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

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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

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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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Yet Again, The Supreme Court Rejects The DOJ’s Overly Expansive Interpretation Of A Criminal Statute

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Even though the current Supreme Court is often ideologically divided, the Court has shown remarkable consistency in recent years in rejecting (often times unanimously) overly expansive interpretations of a criminal statute by the Department of Justice.

The latest example occurred last week in Kelly v. U.S. (the so-called Bridgegate case in which the DOJ charged former public officials who worked at or with the Port Authority of New York and New Jersey and had political ties to former New Jersey Governor Chris Christie).

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Supreme Court Questions Whether Dollar-Denominated Transactions Or Other Financial Transactions In The U.S. Are Sufficient To Assert Jurisdiction Over Foreign Corporations

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Largely because of how the DOJ and SEC have chosen to enforce the Foreign Corrupt Practices Act (that is resolution vehicles not subjected to any meaningful judicial scrutiny), the Supreme Court has never been presented with an opportunity to interpret the FCPA (and likely never will be so long as the current state of affairs continues). Heck, you can count on one hand (and have a few fingers left over) the number of substantive FCPA decisions issued by appellate courts.

Nevertheless, in recent years the Supreme Court has issued several decisions that are FCPA relevant and in every one the court has questioned certain aspects common in FCPA enforcement. The most recent example occurred in an Alien Tort Claims Act case (Jesner v. Arab Bank) in which the majority opinion questioned in dicta whether dollar-denominated transactions or other financial transactions in the U.S. are sufficient to assert jurisdiction over foreign corporations.

Prior to discussing the recent Jesner decision, this post highlights how such allegations are common in FCPA enforcement actions against foreign corporations.

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Yet Again, The Supreme Court Rejects The DOJ’s Overly Expansive Interpretation Of A Criminal Law

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Today’s post is very similar to this post from last month. In other words, yet another post (see here and here for prior posts) generally regarding the topic “if only the Supreme Court accepted the “foreign official” challenge” in 2014.

In a statutory interpretation case released yesterday that was very similar to the statutory interpretation issues in the “foreign official” challenge, the Supreme Court in a 7-2 opinion authored by Justice Breyer once again rejected the DOJ’s overly expansive interpretation of a criminal law.

As stated by the opinion, the issue presented in Marinello v. U.S. was: “A clause in §7212(a) of the Internal Revenue Code makes it a felony “corruptly or by force” to “endeavo[r] to obstruct or imped[e] the due administration of this title.” 26 U. S. C. §7212(a). The question here concerns the breadth of that statutory phrase. Does it cover virtually all governmental efforts to collect taxes? Or does it have a narrower scope?”

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