The Legal History of the $2,200 Man

This is a summary of Eric D. Wanger’s legal battle with the Securities and Exchange Commission.

  • Read this summary if you wish to understand the major points.
  • Follow the links to documents if you want to learn more.


The decision to investigate and bring allegations against Eric D. Wanger appears to have been initiated by the Securities and Exchange Commission’s enforcement division in Chicago as a consequence of Altigen Communications’ takeover defense strategy. Wanger ran a small activist investment fund in the mid-2000s and was pushing to return Altigen to profitability. By the end of the decade, Wanger’s fund was the largest shareholder in this small, mismanaged California technology company. After Altigen’s board of directors shunned a sizable takeover offer from a New York investor, Wanger’s fund began to assert its rights as the largest shareholder in the company and demand a level of transparency and fiscal discipline that was disagreeable to its board.

A war of words ensued between Wanger and Altigen. The company’s lawyers began to run through the traditional steps in the takeover defense playbook. Altigen demanded that Wanger resign from its board, approved a “poison pill” defense against large shareholders, and began issuing acidic press releases to harm Wanger’s reputation. Wanger shot back, publicly stating that the board is “clearly entrenched, lacks the
expertise necessary to fulfill its corporate governance responsibilities and has
failed to execute its fiduciary duty on numerous occasions to the detriment of its shareholders.”

At this point, the SEC began a multi-year investigation of Wanger, an effort that doubtless cost taxpayers hundreds of thousands, possibly millions, of dollars. In the name of investigation, the SEC began contacting Wanger’s clients and key vendors. The SEC apparently told them Wanger was under investigation, questioned them, and requested they not tell Wanger they had been contacted. Some of these clients and vendors fired Wanger on the spot. Some hired lawyers. Although he had not yet been formally accused of any wrongdoing, Wanger’s fund experienced such significant outflows that he had no choice but to shut it down. Despite the aggressiveness of the SEC’s investigation and sanctioning of Wanger, the agency does not appear to ever have investigated Altigen or its board.


The SEC brought its formal allegations after more than 20 hours of testimony by Wanger and the subpoena of hundreds of thousands of documents. The SEC accused Wanger of violating securities laws by filing late forms, failing to properly disclose a distasteful but legal loan (that had been repaid with interest), and “marking the close,” a vaguely defined form of “fraud against the market.” In monetary terms, the SEC alleged that Wanger committed civil fraud in order to overbill his fund by $2,269.81 in management fees. Over the 33-month period in question, that’s a bit less than $70 per month.

The accusation of substance was that Wanger’s small fund had “marked the close,” a trading violation sometimes referred to as “window dressing.” The SEC examined approximately 300 buy orders and took exception to less than 15 of them. Some of the trades in question were measured in pennies, but the SEC pressed forward anyway, simply ignoring the fundamental issue of materiality, whether or not there was any relevant effect (on either Wanger’s investors or the stock market itself), and whether anyone profited. No one ever alleged that Wanger himself profited from any of this.

The regulators could not allege he had attempted to profit in the short term from market manipulation, since neither Wanger nor his fund had sold shares after buying them. Instead, the SEC accused him of using the “window dressing” trades to boost the performance of his fund for marketing purposes. The SEC made these claims with the full understanding that Wanger would have been marketing his fund in the middle of the Great Recession. In 2008, Wanger’s fund reported being down 32 percent. The SEC was, in effect, saying that fiddling with that number by a percent or less would have induced people to change their mind about investing.

Wanger’s attorney felt the case was so weak and de minimis, or trivial, that the SEC’s in-house Administrative Law Judge, ALJ, would throw out the whole matter. The attorney’s faith in administrative justice proved naive. Never one to mince words, Wanger’s attorney demanded the ALJ dismiss the case out of hand, stating: “The [SEC’s filing] is full of exaggerations and misrepresentations that, strung together, still fail to state prima facie causes of action. Worse, the Division of Enforcement (Division) omits material facts from the [SEC’s filing] that demonstrate no such actions exist.”

