The Supreme Court agreed to hear a case challenging the SEC's ability to go after foreign entities or seek disgorgement of gains related to fraud.
The case, Charles C. Liu, et al. vs. Securities and Exchange Commission, stems from a civil lawsuit filed by the SEC against an investment scheme that raised $27 million from Chinese investors in a visa investment program. A federal court agreed with the SEC and ordered the backers of the scheme to return, or disgorge, the money and pay a penalty of more than $8 million.
The scheme's backers then petitioned to Supreme Court to decide whether disgorgement is the same as a penalty when used to discourage further fraud, and whether the SEC can then use it.
The case is expected to be argued in 2020.
A June 2017 Supreme Court ruling put new time limits on disgorgement, a common SEC strategy to recoup illegal profits from those found to have violated federal laws. In Kokesh vs. SEC, the justices unanimously said that because disorgements are penalties, the SEC is bound by a five-year statute of limitations when seeking them. The SEC extracted almost $3 billion in disgorgement payments in 2016 — more than double what it collected in other types of penalties.
The court will also review whether the SEC has the authority to pursue securities fraud against foreign buyers when the conduct happens in the U.S.
