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June 22, 2020

In a Resounding Victory for Investors, the Supreme Court Upholds the SEC’s Right to Force Fraudsters to Surrender Their Ill-Gotten Gains

Monday, June 22, 2020
Contact: Pamela Russell at 202-618-6433 or
Washington, D.C.  –  Stephen W. Hall, Legal Director and Securities Specialist for Better Markets, issued the following statement on the SEC’s victory before the U.S. Supreme Court upholding the agency’s right to obtain disgorgement from those who violate the securities laws and defraud investors:
“This is a major win for the SEC and for investors everywhere.  The ability to recover money stolen by scam artists has long been one of the SEC’s most powerful enforcement tools, and today’s decision means that it will continue to play that essential role.  The Court held that disgorgement is equitable relief permitted under the securities laws, provided it does not exceed a wrongdoer’s net profits and is awarded for victims.  The con artists of the world won’t like it, but it’s a huge win for everyone else.
“The status of disgorgement was in jeopardy after two fraudsters who stole tens of millions of dollars from their investors appealed a disgorgement order against them that the SEC had won in federal court.  Relying on a prior Supreme Court decision from 2017, they claimed that the remedy was really an unlawful penalty, not an equitable measure designed to prevent wrongdoers from keeping their ill-gotten gains. 
“Today the Court flatly rejected that claim, citing decades of court decisions showing that disgorgement has “typically been available in equity.” Better Markets filed a joint amicus or “friend of the court” brief with the Center for Responsible Lending and the National Consumer Law Center defending the SEC’s position.  We highlighted the long line of cases holding that disgorgement is an equitable remedy, and we also cautioned that a decision against the SEC would eliminate a key weapon in the fight against fraud.  That would have meant less deterrence, more securities fraud, and fewer victims recovering their losses. 
“Although the Court imposed some limits on the disgorgement remedy, it left the SEC some room there as well.   For example, while disgorgement generally must not exceed the net profits taken by fraudsters, federal courts can and should follow the rule that where the “entire profit of a business or undertaking” results from wrongdoing, there may be no “legitimate” expenses to deduct from the disgorgement order.  And although funds disgorged should generally be returned for the benefit of investors, the Court left open the possibility that disgorged funds could appropriately be paid into a fund at Treasury and used for other SEC-related purposes.
“The case illustrates once again the extraordinarily important—and often underappreciated—role that Supreme Court decisions can play in the lives of everyday Americans.  This time, the result was a win for the investors, the SEC, and the fight against securities fraud.”
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit
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