apple. See Ex. 3 at 2 (SEC-JMJ-OIG-75) (“You may also find the following cases 

informative: Couldock & Bohan, Inc. v. Societe Generale Securities Corp., 93 F. Supp. 2d 220, 

223-30 (D. Conn. 2000), and SEC v. Big Apple Consulting U.S.A., Inc., 2011 U.S. Dist. LEXIS 

95292, at *25-30 (M.D. Fla., Aug. 25, 2011)”). 

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and as set forth in detail below, the Guide contains numerous statements admonishing readers 

that it is not a source of law and that they must understand and follow the law. 

 In general, the Office of Interpretation and Guidance staff members are instructed to 

decline to provide legal advice and instead urge questioners to consult an attorney. Gauch Decl. 

at ¶ 16. The staff were faithfully following agency protocol, and none of their responses gave 

rise to any Due Process claims. 

Defendant further claims that the documents from the Office of Interpretation and 

Guidance that the SEC recently produced “directly support Mr. Keener’s contention that the 

industry had a different understanding of the dealer registration requirements than the one the 

SEC is now advancing in this litigation” and the staff “created confusion in the marketplace” by 

refusing to answer questions about the SEC’s pending litigation against Mr. Almagarby. Def.’s 

Mot. Compel at 5, 8-9.

To that end, Defendant relies upon an email chain between an employee of one of his 

brokers and the staff regarding the fact pattern presented in the Almagarby case, litigation that 

was then-pending in this district. See SEC v. Almagarby, 479 F. Supp. 3d 1266, 1271 (S.D. Fla. 

2020); Ex. 4 (SEC-JMJ-OIG-14) (question of David Jarvis of Alpine Securities, Inc. regarding 

Almagarby and SEC response); Ex. 5 (SEC-ALPSEC-E-0021761) (email of JMJ Financial to 

Randall Jones and David Jarvis of Alpine Securities on March 22, 2019). The emails in this 

exchange undermine, rather than support, Defendant’s contentions, as they demonstrate that the

staff: (1) followed the agency’s general policy of not discussing pending litigation with thirdparties, and (2) invited the person making the inquiry to send a request for a no-action letter, 

which would have provided a formal fact-specific response to the inquiry.5

 Neither of these 

 5 Specifically, the SEC’s response stated, in part: 

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things could plausibly have sown confusion either specifically as to the Defendant or in the 

industry generally. They do not help the Defendant carry his burden of establishing why 

communications from the Office of Interpretation and Guidance are sufficiently relevant to 

justify requiring the SEC to conduct a burdensome search in support of a generalized Due 

Process claim.

B. Defendant fails to articulate any substantial Due Process argument, 

especially in the face of the Court’s holdings on Due Process at the pleadings

stage. 

Defendant’s weak Due Process argument further demonstrates how the limited relevance 

of the discovery cannot overcome the enormous burden that the proposed search terms would 

impose. In her August 14, 2020 Order denying Defendant’s motion to dismiss, Judge Bloom 

squarely considered and rejected Defendant’s claim that he was engaged in business activities he 

“‘had no way of knowing could be unlawful.’” See August 14, 2020 Order at 10. Judge Bloom 

reasoned that Defendant’s Due Process argument “overlooks the express language of the 

Exchange Act, decisions from this circuit applying the definition of ‘dealer,’ and the SEC Guide 

itself, which sets forth instances in which a party can be deemed a dealer.” Id. at 10-11. 

Moreover—and critical to both the relevance burden and proportionality—Judge Bloom also 

found that Defendant’s Due Process argument “fails to point to any particular aspect of the 

 

The Commission staff generally cannot comment on Enforcement 

Actions other than to provide information already made public by the 

Commission. If there is a specific fact pattern you are seeking guidance 

on, you may send us a request for a no-action letter. Procedures 

applicable to requests for no-action and interpretive letters are available 

in Securities Act Release No. 6269 (http://www.sec.gov/rules/other/33-

6269.pdf). 

Ex. 4.

