BROOKLYN, N.Y., July 14, 2025 /PRNewswire/ -- LG Capital Funding, LLC ("LG Capital") today announced the complete vindication and total exoneration of the company and its managing member, Joseph I. Lerman, after the Securities and Exchange Commission surrendered and abandoned all claims in its baseless enforcement action. Additionally, the United States District Court for the Eastern District of New York has permanently dismissed this civil action brought by the SEC in SEC v. LG Capital Funding, LLC, et al., No. 1:22-cv-03353-WFK-LKE. The Court's Order dated May 22, 2025 (Dkt. 101) closes the case in its entirety, with prejudice. This triumphant victory permanently bars the SEC from refiling the same claims and brings complete finality to the matter.

Filed in June 2022, the SEC's complaint asserted that LG Capital and Mr. Lerman were required to register as securities dealers for their investments in convertible notes issued by micro-cap companies. That enforcement action contradicted decades of SEC guidance distinguishing hedge-fund investors from dealers. LG Capital consistently maintained that it acted solely as a private investment firm, not a dealer, and therefore fell outside the registration provisions relied upon by the SEC.

The SEC's investigative and trial teams examined LG Capital's notes, trading records, correspondence, and witness testimony during discovery and ultimately stipulated to dismissal with prejudice. Actions speak louder than rhetoric: the facts did not support a dealer-registration violation. LG Capital and Mr. Lerman are not required to change any business practices whatsoever, nor are they subject to any monetary fines, injunctive or other relief. Since the enforcement action was dismissed with prejudice, the SEC cannot bring another enforcement action against LG Capital alleging that it is operating as an unregistered dealer of securities based on LG Capital's established business activities. 

 The Court's order ends more than four years of needless investigation and litigation and unequivocally vindicates LG Capital's position that its investment practices were at all times compliant with applicable securities laws. This outcome underscores LG Capital's unwavering commitment to operating with the highest standards of compliance and transparency.

Although a super-majority of the SEC's Commissioners supported the dismissal, a single Commissioner, Caroline A. Crenshaw dissented. Most recently, however, this sole Commissioner's position was rejected by the United States District Court for the Northern District of Texas in the case of Nat'l Ass'n of Private Fund Managers v. SEC, No. 4:24-cv-00250-O. In that case, the federal court vacated a final rule by the SEC that attempted to dramatically expand the definition of a dealer of securities with a novel interpretation of a 90-year-old statute that would have caused chaos in the marketplace. The federal court noted that the rule would have classified many of the world's largest and most prominent market participants, including the Federal Reserve, as having been operating unlawfully as unregistered dealers of securities. With the dismissal of the SEC's enforcement action as well as the federal court's recent ruling against the SEC, LG Capital can revert its full focus on delivering flexible capital solutions that will help their portfolio companies innovate and grow.

LG Capital's Managing Member, Joseph I. Lerman, made the following statement regarding this development. "This dismissal vindicates LG Capital and proves that we have always been a private investment firm, not a dealer of securities subject to SEC registration. With this matter behind us, LG Capital can return to its business of financing innovation through convertible-note investments."

LG Capital's counsel added: "The Court's dismissal, and the broader trend of similar cases being withdrawn, demonstrate that this was regulation by enforcement from the start. Regulators face zero moral hazard when pursuing these actions, yet small businesses bear enormous costs and disruption. The ruling reinforces that rule-making must occur only through congressional action and established procedures. The SEC must issue clear guidance, not engage in retroactive litigation. This result confirms an important principle: private investors who deploy their own capital do not become 'dealers' simply because their notes contain conversion features. The Court's dismissal order sends a clear signal that the SEC's theory in this lawsuit was erroneous and unfounded. We also extend our appreciation to the newly appointed SEC Chair and the current Commissioners for realigning the agency with its core mission: promoting fair, orderly, and efficient markets through balanced, principles-based oversight."

About LG Capital Funding, LLC
Founded in 2013, LG Capital Funding, LLC is a privately held investment firm specializing in structured debt and equity financing for small and micro-cap public companies across the United States. LG Capital partners with management teams to deliver flexible funding solutions that support innovation, expansion, and long-term value creation. Through its investments, LG Capital enables businesses to fund research and development, expand their workforces, and grow shareholder value. 

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SOURCE LG Capital Funding LLC