The much-anticipated Supreme Count decision for SEC v. Liu, published June 22, 2020, is a win for the SEC after a string of losses. The Supreme Court held that disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for “the benefit of investors” is “equitable relief” permissible under 15 U. S. C. §78u(d)(5) and analyzed categories of equitable relief available. However, the ruling on the SEC’s authority may result in some limitations to the tools available to settle cases, and may extend litigation in unsettled cases. Therefore, while the SEC may seek disgorgement, there are more challenges ahead.
In its 8-1 ruling, the Supreme Court struck somewhat of a compromise between business as usual for the SEC, on one hand, versus eliminating disgorgement altogether in judicial enforcement proceedings. Justice Sotomayor’s opinion holds that disgorgement is an appropriate judicial remedy pursuant to Section 21 of the Exchange Act, but the remedy must be applied in a manner that actually achieves equitable principles. For example, district courts must deduct legitimate expenses to determine the ill-gotten profits obtained by defendant, rather than simply awarding the gross amount invested. “Courts may not enter disgorgement awards that exceed the gains ‘made upon any business or investment, when both the receipts and payments are taken into the account.’”