Liu v. SEC – Supreme Court Upholds (but Limits) SEC’s Authority to Seek Disgorgement in Civil Enforcement Actions: The U.S. Supreme Court Holds That Disgorgement Is “Equitable Relief” the SEC May Seek in Civil Actions, but Curtails Its Scope.

Sullivan & Cromwell LLP - June 23, 2020

On June 22, 2020, the U.S. Supreme Court, in an 8-1 decision, held that the Securities and Exchange Commission’s authority under 15 U.S.C. § 78u(d)(5) to seek “equitable relief” in addition to monetary penalties includes the authority to seek disgorgement awards in civil enforcement actions, resolving a question left open in the Supreme Court’s 2017 decision in Kokesh v. SEC.  The Court noted, however, that prior SEC disgorgement awards had at times exceeded the permissible bounds of that remedy, and instructed that SEC disgorgement may “not exceed a wrongdoer’s net profits and is awarded for victims.”  Depending on how these requirements are interpreted going forward, Liu may serve as a restraint on the SEC’s ability to obtain the same level of disgorgement awards as it has in recent years.