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Justices' Liu Ruling Creates More Questions Than Answers

June 23, 2020, Law360

Gerald Hodgkins is quoted in Law360 regarding the U.S. Supreme Court’s opinion in Liu v. SEC, which determined that the SEC can obtain disgorgement through enforcement actions in district courts as a form of equitable relief. Mr. Hodgkins says the regulator's current practice of seeking a tippee's profits from a tipper in insider trading cases likely won't fly anymore, since Monday's opinion suggests that “requiring one party to pay back the ill-gotten gains of another amounts to a penalty.

He adds that the SEC can still try to prove a tipper and tippee were indeed engaging in "concerted wrongdoing," such as when a tipper provides insider information to a family member or receives a kickback from a tippee. “That said, [given] the court's use of 'remote, unrelated tipper-tippee arrangements' as the example it provided for when collective liability would not be appropriate, it seems unlikely that traditional tipper-tippee cases would meet the standard articulated by the court for when one wrongdoer can be held responsible for the profits of another,” he says.

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