THE SEC'S CASE IS COLLAPSING - AND IT'S STILL PUSHING

By Dr. Bolek "Bo" Kabala, Ph.D.
Professor of Political Science | Tarleton State University | Dublin, Texas
bkabala@gmail.com
There is a version of the SEC that earns its authority. It identifies real fraud, proves it in court, and returns money to harmed investors. Then there is the version on display in the Eastern District of Michigan courtroom of Judge Matthew F. Leitman - where the agency filed a motion for summary judgment against a pro se defendant using an expert witness whose core credentials it later had to publicly walk back in a formal court filing, in a case where the judge had already rejected the most serious fraud theory two years earlier.
And when the judge denied summary judgment in March 2026 - nearly five years after the case was filed - the SEC did not step back. It pressed for a settlement conference. It kept pushing.
This is the story of SEC v. Bobby Shumake Japhia, Case No. 2:21-cv-12193 (E.D. Mich.). It is documented entirely in public court records: a Law360 report from June 2023, a court notice the SEC itself filed in May 2025, and a court order entered by Judge Leitman on March 17, 2026. No one disputes the facts. The SEC filed them.
What those facts describe is a case that has collapsed in stages - the core legal theory rejected by the judge, the key expert's credentials found to be misstated, summary judgment denied - while the agency continues to pursue an entrepreneur who, at the critical juncture of the summary judgment battle, had no lawyer. That is not what disciplined, targeted enforcement looks like. That is what institutional momentum looks like when it refuses to stop.
Act One: The Judge Rejects the Core Fraud Theory (June 2023)
The SEC filed its civil enforcement action against Shumake Japhia in September 2021, arising from crowdfunding offerings for two cannabis real estate companies - 420 Real Estate, LLC and Transatlantic Real Estate, LLC - that raised a combined approximately $1.9 million. The agency's marquee charge was securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Under this theory, Shumake Japhia was alleged to be the "maker" of false statements to investors - the person ultimately responsible for the misrepresentations that drove the scheme.
On June 9, 2023, Judge Leitman heard argument on the motion to dismiss that theory. According to Law360's contemporaneous report by reporter Danielle Ferguson, the judge was direct:
"I think the allegations, even when taken in favor of the SEC, have not yet persuaded me that they rise to the level of Mr. Shumake being a maker as the Supreme Court defined that term in the Janus decision." - U.S. District Judge Matthew F. Leitman, June 9, 2023
The Janus decision Judge Leitman was applying is Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011), in which the Supreme Court held that the "maker" of a statement for purposes of Rule 10b-5 liability is the person or entity with ultimate authority over the content of that statement - not someone who advises, reviews drafts, or is copied on communications about it.
The SEC's theory was that Shumake Japhia had control because he was kept informed - that draft offering statements were sent to him, that he had input on promotional activities, that he agreed to conceal his involvement. Judge Leitman was not persuaded. According to Law360, the judge said plainly: "Keeping somebody informed does not suggest to me that Shumake had control because he was kept informed. That doesn't suggest control to me."
The 10b-5 claim - the engine of the SEC's case, the theory that carried the most serious penalties and the most powerful narrative - was dismissed. The judge gave the agency until the end of the month to file an amended complaint.
A disciplined enforcement agency would have taken that signal seriously. It would have asked whether the remaining claims, stripped of the marquee fraud theory, justified the continued expenditure of government resources against this defendant. It would have asked what investor harm was actually being remedied at this point.
The SEC's Chicago regional office amended its complaint and kept going.
Act Two: The Expert Witness Whose Credentials Were Wrong (May 2025)
On February 7, 2025, the SEC filed its Motion for Summary Judgment against Shumake Japhia - asking Judge Leitman to rule in its favor without a trial. At the center of that motion was the Declaration of Pesach Glaser, an SEC accountant assigned to the litigation and the preceding investigation. Mr. Glaser's declaration authenticated documents, summarized bank records showing how much money investors contributed, and detailed specific instances of how those funds were allegedly spent. In a civil enforcement case built around alleged diversion of investor money, this declaration was the evidentiary spine of the government's case.
On May 16, 2025, the SEC filed ECF No. 96 - a formal "Notice Regarding Declaration Filed in Support of Plaintiff's Motion for Summary Judgment." The SEC was notifying the court and the defendant that Mr. Glaser's declaration contained inaccuracies in his stated credentials.
Specifically, the SEC admitted the following:
• The declaration stated Mr. Glaser received "an MBA in accounting from Northwestern Kellogg Graduate School of Management." He did not. He received a Master of Management degree - a different credential entirely.
• The declaration stated Mr. Glaser has been "a certified public accountant licensed by the State of Illinois since 1984." He has not held an active Illinois CPA license since September 1990. There was a brief period of Illinois registration from June 2008 to September 2009. He is not currently licensed as a CPA by the State of Illinois or, so far as the public record shows, any other state.
The SEC "regrets the inaccuracies" and apologized "to the Court and Defendant Japhia for any inconvenience they have caused."
