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              Congressional                                           ______
           *.Research Service                                                           a
               inforrng the Iegislative debate since 1914___________________




Liu v. SEC: The Supreme Court to Consider

Whether Disgorgement is an Equitable

Remedy in SEC Enforcement Actions



Updated March 5, 2020
Disgorgement is a remedy that requires securities law violators to give up ill-gotten gains, or gross
proceeds, from illegal conduct. In Liu v. Securities and Exchange Commission, which was argued on
March 3, 2020, the Supreme Court heard argument as to whether federal securities laws authorize federal
courts to employ disgorgement as a remedy in SEC enforcement actions. The SEC has long maintained
that disgorgement is available to it as an equitable remedy under the Securities Exchange Act of 1934
(Exchange Act), along with its ability to seek civil monetary penalties and other statutory relief. Over the
past fifty years, federal courts have frequently awarded disgorgement to the SEC as a remedy for
securities law violations. A decision in Liu adverse to the SEC may have significant consequences for that
agency and others, potentially barring a favored remedy.
This Legal Sidebar examines Liu and its implications for the disgorgement remedy in federal agency
enforcement actions. First, it discusses the history of disgorgement in SEC enforcement actions and Liu's
factual background. Second, it analyzes the historical treatment of the disgorgement remedy and the legal
issues surrounding its use.
The Sidebar analyzes some considerations for Congress. In particular, if the Supreme Court limits the
SEC's ability to obtain disgorgement in federal court, it could reshape not only the SEC's ability to
recover money from wrongdoers, but also the ability of other agencies, such as the Federal Trade
Commission (FTC), to do so.

Background

The  History of Disgorgement   in SEC  Enforcement   Actions
The Exchange Act established the SEC, but at first gave the agency authority only to seek injunctions
barring future securities law violations. Congress has since authorized the SEC to seek a panoply of
remedies, including civil monetary penalties and equitable relief that may be appropriate or necessary for
the benefit of investors. Equitable relief refers to courts' traditional power to grant remedies that promote

                                                              Congressional Research Service
                                                                https://crsreports. congress.gov
                                                                                  LSB10409

CRS Legal Sidebar
Prepared for Members and
Committees of Congress

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