It’s safe to say that the people of the Securities and Exchange Commission have other things on their minds, but they did get a little pick-me-up from the Supreme Court yesterday. The justices found that the agency can go on using one of its very favorite toys, disgorgement, against the evil-doers it sues.
The 8-to-1 decision on Monday said a reference in a federal law to “equitable relief” was enough to allow the remedy with appropriate limits.
Yes, the SEC will get to continue to seek any ill-gotten gains, often the lion’s share of what it actually collects—but only ill-gotten gains, less any “legitimate” business expenses incurred by the people ripping off their investors, and they might not be allowed to do anything they want with them.
“To avoid transforming an equitable remedy into a punitive sanction,” she wrote, “courts restricted the remedy to an individual wrongdoer’s net profits to be awarded for victims….”
Justice Sotomayor wrote that courts should deduct legitimate business expenses from the amount to be turned over and consider whether the government may keep the money instead of returning it to the victims of the fraud.
Well, the SEC is just pleased as punch about the above, crowing that the Supremes will allow it “to continue to strip wrongdoers of their ill-gotten gains.” But you know it’s been beaten down at the High Court over the last few years when the people it was suing are also claiming victory.
“We’re pleased to see that the Supreme Court overturned the judgment against Mr. Liu and Ms. Wang and clarified that traditional equitable principles limit the S.E.C.’s authority to seek an award of net profits for the benefit of victims,” Mr. Rapawy said in a statement.