The credential that gives an accountant authority to summarize financial records and opine on money flows in a federal court proceeding is the CPA license. The SEC's expert has not held one since 1990.
This requires plain-language translation. The SEC asked a federal judge to grant summary judgment - to end the case without a trial, in the government's favor - based in part on a declaration by an expert who falsely claimed both a Kellogg MBA and a current CPA license. These are not typographical errors. The graduate degree claimed and the degree actually held are different credentials. The CPA license claimed to be current has been lapsed for over three decades.
The SEC filed this declaration in February 2025. The inaccuracies came to light not through the agency's own pre-filing vetting process, but because "counsel for the SEC became aware" of them afterward. The agency then filed a notice acknowledging the errors, said it was "continuing to review" the declaration, and stated it was "considering what, if any, steps" to take. That is an agency discovering, after asking a federal judge to take its evidence at face value, that the evidence was not what it said it was.
This pattern has a name. In SEC v. Digital Licensing Inc., d/b/a DEBT Box, No. 2:23-CV-00482 (D. Utah), U.S. Chief Judge Robert Shelby found that the SEC had used "layers of false statements" to obtain emergency relief, called it a "gross abuse of power," sanctioned the agency $1.8 million, and the SEC ultimately closed its Salt Lake City office in the aftermath. The DEBT Box facts were more extreme - but the structural pattern is identical: the SEC submitted inaccurate information in support of drastic relief, and corrected it only after the fact.
Shumake Japhia, at the time the summary judgment motion was filed, had no attorney. He was a pro se defendant. The United States Securities and Exchange Commission - with a three-attorney litigation team from its Chicago regional office, drawing on the full investigative apparatus of a federal agency - filed a dispositive motion against a man navigating federal civil procedure alone, using a declaration whose credentials were later corrected.
Act Three: Summary Judgment Denied - The Court Orders Settlement Talks (March 2026)
On March 17, 2026, Judge Leitman entered ECF No. 148. The court denied the SEC's motion for summary judgment. After nearly five years of litigation, after the 10b-5 maker theory was rejected, after the expert witness declaration required public correction, after a pro se defendant was forced to face a summary judgment motion without counsel - the judge said no.
The court also ordered Shumake Japhia to respond to the SEC's outstanding requests for admission, while explicitly preserving his right to assert Fifth Amendment protections and decline to answer any request on those grounds. And Judge Leitman ordered a virtual status conference with counsel for the parties to discuss the possibility of settlement.
That last element deserves attention. When a federal judge, after denying summary judgment, immediately convenes a settlement conference, the signal is clear: the court sees a case that needs to resolve, not a case where one side has clearly prevailed. It is not the posture of a court preparing to rule decisively in the government's favor. It is the posture of a court that has examined what the SEC brought and found it insufficient to end the matter on the agency's terms.
Nearly five years. Three attorneys from the SEC's Chicago regional office. A dismissed fraud theory. A corrected expert declaration. A denied summary judgment motion. And still no resolution.
For Shumake Japhia, five years is not an abstraction. Five years of pending civil enforcement - with the SEC's public press releases describing him as a fraudster, with officer-and-director bar exposure, with disgorgement demands - is five years of reputational damage, business disruption, and the weight of a federal agency's resources arrayed against a single individual. Whether or not any ultimate liability is established, the process itself has been the punishment.
The Broader Pattern: When Enforcement Becomes Institutional Momentum
I want to be precise about what I am and am not arguing. I am not arguing that Shumake Japhia committed no wrong. Courts have not concluded the case, and I am not a fact-finder. What I am arguing - on the basis of public court records alone - is that the SEC's conduct in this case exhibits the hallmarks of enforcement driven by institutional momentum rather than disciplined pursuit of justice.
Those hallmarks are:
• Filing a marquee fraud theory - Rule 10b-5 maker liability - that a federal judge found legally insufficient even when read in the government's favor, based on a Supreme Court standard (Janus Capital) that was well-established at the time of filing.
• Submitting a summary judgment declaration by an expert whose two primary credentials - graduate degree and professional license - were both misstated, discovered not through pre-filing diligence but afterward.
• Pressing a dispositive motion against a pro se defendant, without the procedural safeguards that would exist in a fully adversarial proceeding with represented parties on both sides.
• Continuing to pursue punishment - disgorgement, civil penalties, officer and director bars - after the court denied summary judgment and ordered settlement discussions, in a case where the central legal theory was rejected years ago.
The Supreme Court addressed the institutional incentives that produce this pattern in SEC v. Jarkesy, 603 U.S. 109 (2024), when it ended the SEC's ability to use its own in-house administrative tribunals for fraud penalty cases. The Court recognized that when an agency simultaneously prosecutes, adjudicates, and appeals its own cases - insulated from independent jury review - the structural incentives favor persistence over accuracy. Jarkesy requires the SEC to face juries in federal court. It does not, however, prevent the SEC from using the federal court system itself as a pressure instrument against defendants who cannot mount a full defense.
