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Supreme Court To Hear Another SEC Disgorgement Case


As highlighted in this previous post, in 2017 the Supreme Court unanimously bench slapped the SEC in Kokesh v. SEC and held that disgorgement “in the securities-enforcement context is a ‘penalty’ within the meaning of [28 U.S.C.] 2462 and so disgorgement actions must be commenced within five years of the date the claim accrues.”

It was noted that while Kokesh was not an FCPA case, the decision was FCPA relevant given that disgorgement has become the dominant remedy sought by the SEC in corporate FCPA enforcement actions.

In covering the Kokesh decision, this prior post highlighted how a footnote in the Supreme Court’s decision seemed to be inviting another disgorgement case. Specifically, footnote 3 of the decision stated:

“Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context. The sole question presented in this case is whether disgorgement, as applied in SEC enforcement actions, is subject to §2462’s limitations period.”

Based on several remarks during oral argument in Kokesh (see here for the prior post), several justices seemed concerned about the lack of a specific statutory basis for disgorgement. As noted in the transcript, Justice Ginsberg stated:

“Certainly disgorgement was not in the days of the common law what it is today. Yet the SEC has been asking for this kind of relief now for, what, over 30 years? Has there been any effort, any activity in Congress to make this clear, one way or another, whether disgorgement fits with forfeiture?”

Justice Alito noted:

“Well, this case puts us in a rather strange position, because we have to decide whether this is a penalty or a forfeiture. But in order to decide whether this thing is a penalty or a forfeiture, we need to understand what this thing is. And in order to understand what it is, it would certainly be helpful and maybe essential to know what the authority for it is. So how do we get out of that — out of that situation? How do we decide whether it is a penalty or a forfeiture without fully understanding what this form of this remedy or this, whatever it is, where it comes from and — and its exact nature?”

Justice Sotomayor asked:

“Could Congress pass a statute giving the SEC the authority to bring these actions for however long a period Congress chooses?”

Justice Kagan directed the following question to the SEC attorney and thereafter commented:

“Ms. Goldenberg …. has the SEC or has the Justice Department ever set down in writing what the guidelines are for how the SEC is going to use disgorgement and what’s going to happen to the monies collected?


I must say I find it unusual that the SEC has not given some guidance to its enforcement department or — or that the Department of Justice hasn’t become involved in some way; that — that everything is just sort of up to the particular person at the SEC who decides to bring such a case.

Chief Justice Roberts stated:

“One reason we have this problem is that the SEC devised this remedy or relied on this remedy without any support from Congress. If Congress had provided, here’s a disgorgement remedy, you would expect them, as they typically do, to say, here’s a statute of limitations that goes with it. And including, as your friend says, usually a statute of limitations and an accompanying statute of repose. Now, it was a concern — you know, Chief Justice Marshall said it was utterly repugnant to the genius of our laws to have a penalty remedy without limit. Those were the days when you could write something like that and it’s about a statute of limitations. It’s utterly repugnant. And it — the concern, it sees seems to me, is multiplied when it’s not only no limitation, but it’s something that the government kind of devised on its own. I mean, I think — doesn’t that cause concern?


But it does seem to me that we kind of have a special obligation to be concerned about how far back the government can go when it’s something that Congress did not address because it did not specify the remedy.”

Approximately 2.5 years after its Kokesh decision, the Supreme Court last week agreed to hear Liu v. SEC. As framed in Liu’s petition for cert (see here) the question presented is a follows:

“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.”

The introduction of the cert petition states:

“This case presents an open and frequently litigated question about the authority of the Securities and Exchange Commission (“SEC”) to seek and obtain disgorgement in federal court as a penalty for securities law violations. The SEC sued petitioners in federal district court for violating the securities laws. By statute, the SEC may obtain only injunctive relief, equitable relief, or civil monetary penalties in such cases. See 15 U.S.C. §§ 77t(b), (d), 78u(d)(1), (3), (5). The SEC nevertheless asked the district court to order disgorgement to the agency of all the funds petitioners raised from investors. The district court ordered that relief, in addition to an injunction and the maximum statutory civil monetary penalty. A Ninth Circuit panel affirmed. Its decision makes clear that it did so because it believed itself bound by circuit precedent that pre-dated this Court’s holding in Kokesh v. SEC, 137 S. Ct. 1635 (2017), that disgorgement to the SEC is a penalty.

In seeking such disgorgement here, the SEC was following a well-worn path. Since the 1970s, that agency has routinely piggybacked off its authority to ask for injunctions to seek massive disgorgement awards as a form of “equitable relief.” Even after Congress authorized the SEC to seek civil monetary penalties in addition to injunctions, the agency continued to insist that courts can and should order defendants both to pay such monetary penalties and to disgorge all funds they have received.

The lower courts have accepted the SEC’s assertion that it may obtain “disgorgement” as an equitable remedy. Indeed, as in this case, they have done so even when a disgorgement award exceeds what the defendant unlawfully gained, see, e.g., SEC v. Contorinis, 743 F.3d 296, 306 (2d Cir. 2014); SEC v. Clark, 915 F.2d 439, 454 (9th Cir. 1990), and even when the award is granted to the SEC instead of returned to the alleged victims, see Kokesh, 137 S. Ct. at 1644; SEC v. Fischbach Corp., 133 F.3d 170, 176 (2d Cir. 1997).

These decisions cannot survive this Court’s reasoning in Kokesh. Although this Court had no occasion and explicitly declined, to consider whether disgorgement could still be available as equitable relief, the identification of disgorgement as a penalty compels the answer. As then-Judge Kavanaugh noted, Kokesh “overturned a line of cases . . . that had concluded that disgorgement was remedial and not punitive.” Saad v. SEC, 873 F.3d 297, 305 (D.C. Cir. 2017) (Kavanaugh, J., concurring). Other judges have likewise read Kokesh to spell the end of “equitable” disgorgement. See, e.g., FTC v. AMG Capital Mgmt., LLC, 910 F.3d 417, 429 (9th Cir. 2018) (O’Scannlain, J., specially concurring) (Kokesh “undermines a premise in our reasoning: that restitution under § 13(b) [of the Federal Trade Commission Act] is an ‘equitable’ remedy at all”); Osborn v. Griffin, 865 F.3d 417, 470 n.1 (6th Cir. 2017) (Merritt, J., dissenting) (suggesting that Kokesh foreclosed “equitable disgorgement”).

The Court should grant certiorari to address the fundamental and frequently litigated issue that Kokesh raised, but did not reach, and to clarify and harmonize the law as to the availability of agency disgorgement in the absence of statutory authority.”

Not surprisingly, the SEC opposed Liu’s cert petition (See here its opposition brief).

Given the prominence of disgorgement in SEC corporate FCPA enforcement actions, the Liu matter will be interesting to follow. As noted in my 2010 article “The Facade of FCPA Enforcement”:

“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 FCPA contains specific penalty provisions for both violations of the anti-bribery and books and records and internal control provisions. Yet, during the current facade era of FCPA enforcement, there has been a dramatic shift away from the FCPA’s statutory penalties in nearly every enforcement action towards disgorgement …”.

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