The Securities Exchange Act of 1934 permits the Securities and Exchange Commission to seek civil penalties and “equitable relief” in civil suits against those who violate securities laws. In the prior case of Kokesh v. SEC, 581 U.S. ___ (2017), the Court held that disgorgement was a “penalty” under the applicable statute of limitations for SEC enforcement actions, but declined to decide whether disgorgement constituted equitable relief. The case of Liu v. SEC placed that issue directly before the Court. In this case, the district court held that the defendants engaged in a scheme to defraud foreign investors, ordering that the defendants disgorge the entire amount of money raised, minus only the money remaining in the investment corporation’s accounts. The Ninth Circuit affirmed in all respects.

The Court, in an 8-1 decision penned by Justice Sotomayor, largely affirmed, holding that disgorgement was an equitable remedy under the Act. The majority likened disgorgement to traditional equitable remedies like an accounting and restitution, and noted how those remedies were carefully circumscribed to not constitute a penalty, which was not an equitable remedy. The Court finally noted that the disgorgement awarded by the lower courts, and typically sought by the SEC, exceeded the bounds of what equitable remedies allowed, and remanded the case with guidance, including to limit the disgorgement based on “legitimate expenses” and other items. Justice Thomas dissented, arguing that disgorgement was not a traditional equitable remedy.

A link to the opinion is here: https://www.supremecourt.gov/opinions/19pdf/18-1501_8n5a.pdf