The U.S. Court of Appeals for the Eleventh Circuit has affirmed a lower court's judgment in favor of the Securities and Exchange Commission against Spartan Securities Group, Ltd., and several co-defendants in a complex microcap securities fraud scheme involving 19 shell companies.
In a per curiam opinion filed Jan. 16, 2026, the appeals court upheld the district court's ruling against Spartan Securities Group, Island Capital Management, Carl E. Dilley, and Micah J. Eldred. The case originated in the U.S. District Court for the Middle District of Florida and involved a sophisticated scheme to defraud investors through artificially inflated securities prices.
According to the appeals court's opinion, the defendants orchestrated two separate microcap securities fraud schemes centered around the creation of 19 shell companies. These companies maintained no actual business operations or assets, existing solely as vehicles for the fraudulent scheme. The perpetrators then sold the companies' securities at inflated prices after making them eligible for public trading.
The court explained that Dilley and Eldred owned and operated the two key firms that facilitated the scheme. Spartan Securities Group, functioning as a broker-dealer, submitted Form 211 applications to the Financial Industry Regulatory Authority on behalf of each shell company. Once FINRA approved these applications, Spartan initiated public quotation of the companies' securities, making them available for trading.
Island Capital Management, operating as a transfer agent, played a complementary role by applying to make the securities eligible for the Depository Trust Company's electronic settlement process. This step was crucial because DTC eligibility provides convenient electronic settlement services that make securities more attractive and easier to trade for investors.
The scheme demonstrates how securities fraud perpetrators can exploit legitimate regulatory processes to create the appearance of legitimacy for worthless investments. By obtaining proper regulatory approvals and making securities eligible for established trading and settlement systems, the defendants were able to present their shell companies as legitimate investment opportunities to unsuspecting investors.
The case highlights the SEC's ongoing efforts to combat microcap fraud, which typically involves small companies with limited public information available. These schemes often target retail investors who may be attracted by the potential for large returns but may not have the resources or expertise to thoroughly investigate the companies before investing.
Microcap securities, sometimes called penny stocks, are particularly vulnerable to fraud because they often trade with limited oversight and disclosure requirements compared to larger public companies. The lack of analyst coverage and limited financial information makes it easier for fraudsters to manipulate prices and mislead investors about a company's prospects.
The involvement of both a broker-dealer and a transfer agent in this scheme illustrates how multiple financial industry participants can become entangled in securities fraud. Broker-dealers have regulatory obligations to conduct due diligence on the securities they help bring to market, while transfer agents must maintain accurate records of securities ownership and transfers.
The appeals court's affirmation of the lower court's judgment reinforces the SEC's authority to pursue enforcement actions against financial industry participants who facilitate securities fraud, even when they may not be the primary perpetrators of the underlying scheme. This approach helps ensure that all parties involved in bringing fraudulent securities to market can be held accountable for their roles.
The case also demonstrates the importance of regulatory oversight in the microcap market. FINRA's Form 211 process is designed to ensure that securities quoted on over-the-counter markets meet basic disclosure requirements, while DTC eligibility standards are intended to maintain the integrity of the electronic settlement system.
The SEC's victory in this case sends a clear message to financial industry participants that facilitating securities fraud, whether directly or indirectly, can result in significant legal consequences. The enforcement action helps protect investors by deterring similar schemes and removing bad actors from the securities markets.
The appeals court's decision marks the conclusion of a legal battle that began with the SEC's initial complaint in 2019. The case demonstrates the SEC's commitment to pursuing complex fraud cases through the appeals process when necessary to ensure that enforcement actions are upheld and wrongdoers are held accountable.
While the appeals court's opinion does not detail the specific penalties or remedies imposed on the defendants, the affirmation of the SEC's victory ensures that any disgorgement, civil penalties, or injunctive relief ordered by the district court will remain in effect. This outcome provides some measure of justice for investors who lost money in the fraudulent scheme and helps deter future similar conduct in the microcap securities market.