The U.S. Supreme Court on Monday restricted the Securities and Exchange Commission's practice of forcing defendants to surrender profits generated by fraud in the enforcement of investor protection laws before federal courts, but has no longer rejected these measures.
The court reaffirmed the agency's authority to apply for disgorgement, part of its law enforcement arsenal, which aims to transfer fraudulent funds to original investors.
However, in an 8: 1 verdict by liberal justice Sonia Sotomayor, the court limited the scope of what can be sought through disgorgement by declaring that it could not exceed the net profit of the conduct in question. The court also said that disgorgement generally has to go to "unjustified investors".
Conservative Justice Clarence Thomas was the only dissident and said that disgorgement was not an authorized tool.
The decision was taken in an appeal by a California couple, Charles Liu and Xin Wang, against a 2016 civil suit against them by the SEC before a federal court. The court sent the case back to the lower courts so that other unresolved legal issues could be examined.
The couple had been instructed to donate nearly $ 27 million, the amount they had raised from overseas investors to a cancer treatment center that had never been built.
The SEC announced that it had raised $ 1.5 billion in exclusions and penalties and paid $ 1.2 billion to injured investors in the last full financial year. Liu and Wang argued that the Congress never gave the SEC the authority to request a degradation, and that this is a form of punishment that SEC courts cannot impose.