Supreme Court Pares Back the SEC’s Disgorgement Remedy

On June 22, 2020, in Liu v. SEC, the U.S. Supreme Court, by an 8-1 majority, upheld the SEC’s decades-old practice of seeking disgorgement of ill-gotten gains from securities law violators in civil enforcement actions filed in federal district court. The SEC’s victory, however, was tempered by the Court’s insistence that disgorgement must be strictly limited to each defendant’s net unlawful profit and be for the benefit of victims. The Court held that these principles are in tension with several elements of the agency’s long-standing approach to disgorgement. The decision provides significant new grounds on which defense counsel can seek to reduce—or even eliminate—the disgorgement sought by the SEC in settlement discussions or litigation.