In a recent opinion, the U.S. Supreme Court held the Securities and Exchange Commission (SEC) has the authority under Section 78u(d)(5) to seek disgorgement as an equitable remedy as long as the amount of disgorgement does not exceed a wrongdoer’s net profits and is awarded for victims. In the underlying action, the SEC brought a civil case against the petitioners. The complaint alleged petitioners violated offering documents by misappropriating millions of dollars. The district court ordered disgorgement of the full amount petitioners raised from investors minus the money remaining in corporate accounts for the project at issue. Petitioners argued the disgorgement failed to account for their business expenses, but the district court and the U.S. Court of Appeals for the Ninth Circuit disagreed.

While the Supreme Court upheld the SEC’s ability to seek disgorgement (which is the repayment of improper gains by a wrongdoer) based on “longstanding” equitable principles, the holding places limitations on such relief in order to prevent a transformation of the remedy into a punitive sanction. As a result, the opinion creates two substantial answered issues. First, the Supreme Court said that disgorgement is limited to “net profits,” but provided no guidance on what constitutes “net profits” for purposes of disgorgement. Second, the opinion held the SEC’s use of disgorgement is limited to circumstances where the money will be returned to identifiable victims, but did not make clear what options the SEC has if there are no identifiable victims.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]