On Tuesday, March 3, 2020, the U.S. Supreme Court held argument in a case challenging the U.S. Securities and Exchange Commission’s ability to collect disgorgement as equitable relief for a securities law violation. The case is Liu et al. v. U.S. Securities & Exchange Commission, No. 18-1501, in the U.S. Supreme Court. (The docket and transcript from Tuesday’s oral argument are available here: https://www.supremecourt.gov/.) The case comes nearly three years after the Court held that disgorgement is a penalty subject to a five-year statute of limitations. Disgorgement is a powerful tool the SEC has historically relied upon as an equitable remedy to recover a defendant’s ill-gotten profits.
At the argument on Tuesday, several of the justices questioned whether disgorgement could be limited to net profits that would be returned to victims of the wrongdoing for their actual injury. Indeed, much of the focus of the argument centered on whether the money collected in disgorgement was being returned to victim investors or was sent to the U.S. Treasury. The justices’ questions could suggest that the Court may not be willing to do away with disgorgement completely but may limit it. The justices took the case under advisement.