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Liu v. SEC

Supreme Court of the United States

March 3, 2020, Argued; June 22, 2020, Decided

No. 18-1501.

Opinion

Justice Sotomayor delivered the opinion of the Court.

In Kokesh v. SEC, 581 U. S. ___, 137 S. Ct. 1635, 198 L. Ed. 2d 86 (2017), this Court held that a disgorgement order in a Securities and Exchange Commission (SEC) enforcement action imposes a “penalty” for the purposes of 28 U. S. C. §2462, the applicable statute of limitations. In so deciding, the Court reserved an antecedent question: whether, and to what extent, the SEC may seek “disgorgement” in the first instance through its power to award “equitable relief ” under 15 U. S. C. §78u(d)(5), a power that historically excludes punitive sanctions. ] The Court holds today that a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under §78u(d)(5). The judgment is vacated, and the case is remanded for the courts below to ensure the award was so limited.

Congress authorized the SEC to enforce the Securities Act of 1933, 48 Stat. 74, as amended, 15 U. S. C. §77a et seq., and the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U. S. C. §78a et seq., and to punish securities fraud through administrative and civil proceedings. In administrative proceedings, the SEC can seek limited civil penalties and “disgorgement.” See §77h-1(e) (“In any cease-and-desist [*7]  proceeding under subsection (a), the Commission may enter an order requiring accounting and disgorgement”); see also §77h-1(g) (“Authority to impose money penalties”). In civil actions, the SEC can seek civil penalties and “equitable relief.” See, e.g., §78u(d)(5) (“In any action or proceeding brought or instituted by the Commission under any provision of the securities laws, . . . any Federal court may grant . . . any equitable relief that may be appropriate or necessary for the benefit of investors”); see also §78u(d)(3) (“Money penalties in civil actions” (quotation modified)).

Congress did not define what falls under the umbrella of “equitable relief.” Thus, courts have had to consider which remedies the SEC may impose as part of its §78u(d)(5) powers.

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2020 U.S. LEXIS 3374 *

CHARLES C. LIU, ET AL., PETITIONERS v. SECURITIES AND EXCHANGE COMMISSION

Notice: The LEXIS pagination of this document is subject to change pending release of the final published version.

Prior History:  [*1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

SEC v. Liu, 754 Fed. Appx. 505, 2018 U.S. App. LEXIS 30133 (9th Cir. Cal., Oct. 25, 2018)

Disposition: 754 Fed. Appx. 505, vacated and remanded.

CORE TERMS

disgorgement, equitable, investors, wrongdoer, wrongdoing, infringement, restitution, patent, joint-and-several, EB-5, ill-gotten, depriving, accrued, profits-based, depositing, Fiduciary, jointly, unjust

Business & Corporate Compliance, Securities, Securities Law, Securities Law, Regulators, US Securities & Exchange Commission, Penalties & Unlawful Representations, Civil Procedure, Preliminary Considerations, Equity, Relief, Governments, Legislation, Interpretation, Maxims, Remedies, Damages, Compensatory Damages