U.S. Supreme Court ruling could curb SEC authority (2019)
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On November 2, the U.S. Supreme Court agreed to hear Liu v. Securities and Exchange Commission. The case could limit how the SEC and other administrative agencies can penalize those found in violation of regulations.
The defendants in the case are questioning whether the SEC may ask courts to order those who break securities laws to give up all money related to the illegal activity. Courts get people to turn over those funds using disgorgement orders. In a 2017 case, Kokesh v. SEC, the U.S. Supreme Court held that such orders were penalties, which might limit when the SEC may ask courts to issue them. In the past, the SEC requested disgorgement orders under its authority to seek equitable relief for those harmed by fraud or other violations. If those orders are penalties, then the agency may not be able to ask for them unless Congress changes the law.
This case began when the SEC sued Charles Liu and Lisa Wang, alleging that they had misappropriated funds and defrauded investors in their EB-5 visa business. The EB-5 program allows entrepreneurs to apply to be U.S. permanent residents if they invest in a U.S. business.
A district court ruled in favor of the SEC, finding that Liu and Wang violated the Securities Act of 1933, and imposed civil penalties in addition to a disgorgement order requiring Liu and Wang to surrender to the SEC the millions of dollars they raised from investors. The Ninth Circuit affirmed the lower court's ruling. Liu and Wang argue that the SEC lacked the legal authority to ask the district court to impose a disgorgement order. The case is now pending before the U.S. Supreme Court. The court had not scheduled oral argument for the case as of November 7.
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