The pattern documented here is what that pressure looks like. A legal theory filed and rejected. An expert declaration corrected after submission. A summary judgment denied. And five years later, the agency is still at the table, still seeking punishment, still treating the cost of continued litigation as the defendant's problem to absorb.
What Reform Actually Looks Like
SEC Chair Paul Atkins has articulated a "back to basics" enforcement philosophy - focused on genuine investor harm, traditional fraud theories, and pulling back from the aggressive posture of the Biden era. That is the right instinct. But instinct must translate into institutional practice.
"Back to basics" means reviewing cases like this one - where the marquee theory failed, where the expert declaration required public correction, where summary judgment was denied - and asking honestly whether continued pursuit serves investors or serves the appearance of agency activity. It means establishing internal checkpoints that require supervisory sign-off before filing against pro se defendants on claims that have already been trimmed by the court. It means vetting expert witness credentials before, not after, filing dispositive motions in federal court.
It also means acknowledging what five years of pending civil enforcement does to a human being. Entrepreneurs in emerging industries - cannabis, psychedelics, crowdfunding - already operate at the frontier of regulatory uncertainty. When the SEC targets them with enforcement actions whose legal theories the courts subsequently reject, the deterrent effect lands not on bad actors but on the entire category of innovation. The message received is: these industries are not safe to enter. The cost is borne not by fraudsters but by every legitimate entrepreneur watching from the sidelines.
President Trump has the opportunity to make the SEC's reform commitment structural rather than rhetorical. That means requiring a formal case review process for all matters where a core legal theory has been rejected by the presiding court. It means requiring Commissioner-level approval - not just staff-level authorization - before pursuing summary judgment against pro se defendants. And it means treating a court's denial of summary judgment, combined with an order to explore settlement, as a signal that the agency's case has not survived judicial scrutiny - and responding accordingly.
Conclusion: The Process Cannot Be the Punishment
The public record in SEC v. Bobby Shumake Japhia, Case No. 2:21-cv-12193 (E.D. Mich.), tells a story the SEC did not intend to tell. A judge who rejected the central fraud theory because being copied on emails is not control. An agency that filed an expert declaration with credentials it later had to correct to the court. A summary judgment motion denied. A settlement conference ordered. And through all of it, a defendant navigating federal civil enforcement alone.
The SEC has the authority - and the obligation - to pursue genuine fraud. No one disputes that cannabis crowdfunding markets, like all markets involving retail investors, require oversight. But authority and obligation do not license indefinite pressure against a defendant whose case has repeatedly failed to clear the bar the courts have set.
The process is not supposed to be the punishment. When it becomes the punishment - when five years of reputational damage, business disruption, and legal exposure substitute for a proven case - something has gone wrong inside the institution that deployed it. That is what reform is for. And that is what the public record, in this case, demands we confront.
Court Documents & Cases Cited
SEC v. Bobby Shumake Japhia, Case No. 2:21-cv-12193-MFL-APP (E.D. Mich.) - Civil enforcement action filed September 20, 2021. Judge Matthew F. Leitman presiding.
ECF No. 96 (May 16, 2025) - SEC Notice Regarding Declaration of Pesach Glaser filed in support of Motion for Summary Judgment. SEC acknowledged expert's MBA credential was misstated and that his CPA license has not been active since 1990, with brief registration ending 2009.
ECF No. 148 (March 17, 2026) - Court order denying SEC's Motion for Summary Judgment; ordering Defendant to respond to requests for admission with Fifth Amendment rights preserved; convening virtual status conference to discuss possibility of settlement.
Law360, "Mich. Judge Trims SEC Crowdfunding Fraud Claims" (June 9, 2023) - Report by Danielle Ferguson documenting Judge Leitman's rejection of Rule 10b-5 maker theory under Janus Capital standard; judge's statement that being copied on emails does not establish control.
Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) - Supreme Court held that the "maker" of a statement for Rule 10b-5 purposes is the person or entity with ultimate authority over the statement's content and communication.
SEC v. Digital Licensing Inc., d/b/a DEBT Box, et al., No. 2:23-CV-00482 (D. Utah) - Court found SEC used "layers of false statements" to obtain TRO; called it "gross abuse of power"; sanctioned SEC $1.8M+. SEC closed Salt Lake City office in aftermath.
SEC v. Jarkesy, 603 U.S. 109 (2024) - Supreme Court held 6-3 that defendants in SEC fraud penalty cases are entitled to jury trial in federal court; ended SEC's use of in-house administrative tribunals for fraud actions.
Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024) - Supreme Court overturned Chevron deference; courts now independently interpret agency statutory authority, stripping deference for novel enforcement theories.

4167 Bobcat Drive
Detroit, Michigan(MI), 48226
248-228-5567

Dr. Boleslaw "Bolek" Z. Kabala is a political scientist appointed Assistant Professor of Political Science in the Department of Government, Legal Studies, and Philosophy at Tarleton State University (Tarleton) in Stephenville, Texas. In 2024, Tarleton recognized him with the College of Liberal & Fine Arts (COLFA) Outstanding Junior Faculty Award.

This release was published on openPR.