Barry R. Goldsmith, Frederick R. Yarger and M. Jonathan of Gibson Dunn & Crutcher (Photo: Courtesy Photo)
In a highly anticipated decision, the U.S. Supreme Court on Monday in Liu v. S.E.C. No. 18-1501 (2020), took steps to limit the SEC’s aggressive use of disgorgement of ill-gotten gains in litigated cases, but did not, as some had hoped, do away with this powerful remedy in litigated actions entirely. Specifically, while leaving lower courts to fill in the precise contours, the Supreme Court articulated three guiding principles for determining the availability and scope of SEC disgorgement: first, disgorgement should benefit “wronged investors” rather than “the public at large”; second, courts may hold parties liable only for their own profits, not others’ profits; and third, disgorgement cannot exceed actual gains and must instead be limited to “net profits” after deducting “legitimate expenses.”
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