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On November 1st, the U.S. Supreme Court agreed to hear arguments on whether the SEC has the authority to obtain disgorgement of “ill-gotten gains” in federal court for securities law violations.  The SEC historically has been successful in obtaining monetary relief from defendants through disgorgement, which the SEC has asserted is within the courts’ equitable powers, in addition to its statutory authority to seek civil penalties. If the Court rules that the SEC lacks the authority to obtain disgorgement in federal district court actions, it could disrupt and create significant uncertainties for the SEC’s enforcement program.

A Potential Blow Against the SEC Post-Kokesh

In SEC v. Liu, the Ninth Circuit affirmed the lower court’s decision to grant summary judgment in the SEC’s favor imposing disgorgement of approximately USD 27 million in addition to an USD 8 million civil penalty against the defendants.[1] The defendants appealed, arguing that the SEC does not have the authority to seek disgorgement for violations of the federal securities laws.  The Supreme Court granted the writ of certiorari by petitioners Liu and others.

The latest challenge follows a defeat the SEC suffered before the U.S. Supreme Court in 2017 in Kokesh v. SEC.[2]  By statute, the SEC may obtain only injunctive relief, equitable relief, or civil monetary penalties in enforcement actions it files in federal district courts.[3]  For decades, the SEC has sought disgorgement in federal court as a form of “equitable relief.” Defendants argue, however, that because equitable relief is meant to be remedial rather than punitive, disgorgement is not an equitable remedy. This argument stems in part from the Supreme Court’s decision in Kokesh, in which the Court held that SEC disgorgement operates as a “penalty” and thus is subject to the five-year statute of limitations that governs such penalties.  The Court in Kokesh pointedly noted that it was not taking a position on “whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.”[4]  The Court’s decision to hear argument on the SEC’s authority to seek and obtain disgorgement has thus been widely anticipated.

Some recent decisions by this Supreme Court have hewed very closely to statutory language, which would appear to bode ill for the SEC’s ability to obtain disgorgement in federal court.[5]

Uncertainties for SEC Enforcement

If the Court decides the SEC does not have the power to seek disgorgement in federal district court actions, it could create significant uncertainties for the SEC enforcement staff regarding federal district court actions.

For instance, if the Court rules against the SEC, what happens to prior disgorgement awards? Since Kokesh, several defendants have attempted to modify prior disgorgement awards arguing that disgorgement for conduct falling outside the statute of limitations is no longer allowable under Kokesh.  In these instances, defendants were not successful.  For example, in SEC v. Radius Capital Corp., the defendant moved to amend the pre-Kokesh disgorgement award under Rule 60(b) for relief from a final judgment order.[6] The court denied the motion, reasoning “[a] change in the decisional law is not an ‘extraordinary circumstance’ sufficient to invoke Rule 60(b)(6)”[7]  

A ruling against the SEC may further complicate its decision whether to bring an enforcement action in federal district court or in its own administrative forum.  Unlike the purported equitable basis for disgorgement in federal district court actions, the SEC has explicit statutory authority for disgorgement, along with other forms of relief, in its own administrative proceedings.[8]  Such proceedings are presided over by administrative law judges (ALJs) and subject to de novo review by the SEC’s commissioners.  But uncertainties and risks from the Supreme Court’s review of its disgorgement power in federal courts may affect the SEC’s choice of forum for its enforcement actions while this matter is under review.


[1] SEC v. Liu, 754 F. App’x 505 (9th Cir. 2018).
[2] 137 S. Ct. 1635 (2017).
[3] See 15 U.S.C. §§ 77t(b), (d), 78u(d)(1), (3), (5).
[4] Kokesh, 137 S. Ct. at 1642 n.3.
[5] See Lorenzo v. SEC, 139 S. Ct. 1094 (2019); Dig. Realty Tr., Inc. v. Somers, 138 S. Ct. 767 (2018).
[6] No. 2:11-cv-116-FtM-29MRM, 2017 U.S. Dist. LEXIS 127557  (M.D. Fla. Aug. 11, 2017).
[7] Id. at *8 (citations omitted); see also SEC v. Amerindo Inv. Advisors, Inc., No. 05-cv-5231 (RJS), 2017 U.S. Dist. LEXIS 110407, at *29 (S.D.N.Y. July 14, 2017).
[8] See 15 U.S.C. § 78u-2(e) (allowing the SEC to “enter an order requiring accounting and disgorgement” in an administrative proceeding).


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Jennifer L. Klass serves as the co-chair of Baker McKenzie's North America Financial Regulation and Enforcement Practice, which provides clients with a full range of regulatory advice and enforcement counseling. Jen is an experienced financial services regulatory lawyer with particular focus on investment adviser regulation and the convergence of investment advisory and brokerage services. She regularly represents clients before the US Securities and Exchange Commission (SEC), both in seeking interpretative guidance and in managing examination and enforcement matters.


Amy serves as the Co-chair of Baker McKenzie's North American Financial Regulation and Enforcement Practice, which provides our clients with a full range of regulatory advice and enforcement counseling. Amy also serves on the steering committees of the Firm's Global Financial Services Regulatory and Global Financial Institutions Groups. Previously, Amy has served as chief litigation counsel at the US Securities and Exchange Commission's (SEC) Philadelphia regional office and managed a team of lawyers overseeing a wide variety of enforcement matters.


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