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 10 of 20
Exchange Act that is ambiguous.” Id. at 11 (emphasis added). Since that time, eleven months 

ago, Defendant has come no closer to articulating a specific Due Process argument. He still 

cannot say why he lacked notice of the dealer registration requirement.

The SEC is mindful of Judge Louis’s observation that “Judge Bloom’s denial of the 

motion to dismiss on the basis of Defendant’s due process claim is not synonymous with 

rejecting Defendant’s due process claim altogether.” June 22 Order at 3. However, as the SEC 

responded during the June 18, 2021 hearing, see Hr’g Tr. at 38-39, the controlling law that Judge 

Bloom relied upon has not changed, and the responsive documents the SEC has produced so far 

underscore that Defendant is casting about for a Due Process argument. It is simply 

implausible—and Defendant provides no basis to believe—that there will be an email or other 

evidence in the files of the Office of Interpretation and Guidance regarding one or more nonbinding informal SEC staff member responses to any members of the public (about which 

Defendant is not yet aware, or he would have requested it specifically) that will change Judge 

Bloom’s findings regarding the plain language of the statute, controlling Eleventh Circuit law, 

and the language of the Guide.

Key to the relevance analysis is that Defendant has yet to articulate any sort of challenge 

to the language of the statute. And one is unlikely to come. Instead, it appears that Defendant’s 

as-yet-un-elucidated Due Process argument rests, at least in part, on his view that the factors 

cited in the Guide, or the manner in which the staff answered third-party questions about them, 

somehow prevented him from having fair notice of the law. The nascent—or nonexistent—

nature of Defendant’s argument is strongly suggested in the instant motion, where Defendant 

“ask[s] that [14 additional] terms be run on documents from 2013 to 2020 . . . . in order to assess

the ways in which [SEC v. Big Apple] did or did not alter the SEC’s communications with 

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members of the public about the dealer registration requirements.” Def.’s Mot. Compel at 7 n.2

(emphasis added). 

It is clear that without any actual evidence that the staff ever gave anyone unclear or

confusing advice, Defendant is seeking an order that would require the SEC to continue a highly 

burdensome endeavor that is unlikely to affect the reasoning or law supporting Judge Bloom’s 

rejection of Defendant’s Due Process challenge at the pleading stage. Despite Defendant’s 

ardent focus on the Guide, the law in the Eleventh Circuit does not even require a court to 

consider it in determining whether one is a dealer. To that end, Judge Bloom held that:

The Eleventh Circuit has examined the explicit statutory language defining a ‘dealer’ 

without referencing factors when evaluating whether a party is subject to securities 

registration requirements. See SEC v. Big Apple Consulting USA, Inc., 783 F.3d 786, 

809-10 (11th Cir. 2015) (explaining that the “centerpiece” of the definition of a “dealer” 

is the word “business,” and noting that defendants were dealers where their “entire

business model was predicated on the purchase and sale of securities” and where they 

bought “stocks at deep discounts” by contractual agreement and “then resold those stocks 

for profit”) (emphasis in original).

Id. at 9-10.

Defendant had notice of the dealer registration requirement not only from the plain 

language of the statute, the Guide, and the Eleventh Circuit’s decision in Big Apple, which came 

within two months of the start of the Relevant Period in the Complaint, but also from the Big 

Apple decision in the Middle District of Florida in 2011. See SEC v. Big Apple Consulting USA, 

Inc., et al., 2011 WL 3753581, *8-10 (M.D. Fla. Aug. 25, 2011). And he has not articulated 

what sort of communications from the Office of Interpretation and Guidance about the Guide—

even if they existed—would have any bearing on whether he had notice of the requirements.

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C. The Guide to Broker-Dealer Registration is not a source of law and it 

expressly directs readers that they may not rely on it without “referring to 

the actual statutes, rules, regulations, and interpretations.” 

In urging the Court to order the SEC to conduct additional burdensome searches, Defendant 

focuses intently upon what SEC staff may have told (or failed to tell) unrelated third-parties 

about parts of the Guide, while ignoring the plain language of the statute, controlling Eleventh 

Circuit case law, and the fact that Judge Bloom has already held that the SEC has alleged that 

Defendant’s business activities “come within the ambit of certain of the factors listed in the SEC 

Guide.” August 14, 2020 Order at 9. 

