In SEC v. Barry (9th Cir. 2025), the Ninth Circuit delivered a decisive ruling that reinforces the SEC’s expansive use of the Howey test to define securities. The case involved Pacific West Capital Group’s sale of fractional interests in life settlements—arrangements where investors purchased shares in life insurance policies and relied on the company to pay premiums and manage reserves until payout. The Commission argued these investments were unregistered securities sold by unlicensed brokers. The Ninth Circuit agreed, emphasizing PWCG’s role in selecting policies, operating a multi-tiered premium reserve system, and structuring fractionalized interests as “undeniably significant managerial efforts” under Howey. The court also rejected the defendants’ claim to the intrastate offering exemption, finding that a single out-of-state sale integrated the entire program into an interstate offering. Finally, the court upheld disgorgement, injunctions, and penalties, recognizing that investors suffered pecuniary harm by losing the time value of their money—even if principal might eventually be recovered.
This decision matters beyond life settlements. It underscores that courts will view pre-purchase managerial activities—not just ongoing services—as sufficient to satisfy Howey, aligning the Ninth Circuit with the Fifth and Eleventh Circuits and leaving the D.C. Circuit’s narrower approach isolated. For businesses, this is a clear signal: the SEC will continue pressing the boundaries of Howey, whether in traditional products like life settlements or in emerging markets such as crypto assets. Importantly, the Ninth Circuit expressly validated the SEC’s reliance on Howey’s flexible framework, despite broader debates about its suitability in modern contexts.
Strategic Observations for Businesses and Market Participants
- Broadened Securities Exposure: Any investment program where profitability depends on managerial judgment—whether in asset selection, pooled reserves, or structuring investor interdependence—risks classification as a security. Firms should audit offerings, especially those marketed as alternatives, to assess securities law exposure.
- Exemption Risks are Narrow: Courts will construe exemptions strictly and integrate offerings broadly. A single interstate sale may collapse an entire compliance strategy. Companies should reevaluate reliance on intrastate or other exemptions and build redundancy into compliance planning.
- Disgorgement is Expanding: By affirming that the “time value of money” constitutes pecuniary harm, the court endorsed a powerful SEC remedy even where investors may recoup principal. Businesses should anticipate disgorgement risk in enforcement actions even absent traditional investor losses.
Why the Business Public Should Care
This ruling is a blueprint for how regulators and courts will continue to stretch securities law into new areas of commerce. It highlights that if investors are passive and depend on a promoter’s expertise, Howey will apply. For companies structuring novel investment vehicles, fintech products, or digital assets, this case signals that the SEC remains undeterred in deploying Howey aggressively and that courts are increasingly willing to back that strategy. Proactive compliance, careful structuring of offerings, and early engagement with securities counsel are no longer optional—they are business imperatives.
This memorandum is provided by Bradford Edwards LLP for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered to be advertising under applicable state laws.
