Securities and Exchange Commission v. Leibowitz

Background

The Securities and Exchange Commission brought a civil enforcement action against Glen Leibowitz, alleging that, while serving as chief financial officer of Acreage Holdings, Inc., he helped conceal a round-trip transfer of more than $4 million that temporarily increased Acreage’s reported cash balance for fiscal year 2019. The Commission alleges that Leibowitz helped create misleading accounting entries and later made false statements to Acreage’s outside auditor. The Commission asserts violations of Section 13(b)(5) of the Securities Exchange Act of 1934, Rules 13b2-1 and 13b2-2, and aiding and abetting Acreage’s violation of Section 13(b)(2)(A). It also seeks civil monetary penalties.

Leibowitz’s answer asserted thirteen affirmative defenses. The defenses relevant here included good-faith and reliance arguments, including reliance on information or advice from accountants, auditors, attorneys, and others. His Thirteenth Affirmative Defense asserted a right to contribution based on the alleged negligence or wrongdoing of other individuals and entities.

The Motion to Strike

The Commission moved under Federal Rule of Civil Procedure 12(f), which permits a court to remove an insufficient, redundant, immaterial, impertinent, or scandalous matter from a pleading. The Commission argued that the reliance-on-counsel defenses should be stricken because Leibowitz had not obtained Acreage’s waiver of the attorney-client privilege. It also argued that the contribution defense was too vague and legally unavailable in this enforcement action.

Leibowitz argued that the motion was premature. Discovery had just begun, and he maintained that he had not yet had an opportunity to determine which communications were privileged, whether any waiver had occurred, or how the defenses would be developed.

Advice-of-Counsel and Good-Faith Defenses

The court explained that a defendant relying on advice of counsel generally must show that he fully disclosed the relevant facts to counsel, sought advice about the legality of his conduct, received advice that the conduct was lawful, and relied on that advice in good faith. Raising that defense generally places attorney-client communications at issue and can waive the privilege. Because the privilege here belonged to Acreage, not Leibowitz, Leibowitz would need to obtain Acreage’s waiver to continue pursuing an advice-of-counsel defense.

The court nevertheless held that the Commission’s request to strike the defenses was premature. The case was at an early stage, discovery had only recently begun, and the record did not establish that Leibowitz had refused to seek a waiver or that Acreage had formally refused to provide one. The court also declined to consider the Commission’s supporting declarations because motions to strike generally are decided from the pleadings rather than outside materials. The court stated that the declarations would not change the result in any event.

The court ordered Leibowitz to inform the Commission by 5:00 p.m. on September 1, 2025, whether he intended to pursue an advice-of-counsel defense and whether he had obtained Acreage’s waiver. If he did not clearly identify the scope of the defense, including the waiver status, by that deadline, the defense would be deemed waived. The court also noted that knowledge and state of mind could be relevant to some of the Commission’s claims and to determining the appropriate civil penalty.

Contribution Defense

The court also declined to strike the Thirteenth Affirmative Defense. Although the defense’s exact scope was unclear, the court held that it was sufficiently pleaded at this early stage. It was at least plausible that the defense asserted contributory negligence or that other people or entities were responsible for some of the alleged wrongdoing.

The court did not decide whether the defense would ultimately be permitted under the securities laws. It held only that the Commission had not shown that the defense was so legally insufficient that it could not possibly succeed. The possible responsibility of others could also be relevant to the seriousness of Leibowitz’s conduct and the penalty tier, and the court concluded that any discovery burden was not enough to justify striking the defense at this stage.

Disposition

Judge Jennifer L. Rochon denied the Commission’s motion to strike Leibowitz’s affirmative defenses invoking reliance on counsel and the Thirteenth Affirmative Defense. The clerk was directed to terminate the motion. The order resolved only the motion to strike; it did not decide the Commission’s underlying enforcement claims or whether Leibowitz will ultimately prevail on his defenses.