William & Mary Business Law Review
Abstract
In early 2021, Congress enacted a new statute for enforcement cases brought by the Securities and Exchange Commission. The new statute resolved important questions about the availability of disgorgement as a remedy in SEC enforcement cases, but it created other questions. The purpose of this Article is to discuss one interpretive issue that is already arising in the federal courts of appeals.
That interpretive issue is whether “disgorgement” as authorized by the new statute must abide by equitable limitations the Supreme Court imposed on disgorgement relief in SEC cases in Liu v. SEC, 140 S. Ct. 1936 (2020). The statute was passed about six months after the Liu decision, which had found that disgorgement in an SEC enforcement case is an equitable remedy when it complies with three longstanding principles of equity: a defendant's gains should be returned to wronged investors for their benefit; the disgorgement order should not extend to several wrongdoers under a joint-and-several liability theory; and disgorgement should not exceed the net profits from wrongdoing after deducting legitimate expenses. Does the new statute incorporate the Liu decision and equitable principles?
Answering that question is not straightforward. A careful review of the text, context, and legislative history of the new statute does not provide a persuasive basis to conclude that the new statute is meant to adopt equitable principles and define disgorgement the way Liu did. Neither the text of the statute nor materials from Congress commented with approval or disapproval of Liu. Canons of statutory interpretation are largely not helpful either.
A better approach to understanding the new statute is to think separately about the different equitable principles found in Liu and to analyze the statute to reach an appropriate interpretation of each one. The statutory text defining disgorgement as unjust enrichment the defendant “received” supports the application of a strict form of the Liu limitation preventing one defendant from being ordered to disgorge profits a different person received. A part of a 2010 securities enactment provides a solid ground for rejecting the Liu limitation requiring the return of disgorgement amounts to injured investors. Finally, a canon of construction provides a basis for applying the Liu principle limiting an award to net profits from wrongdoing after deducting legitimate expenses.