Liu v. SEC. & Exch. Comm'n

Background

Charles Liu and his wife, Xin (Lisa) Wang, raised nearly $27 million from foreign investors through an EB-5 project and the SEC sued after finding millions were misdirected to marketing, salaries, personal accounts, and a company under Wang’s control. A district court barred the couple from the EB-5 program, imposed a civil penalty, and ordered disgorgement of nearly the full amount raised; the Ninth Circuit affirmed. The Supreme Court agreed to decide whether the statute that lets the SEC seek “equitable relief” authorizes disgorgement beyond a wrongdoer’s net profits.

Reasoning

The Court reviewed the history of equity remedies and concluded that courts historically could strip a wrongdoer of ill-gotten gains, but only to the extent of net profits and for the benefit of victims. It held that disgorgement that does not exceed a defendant’s net profits and is awarded for victims fits within the statute’s authorization of equitable relief. The opinion distinguishes Kokesh, which treated some disgorgement orders as penalties for the statute of limitations, and it vacates and remands the judgment so lower courts can ensure any award meets these equity limits.

Real world impact

The ruling preserves disgorgement as an SEC tool but narrows its use: courts must focus on net unlawful profits, consider returning funds to victims, and deduct legitimate business expenses. Several important practices—depositing funds in Treasury accounts, imposing joint-and-several liability, and when expenses may be disallowed—were left for lower courts to decide on remand.

Dissents or concurrances

Justice Thomas dissented, arguing disgorgement is a modern invention not a traditional equitable remedy and would have reversed rather than remanded, warning the decision invites expansion and uncertainty.