Unsurprisingly, the ALJ dismissed this motion out of hand. Wanger would have to settle or prepare to defend himself in a hearing before the SEC’s in-house ALJ.

Law Behind the In-House System

Congress has passed laws that direct administrative agencies such as the SEC to make their own rules, run their own investigations, prosecute their own civil cases (non-criminal), and maintain their own courtrooms to hear those cases. This in-house justice system literally forces the accused to defend themselves in front of judges working for the same agency as the prosecutor. If the accused should lose their case, they can only appeal to the agency’s commission, asking it to overturn the decision of its own judge. Unsurprisingly, the SEC’s prosecutors have a high rate of success.

How can such an obvious and clear violation of due process and basic fairness be constitutional? It comes down to the way Congress framed the issue. The legal basis for this Kafkaesque system lives in laws such as the Administrative Procedure Act (5 USC Subchapter ii), which governs the procedures of administrative agencies. Congress has determined that such specific bodies of rules and law such as income taxation, securities regulation, immigration and others are so specific and complex that the federal courts are not the proper place for such civil cases to be heard. The federal district courts have thrown out every recent constitutional challenge to this system of doing things, allowing the SEC to keep its system “closed” and preventing defendants such as Wanger from getting access to the federal system.

Under the act, the SEC had the right to force Wanger to defend himself before one of the SEC’s in-house ALJs and deny him any access to the federal court system and its carefully regulated rules, procedures and constitutional protections. (Theoretically, he can ultimately appeal to a federal body once he has formally lost at least twice within the SEC’s walls, i.e. “exhausted administrative remedies.” However, he has been at this for years and has not yet reached that stage.)

This Catch-22 is justified by another basic principle of American law, that “process” is not “punishment.” The legal system cannot be accused of punishing people merely by investigating, accusing or trying them. While few Americans would probably agree with these statements, they are the law.

Attempting to be sensible, Wanger sought the opportunity to settle the case and move on. He had already shut down the fund in question. Yet, the SEC continued to demand settlement terms that would have effectively ended Wanger’s career in finance and destroyed the fledgling multi-family office business he had started separately with partners. This multi-family office, an independent entity dedicated to helping families invest for the future, had no connection with Altigen or Wanger’s fund other than Wanger himself. The SEC’s demand was puzzling. The multi-family office wasn’t an investment fund, did not keep client assets in custody, and had no connection with the trades in dispute. Wanger had no interest in letting the SEC needlessly end this firm, a growing business that employed 11 people. Unwilling to accept such terms, Wanger refused to settle and demanded a hearing.

Denial of Due Process

Wanger’s attorney began preparing for a hearing in front of the SEC’s in-house ALJ. The real-world implications of defending a client before such an ALJ, rather than an unbiased federal judge, became clear.

Without access to the federal courts, there is also no access to the Federal Rules of Evidence or Federal Rules of Civil Procedure, two of the major tools that keep the American judicial system fair, unbiased and constitutional. Nor are there the same stringent rules protecting parties from prosecutorial misconduct, witness tampering or requiring the government to share potentially mitigating evidence with defense lawyers.

The SEC attorneys took advantage of their advantageous position. They filed a succession of legal motions seeking to deny Wanger access to pieces of testimony, documents, electronic and verbal evidence, experts and procedural protections. Joseph Grundfest, himself a former SEC commissioner and a renowned securities law professor at Stanford, agreed to rebut the SEC’s expert witness. Grundfest volunteered to serve as an expert witness for Wanger without payment or compensation of any kind. Grundfest wrote a detailed report, stating that even if the SEC’s allegations were correct, there was no reason why any investor, or the agency, should care about allegations so inconsequential. Grundfest wrote in his expert witness report that the SEC and its expert were bothcritically deficient in their examination, analysis, and pleading of the materiality of the allegedly violative marks.”

Unfortunately for Wanger, the enforcement attorney moved, and the ALJ ruled, that Grundfest could not be allowed to testify and that his report could not be introduced into evidence to rebut the SEC’s own expert report. In its motion, the SEC wrote thatsuch credentials are not a license to lecture this tribunal about securities laws.” 

