Supreme Court Liu Decision Upholds SEC Disgorgement Power While Suggesting Potential Limits, and May Impact FTC Enforcement

23 June 2020
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Key takeaways:

  • In a decision released yesterday by the U.S. Supreme Court, the Court held that a “disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims” is equitable relief permissible under the statute. 
  • Although a seemingly limited holding, the Court telegraphed its view that the SEC may exceed its authority to seek disgorgement if the SEC: (1) requires that defendant’s gains be deposited with the U.S. Treasury instead of returned to victims; (2) imposes joint-and-several liability under certain circumstances; or (3) declines to deduct legitimate business expenses from the award.
  • While the Court’s decision allows the award of disgorgement under certain circumstances, it could have the practical effect of significantly limiting disgorgement in many types of cases, including FCPA, insider trading, and even enforcement by other administrative agencies such as the FTC.