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L-R: Kirby Hsu, Ben Turner, Perrie M. Weiner and Aaron Goodman of Baker McKenzie.

On March 3, the U.S. Supreme Court held a long-awaited argument in Liu v. SEC, No. 18-501, regarding the Securities and Exchange Commission’s authority to seek and obtain disgorgement. The remedy is controversial, and not simply because of the lack of any clear Congressional authorization. Indeed, the SEC’s position is that it may seek disgorgement notwithstanding that victims, in many instances, may not be compensated.

The remedy is subject to significant discourse among judges, litigants, legal commentators and policy analysts because disgorged funds rarely—if ever—find their way back into the hands of harmed investors. The SEC’s Enforcement Division reported that, for fiscal year 2019, of the $4.3 billion in disgorgement and penalties awarded, only $1.2 billion was returned to harmed investors. That figure reflects the continuing practice of courts to award disgorgement while placing little to no restrictions on the SEC’s use of the funds. As a result, the SEC has been able to transform disgorgement into a de facto revenue-raising scheme.

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