The SEC’s investigators had contacted, and in some cases had face-to-face meetings, with a number of people who could have testified as witnesses in Wanger’s defense. The SEC refused to share the list of people it contacted. It refused to share the contents of what was said with counsel. With well-articulated frustration, Wanger’s counsel faced a growing list of potential defense witnesses that got cold feet and refused to be any part of the proceedings. They would no longer testify for Wanger. Some admitted privately they feared personal or regulatory retribution.

Wanger’s attorney asked the ALJ for a subpoena, attempting to learn how the SEC had justified extending the 180-day procedural deadlines that it had missed without claiming that Wanger’s case deserved the time extension reserved for “complex” cases. He alleged that 15 trades and some late forms did not qualify as a complex case. The ALJ denied his subpoena. Counsel was sufficiently frustrated to make a special interlocutory appeal to the SEC commission for the subpoena. His appeal was denied. Even the transcripts of Wanger’s 20-hour testimony in front of the SEC’s attorney were not made available to him, despite the fact that he was in the room.

Wanger’s attorney determined that he faced a nearly impossible task and he informed Wanger of his refusal to continue attempting to prepare a defense under such circumstances. Despite its weak and de minimis case, the SEC and its ALJ had conducted its investigation and prosecution in a way that had effectively denied the lawyer an opportunity to defend his client at a hearing. Without the ability to present a defense, and despite his conviction that the settlement was disproportionate and unfair, Wanger was forced to settle.


Wanger agreed to settle in 2012 under terms the SEC dictated. He paid a $75,000 fine and agreed to disgorge $2,269.81 in “ill-gotten gains.” He neither admitted nor denied committing bad acts and freed the government from its obligation to prove its allegations.

At the last minute, the SEC had substituted language demanding a “one-year bar with a right to reapply” from association with a broker-dealer or investment adviser, instead of the one-year suspension that he had negotiated. Without leverage, he submitted to this seemingly innocuous modification. This seemingly insignificant difference later proved career altering.

Almost immediately, the SEC began to act as if Wanger had admitted (or that it had proven) that Wanger had broken laws. The SEC had no legal basis for any of those assertions. Yet, the SEC posted its Order Making Findings and Imposing Remedial Sanctions stating that Wanger had broken the law. The SEC hid the modest dollar amount in question, $2,269.81, on the last page of its 11-page order.

At his lawyers’ advice, Wanger had built a legal firewall between himself and the multi-family office he and his partners had founded. The firewall required him to step away from managerial duties until the dust had cleared on his dispute with the SEC. The SEC ignored this firewall and sent auditors into the multi-family office. So steadfast was the agency in its audit, that one by one, the office’s employees began to resign. Finally the entire firm had to shut down, even though all its clients stuck with it, even after hearing the SEC’s accusations. The office no longer had the staff to provide the high level of service the clients expected.

As Wanger feared, all of his business interests collapsed. One law firm valued the total damages to him at nearly $7 million.

FINRA Enters and the Temporary Bar Becomes Permanent

Wanger’s attorneys had assured him readmission after a year would be a “no brainer.” Many of his former clients supported him and rebuilding his career was possible.

Then something unexpected happened. FINRA, the Financial Industry Regulatory Authority, declared that Wanger’s bar was permanent. FINRA is the quasi-governmental SRO, or “self-regulatory organization,” working under the SEC to provide industry oversight. It is tasked with issuing securities licenses, etc. FINRA acted with no hearing, procedure or process. With the stroke of a pen, Wanger was now listed as permanently barred on FINRA’s public website. Wanger and his counsel protested to FINRA, but were informed the SEC and FINRA considered a one-year bar with the right to reapply a “permanent bar.” FINRA stood firm, despite the absurdity of its claim (look up “permanent” in the dictionary).

While FINRA is technically not a part of the government and has no right to adjudicate legal cases, FINRA’s listing of Wanger as permanently barred has the equivalent effect of a legal decision. The SEC had subsequently decided that Wanger could only be readmitted if he could find someone in the industry to supervise or sponsor him. Without a sponsor, he could never be readmitted. Now that FINRA had labeled him as permanently barred, no compliance officer in the land would chance the increased regulatory scrutiny or compliance risk of bringing such a marked man on board.

