Liu v. SEC

To punish securities fraud, the Securities and Exchange Commission is authorized to seek “equitable relief” in civil proceedings, 15 U. S. C. §78u(d)(5). In Kokesh v. SEC, 581 U. S. ___, this Court held that a disgorgement order in a Securities and Exchange Commission (SEC) enforcement action constitutes a “penalty” for purposes of the applicable statute of limitations. The Court did not, however, address whether disgorgement can qualify as “equitable relief” under §78u(d)(5), given that equity historically excludes punitive sanctions. Petitioners Charles Liu and Xin Wang solicited foreign nationals to invest in the construction of a cancer-treatment center, but, an SEC investigation revealed, misappropriated much of the funds in violation of the terms of a private offering memorandum. The SEC brought a civil action against petitioners, seeking, as relevant here, disgorgement equal to the full amount petitioners had raised from investors. Petitioners argued that the disgorgement remedy failed to account for their legitimate business expenses, but the District Court disagreed and ordered petitioners jointly and severally liable for the full amount. The Ninth Circuit affirmed.Liu v. SEC