“Congress has supplied the SEC with many tools with which to ensure compliance with the securities laws. The SEC should rely on those tools rather than resorting to the non-statutory enforcement mechanisms it apparently finds more convenient.”
—Richard Samp, WLF Chief Counsel
Click here for WLF’s brief.
WASHINGTON, DC—Washington Legal Foundation (WLF) today urged the U.S. Supreme Court to rule that while federal law grants the Securities and Exchange Commission (SEC) authority to seek substantial penalties on those found to have violated the securities laws, the SEC may not seek additional, non-statutory penalties in the form of a “disgorgement” award. In an amicus curiae brief urging the Court to overturn a $27 million disgorgement judgment, WLF argues that separation-of-powers principles require that federal agencies be limited to the enforcement powers expressly granted to them by Congress.
The case involves two individuals found to have defrauded Chinese investors by selling them securities on the basis of false statements. The district court entered broad injunctive relief and imposed multi-million-dollar penalties on the defendants. It supplemented the penalties with an award not expressly authorized under the securities laws: a $27 million judgment designed to “disgorge” all of the defendants’ ill-gotten gains. The court justified its non-statutory award (requested by the SEC) by asserting that federal courts possess inherent “equitable” powers to order disgorgement. The total judgment vastly exceeded the amount the defendants received from investors.
WLF’s brief notes that the securities laws already, in effect, sanction “disgorgement” by authorizing the SEC to seek penalties of up to “the gross amount of pecuniary gain.” WLF argues that Congress has not authorized the SEC to engage in “double dipping” by supplementing the authorized penalties with a non-statutory disgorgement award. The SEC has routinely sought disgorgement awards in enforcement actions for the past 50 years; but the Supreme Court called that practice into question in its 2017 Kokesh decision. Kokesh held that disgorgement awards are “penalties” because they are designed to punish wrongdoers, not to provide restitution to victims. While restitution is a traditional form of “equitable” relief, a monetary penalty is not.
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