Refusal to Provide Documents

Wanger tried to gain access to internal documents that might explain why FINRA felt it had the right to make his one-year sanction permanent, effectively ending his career in finance. FINRA refused to provide the documents.

Wanger’s attorney began months of legal work attempting to get FINRA to provide documentation (refused), to get the SEC to issue a subpoena (successfully challenged by FINRA), and ultimately to just prove that the SEC had the jurisdiction over FINRA required to issue such a subpoena (sidestepped).

In a strange legal dialogue, FINRA challenged the SEC’s jurisdiction over it and the SEC allowed it to do so. To this day, Wanger has not been able to learn why or how he was listed as permanently barred. In an increasingly vitriolic exchange of legal motions, Wanger’s counsel wrote: “FINRA cannot now run from its own conduct and seek to bury its own shenanigans by claiming that Respondent is on a fishing expedition when Respondent’s liberty interest in his chosen profession is at stake.”

Applying for Readmission

Wanger played his last legal card at the SEC. He applied to the SEC commissioners for readmission to the industry, a right his original sanction order had granted. The SEC had stated Wanger could reapply for readmission to the commissioners themselves after one year. Wanger prepared a lengthy application designed to explain his legal status and how only the commissioners could put the situation right.

The SEC was not finished placing stumbling blocks in Wanger’s path.

The agency’s bipartisan commissioners had somehow delegated their authority to review Wanger’s application down to the enforcement division, the same people who brought the original case against him!

Wanger’s attorney advised him to consider his application dead on arrival.

Who is the $2,200 Man?

Wanger at no point has been allowed to defend himself in federal court. A judge could have concluded that Congress, the SEC’s enforcement division and its ALJ had variously stepped on Wanger’s 1st, 4th, 5th, 7th, 8th and 10th Amendment rights. None of the constitutional protections you learned about in seventh-grade civics class applied to his case.

In 2018, he appealed to the U.S. Court of Appeals for the Seventh Circuit in Chicago. Here are the brief, its appendix and its supplemental binder. It is unlikely he will get his day in court.

The $2,200 Man is Eric D. Wanger, who has been de facto (in fact, or in effect, whether by right or not) permanently barred. On paper, he has the right to apply for readmission, although in reality he cannot. On paper, he has the right to seek a new job, although in reality he cannot. On paper, his one-year sanction ended in 2013. In reality, it is permanent.

Wanger is still trapped in the SEC’s regulatory in-house fun-house. A legal maze he still occupies, a Kafkaesque legal limbo.

All this came to pass in a dispute over $2,269.81, which may represent the smallest case the SEC has ever brought.

Legal documents referenced above:

  1. Eric D. Wanger’s Altigen Board Resignation Letter
  2. Eric D. Wanger’s Letter to the Altigen Board
  3. Respondent’s Motion to Dismiss
  4. Administrative Procedure Act (5 USC Subchapter ii)
  5. Expert Witness Testimony of Joseph Grundfest
  6. The Division of Enforcement’s Motion In Limine to Exclude the Expert Testimony of Joseph A. Grundfest
  7. Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 929U. Deadline For Completing Examinations, Inspections and Enforcement Actions
  8. Order Making Findings and Imposing Remedial Sanctions
  9. Eric David Wanger: Application under Section 203(f) of the Investment Advisors Act and Rule 193 for Consent to Associate with An Investment Adviser or Broker-Dealer
  10. The Affidavits of Eric D. Wanger from the 2016 Application for Readmission
  11. Letters in Support of the Readmission of Eric Wanger from Former Clients
  12. Emails Exchanged with FINRA Ombudsman’s Office
  13. Motions Attempting to Convince SEC It Has Jurisdiction Over FINRA
  14. Brief asking U.S. Court of Appeals for Seventh Circuit to allow Wanger readmittance to profession
  15. Appendix to Brief to U.S. Court of Appeals for Seventh Circuit
  16. Supplemental Binder to Brief to U.S. Court of Appeals for Seventh Circuit


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