Although Judge Bloom’s holding regarding the primacy of the relevant statute and Eleventh 

Circuit case law are dispositive of the potential probative value of the Guide, or communications 

regarding it, the Guide itself is unmistakably in accord. In seeking to justify his motion to 

compel, Defendant glosses over the fact that the Guide is not, and does not purport to be, a 

source of law. In reality, the Guide expressly admonishes readers (in all caps in the original) as 

follows: “CAUTION — MAKE SURE YOU FOLLOW ALL LAWS AND RULES.” Ex. 1

at 3. It further states, “We have prepared this guide to summarize some of the significant 

provisions of the Act and its rules.” Id. And by its own terms the Guide warns readers that it 

does not take the place of the law, stating:

We wish to stress that we have published this guide as an 

introduction to the federal securities laws that apply to 

brokers and dealers. It only highlights and summarizes 

certain provisions, and does not relieve anyone from 

complying with all applicable regulatory requirements. 

You should not rely on this guide without referring to the 

actual statutes, rules, regulations, and interpretations.

Id. at 24 (emphasis in original). Were this not sufficient to apprise the public that the Guide is 

not the law, it also states, “Although this guide highlights certain provisions of the Act and our 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 13 of 20
rules, it is not comprehensive[]” and it further instructs that “Brokers and dealers, and their 

associated persons, must comply with all applicable requirements, including those of the U.S. 

Securities and Exchange Commission [], as well as the requirements of any self-regulatory 

organizations to which the brokers and dealers belong, and not just those summarized here.” 

Id. at 3. 

Among other caveats, the Guide also makes clear that anyone who consults it “may 

wish to consult with a private lawyer who is familiar with the federal securities laws, to assure 

that you comply with all laws and regulations” and that “[w]hile the staff attempts to provide 

guidance by telephone to individuals who are making inquiries, the guidance is informal and 

not binding. Formal guidance may be sought through a written inquiry that is consistent with 

the SEC's guidelines for no-action, interpretive, and exemptive requests.” Id. The Guide also 

advises that the “SEC staff cannot act as an individual’s or broker-dealer’s lawyer.” Id. There 

is no evidence that Defendant either sought informal information from SEC staff or formal 

guidance. 

Because the Guide is expressly not a statement of law, Defendant’s continued quest for 

informal, non-binding staff responses to third-party questions would not be relevant to any 

defense—questions to, and responses provided by, the SEC to other members of the public are 

not legal determinations, are not binding upon this Court, and cannot be used to determine 

whether Defendant’s conduct violated the plain language of the dealer registration statute at issue 

in this case. Any communications SEC staff had with third-party members of the public would 

have at best marginal probative value as to either of the defenses Defendant proffers, and as 

discussed below, the resources required to conduct the searches would simply not be 

proportional to the needs of the case. 

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D. Defendant cites inapposite case law to attempt to demonstrate that “industry 

practice” is relevant to Due Process and scienter for purposes of injunctive 

relief.

(1) Due Process

In support of his Due Process argument, Defendant relies on SEC v. Kovzan, where a 

district court in Kansas found in 2012 that industry practice was relevant to a due process/fair 

notice defense. See 2012 WL 48190114819011, at *5 (D. Kan. Oct. 10, 2012). Def.’s Mot. 

Compel at 9-10. Kovzan is neither controlling, nor at all on point. First, the due process or fair 

notice claim in Kovzan dealt with the SEC’s interpretations of agency regulations, which the 

defendant contended “were impermissibly vague.”6 Id. 

