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Following Supreme Court’s SEC disgorgement authority ruling, defendants required to repay nearly $20.8 million

Courts U.S. Supreme Court Liu v. SEC SEC Disgorgement


On June 7, the U.S. District Court for the Central District of California ordered defendants to disgorge more than $20.8 million in net profits in an action concerning money that was collected from investors for a cancer treatment center that was never built. The order follows a 2020 U.S. Supreme Court ruling (covered by InfoBytes here), in which the high court examined whether the SEC’s statutory authority to seek “equitable relief” permits it to seek and obtain disgorgement orders in federal court. The Court ultimately held that the SEC may continue to collect disgorgement in civil proceedings in federal court as long as the award does not exceed a wrongdoer’s net profits, and that such awards for victims of the wrongdoing are equitable relief permissible under § 78u(d)(5). The Court vacated the original $26.7 million judgment and remanded to the lower court to examine the disgorgement amount in light of its opinion.

On remand, the district court held the defendants jointly and severally liable for the $20.8 million amount, noting that it “will not deduct one penny of the exorbitant salaries that [the defendants] paid themselves for perpetrating their fraud on investors.” Of approximately $26 million raised, the SEC alleged the defendants misappropriated approximately $20 million of the funds through payments to overseas marketing companies and to salaries. To calculate the final disgorgement award, the court subtracted legitimate expenses, including $2.2 million in administrative expenses and $3.1 million in business development expenses, from the $26 million raised. However, the court expressed doubt about the legitimacy of those expenses.