Liu v. SEC

Whether the Securities and Exchange Commission may seek and obtain disgorgement from a court as “equitable relief” for a securities law violation even though this Court has determined that such disgorgement is a penalty.

Petitioners allegedly defrauded EB-5 visa investors by misappropriating millions of dollars for personal use and to overseas marketers. The SEC sued alleging violations of securities laws. The district court granted summary judgment, ordering disgorgement of all funds received from Petitioners’ illegal conduct. Petitioners argued on appeal that in Kokesh v. SEC, 137 S. Ct. 1635 (2017), the Supreme Court held disgorgements qualified as penalties, not a remedial remedy, limiting the district court’s authority to award disgorgement. The Ninth Circuit affirmed, holding it was bound to pre-Kokesh circuit law. Petitioners argue in their brief to the Supreme Court, the SEC has a long history of obtaining disgorgement as equitable relief from lower courts, ordering defendants to give up more money than what they personally gained, leaving them worse off than before the alleged fraud. Petitioners argue by remaining silent and not limiting its scope, Congress leaves defendants at significant risk because disgorgement is calculated by a “reasonable approximation of profits causally connected to the violation.” SEC v. Whittemore, 659 F.3d 1 (D.C. Cir. 2011). Petitioners continue to argue, that after Kokesh, disgorgements are penalties, punishing and deterring, rather than equitable relief remedying the individual harm, because the SEC does not return money to the victims. Petitioners argue disgorgements fall outside Congress’ expressly authorized remedies of injunctions, certain civil monetary penalties, and equitable relief.