Here, there are no SEC rules at issue, and the only laws are the Exchange Act’s statutory 

definition of “dealer” and the requirement that dealers register with the SEC. Moreover, Judge 

Bloom has already found that Defendant has not even contended that the Exchange Act’s dealer 

registration provisions are ambiguous. Thus, Kovzan’s holding as to industry practice is 

inapplicable to a Due Process/fair notice defense where, as here, the defendant is not even 

challenging the statutory language as being vague or ambiguous. The other cases Defendant 

relies on in ostensible support for his Due Process argument—and his contention that industry 

practice materials would somehow be relevant to his claim—suffer from the same problem as 

Kovzan in that they both deal with challenges to an agency regulation, or its interpretation 

thereof. See Diebold Inc. v. Marshall, 585 F.2d 1327, 1336 (6th Cir. 1978) (examining whether 

a challenged regulation “gave Diebold sufficient warning that press brakes were with the scope 

 6 The two cases the court cited in Kovzan also involved agency rules, not statutes. See Ohio Cast 

Prods., Inc. v. Occupational Safety & Health Rev. Comm’n, 246 F.3d 791, 793, 799 (6th Cir. 

2001) (Department of Labor regulations at issue); General Elec. Co. v. EPA, 53 F.3d 1324, 1325, 

1332 (D.C. Cir. 1995) (EPA regulations at issue). 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 15 of 20
of its point of operation guarding requirements.”); General Elec. Co. v. EPA, 53 F.3d 1324, 1332 

(D.C. Cir. 1995) (determining that the EPA’s interpretation of its own regulation did not provide 

fair notice to the plaintiff); see also Def.’s Mot. Compel at 8. Moreover, both of these cases 

dealt with specific Due Process challenges, rather than the generalized “confusion in the 

industry” allegedly caused by the SEC’s decision to file a lawsuit to enforce the longstanding 

dealer registration statute in the Exchange Act. See Def.’s Mot. Compel at 8. 

Second, Defendant ignores the fact that Kovzan relied upon an outdated discovery 

standard. The Kovzan Court ordered the SEC to produce non-public SEC documents based on 

the former version of Federal Rule of Civil Procedure 26, holding: “The Court concludes that 

discovery of such non-public documents may lead to the discovery of admissible information 

relevant to defendant's fair notice defense.” 2012 WL 4819011, at *5. Kovzan was decided in 

2012. In 2015, Rule 26 was amended, deleting the quoted phrase that was relied upon by Kovzan

(i.e., allowing discovery because it was “reasonably calculated to lead to the discovery of 

admissible evidence”). Amended Rule 26(b)(1) clearly states a different standard: “Parties may 

obtain discovery regarding any non-privileged matter that is relevant to any party's claim or 

defense and proportional to the needs of the case.” The proper standard matters. See Sharbaugh 

v. Beaudry, 2017 WL 5988221, at *2 and n.3 (N.D. Fla. May 5, 2017) (underscoring the peril in 

attorneys relying on “caselaw that analyzed the version of Rule 26 that existed before the highly 

publicized amendments took effect on December 1, 2015”). Kovzan is not helpful to Defendant 

or the Court’s resolution of the discovery issues here. 

(2) Injunctive Relief

As a preliminary matter, the SEC has made the significant concession that it will not 

argue that Defendant acted recklessly with respect to its claim for injunctive relief (it is not 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 16 of 20
disputed that there is no scienter component to the statute Defendant is charged with violating). 

The only reason to determine the industry’s understanding of the dealer requirements, and 

whether the SEC somehow confused the industry, is to assess whether Defendant acted 

recklessly in not registering as a dealer for purposes of injunctive relief. Once the SEC agrees 

not to argue recklessness, there is no reason for it to undertake an extraordinary burden to 

produce materials about its communications with the industry. 

Moreover, Judge Louis’s finding that “the SEC’s decision not to argue scienter does not 

preclude Defendant from advancing it” does not square with Kovzan (which the SEC maintains 

is inapposite in any event) where the Court found that the SEC could “remov[e] the issue 

recklessness from the case” by seeking to prove its charge through a different theory. See 2012 

WL 4819011, at *4. In Kovzan, the court noted that recklessness involves an “extreme departure 

from the standard of ordinary care,” and that, therefore, “evidence of the practice within the 

industry may be relevant.” The court observed that “the SEC could attempt to prove scienter in 

this case solely by showing an intent to defraud, thereby removing the issue [of] recklessness 

from the case.” Id. But because the SEC would not agree to remove the recklessness standard, 

therefore, the court held, “defendant is entitled to seek evidence relating to the industry 

standard.” Id. 

