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.
Indeed, the Foreign Corrupt Practices Act was mentioned several times during oral argument.
The Supreme Court has never heard an FCPA case in the 40+ year history of the law and likely never will so long as the DOJ and SEC continue to enforce the FCPA consistent with current trends. (See here for more).
Thus, mere mention of the FCPA at the Supreme Court is something to take note of (at least on a website devoted to the FCPA).
During oral argument, various Justices appeared interested in whether the SEC actually returns disgorgement amounts paid in an enforcement action back to investors or whether the money simply goes into the U.S. Treasury.
Chief Justice Roberts generally asked “how hard” is it for the SEC to return money to investors and stated “I would assume that investors should be pretty easy to find if there’s money available.” Counsel for Liu responded:
“I guess what I would say, Your Honor, is that the — the — in many cases that they currently use the power, they don’t even believe that it’s appropriate to return the money to investors. And I would point to the Foreign Corrupt Practices Act cases as the biggest example of that.”
During his opening statement, Deputy Solicitor General Malcolm Stewart addressed the issue of how disgorgement is calculated and stated:
“In Foreign Corrupt Practices cases — Act cases, the wrong is that the defendant company has obtained a contract by paying a bribe to the public official, and the SEC would say, in those cases, the proper measure of disgorgement is net profits earned on the contract.”
Justice Sotomayor asked Stewart for the SEC’s position “with respect to that broader question of who gets the money? Why is it the Treasury? It’s not the SEC getting the money. […] [I]f the Treasury is getting it, we don’t really know if it’s being used to help investors.
Stewart responded in pertinent part:
“… [A]s an empirical matter, the SEC tries to return the money to investors when it can, and we’re largely successful in doing that. Now there is a category of cases like the FCPA cases, the Foreign Corrupt Practices Act cases, where sometimes we do get big judgments. They’re not returned to investors because there really is no obvious universe of individual victims from an FCPA violation — an FCPA violation. But, in cases where individual victims can be located and the money can be distributed, it’s our general practice to do so.”
Thus the Deputy Solicitor General’s statement in the Supreme Court that “there really is no obvious universe of individual victims from an FCPA violation” is a notable statement.
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