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Justice Thomas Provides A Disgorgement History Lesson And Asks An Important Question


Yesterday’s post highlighted the Supreme Court’s decision in Liu v. SEC in which the court held that for purposes of 15 USC 78u(d)(5) (concerning SEC actions in federal court) that “a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible” under 78u(d)(5).

The decision was 8-1 as Justice Clarence Thomas dissented.

As discussed below, in his dissent Justice Thomas provided a disgorgement history lesson and asked an important question with Foreign Corrupt Practices Act implications.

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Supreme Court Decides SEC Disgorgement Case


Yesterday, the Supreme Court issued this opinion in Liu v. SEC.

At issue was 15 USC 78u(d)(5) which states in pertinent part that “in any action or proceeding brought or instituted by the Commission under any provision of the securities laws … any Federal court may grant .. any equitable relief that may be appropriate or necessary for the benefit of investors.” The specific question presented was whether the Securities and Exchange Commission may seek and obtain disgorgement from a court as ‘equitable relief’ for a securities law violation.

In addition to punishing securities law violations through civil proceedings in federal court, the SEC also uses administrative proceedings and 15 USC 77h-1(e) states that “in any cease-and-desist proceeding … the Commission may enter an order requiring accounting and disgorgement, including reasonable interest.” This provision was not before the Court in Liu and this is important to understand as approximately 90% – 100% of SEC FCPA enforcement actions against issuers in the modern era are administrative actions.

Thus, when the FCPA Blog states in this post that the decision in Liu will make “a significant change to how corporate FCPA settlements will be reached with” the SEC – this is not accurate as very few modern SEC enforcement actions against issuers result in federal court actions and the specific statute at issue in Liu.

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The SEC Has Collected Approximately $4.6 Billion In Disgorgement In FCPA Enforcement Actions

piles of money

This 2010 article titled “The Facade of FCPA Enforcement” discusses how the facade of FCPA enforcement is evident not only in connection with the FCPA’s substantive provisions, but also in the remedies the enforcement agencies typically pursue in an FCPA enforcement action.

The Foreign Corrupt Practices Act contains specific penalty provisions for both violations of the anti-bribery and books and records and internal control provisions. However, in the FCPA’s modern era there has been a dramatic shift by the SEC away from the FCPA’s statutory penalties in most corporate enforcement action towards disgorgement.

The 2004  FCPA enforcement action against ABB is believed to be the first FCPA enforcement in which the SEC sought a disgorgement remedy and since then the SEC has secured approximately $4.6 billion in disgorgement (and associated pre-judgment interest) in approximately 130 corporate enforcement actions. Set forth below is the current top 20 list of SEC disgorgement amounts.

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Deputy Solicitor General At The Supreme Court – “There Really Is No Obvious Universe Of Individual Victims From An FCPA Violation”


Earlier this week, the Supreme Court heard oral argument in Liu v. SEC.

As highlighted in this prior post, the question presented is “whether the Securities and Exchange Commission may seek and obtain disgorgement from a court as ‘equitable relief’ for a securities law violation even though this Court has determined that such disgorgement is a penalty.”

As previously noted, even though Liu is not an FCPA matter the question presented in FCPA relevant given the prominence of disgorgement in SEC corporate FCPA enforcement actions.

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