In the present case, in contrast, the SEC has “removed the issue [of] recklessness from 

the case,” and so it follows that “evidence of practices within the industry” are not relevant.

(3) Reliance on Ripple Labs is misplaced.

Defendant’s reliance on the Magistrate Judge’s oral order in Ripple Labs, see Def.’s Ex. 

20 (H’rg Tr. at 51, SEC v. Ripple Labs, Inc., No. 20 Civ. 10832 (S.D.N.Y. Apr. 6, 2021)), is 

likewise misplaced. We note that the cryptocurrency industry, which is a new and consistently 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 17 of 20
growing area of the securities industry, is not comparable to the dealer market, and the law 

surrounding them could not be more different. Defendant has been using the same business 

model for more than a decade. The jurisprudence on dealer registration in the Eleventh Circuit 

dates back more than 50 years to Eastside Church of Christ v. National Plan, Inc., 391 F.2d 357 

(11th Cir. 1968), decades before cryptocurrency was even invented. In short, because the law on 

dealer registration is long standing, clear and well developed, the considerations at play in Ripple 

regarding the relatively new cryptocurrency industry simply are not relevant in this case.

What is more, the Magistrate Judge in Ripple Labs premised her holding on the narrow 

grounds that the Commission’s statements to third parties about Bitcoin and Ether may be 

relevant to Ripple’s defense that those assets are comparable to Ripple’s XRP. Defendant has no 

analogous defense here.

Finally, allowing wholesale discovery of a regulatory agency’s communications with 

third parties who are not the subject of an enforcement action is likely to have a substantial 

chilling effect upon the free exchange of information and data between the agency and those it 

regulates. For example, the SEC often engages with issuers of registered and unregistered

securities, broker-dealers, investment advisers, credit rating agencies, auditors, and other

industry participants. A requirement that the SEC produce in discovery all communications

between and amongst those parties, in all of the enforcement actions brought each year against or

involving industry participants, would risk lessening the useful exchange of information between 

the SEC and the securities industry. Such an impact—weighed against the likelihood that such 

information would be irrelevant in a district court action applying the plain language of an 87 

year old federal statute—would not be helpful to industry participants or investors.

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 18 of 20
CONCLUSION

The Court should deny Defendant’s motion because the documents he seeks to compel

would not aid him in proving either of the defenses he proffers, and the burden to the SEC would 

be extraordinary and disproportional to any genuine needs of the case. More significantly, the 

SEC—having discovered that it mistakenly described one of the databases that contains 

potentially responsive documents to counsel and the Court—has offered to work collaboratively 

with Defendant’s counsel to conduct a reasonable search for responsive documents, 

notwithstanding their lack of relevance. 

DATED: July 9, 2021 Respectfully submitted, 

By: 

 /s/

 Joshua E. Braunstein (Special Bar No. A5502640)

 Antony R. Petrilla (Special Bar No. A5502641)

Attorneys for Plaintiff

SECURITIES AND EXCHANGE COMMISSION

100 F Street NE 

Washington DC 20549

Telephone: (202) 551-8470

Braunsteinj@sec.gov

ATTORNEY FOR PLAINTIFF 

SECURITIES AND EXCHANGE 

COMMISSION 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 19 of 20
CERTIFICATE OF SERVICE

I hereby certify that on July 9, 2021, I filed Plaintiff Securities and Exchange 

Commission’s Response in Opposition to Defendant’s Motion to Compel and Memorandum of 

Law through the Court’s CM/ECF system, which automatically sends notices to counsel of 

record in this case. 

 /s/ 

 Joshua E. Braunstein

 

ATTORNEY FOR PLAINTIFF 

SECURITIES AND EXCHANGE 

COMMISSION 

Case 1:20-cv-21254-BB Document 48 Entered on FLSD Docket 07/09/2021 Page 20 of 20