WASHINGTON (Reuters) – U.S. Supreme Court justices on Tuesday appeared inclined to back the Securities and Exchange Commission’s power to use federal courts to force defendants to surrender profits obtained through fraud as part of enforcement of investor-protection laws.
The nine justices heard an appeal by California couple Charles Liu and Xin Wang contesting a 2016 civil action brought against them by the SEC in federal court. They were ordered to disgorge almost $27 million, the amount they raised from foreign investors for a cancer treatment center that was never built.
Conservative and liberal justices were skeptical of the couple’s bid to strip the SEC of its disgorgement power in federal courts, although some suggested that limits should be imposed.
Disgorgement, part of the SEC’s civil enforcement arsenal, is aimed at passing on funds acquired in a fraudulent scheme to the original investors. The agency said in a court filing that in fiscal year 2019 it collected $1.5 billion in disgorgements and penalties and paid $1.2 billion to harmed investors.
President Donald Trump’s administration, defending the SEC in the case, said that depriving courts of the ability to order disgorgement would hurt defrauded investors and the securities industry.
“Most obviously, forbidding courts to order disgorgement in SEC suits would make it easier for wrongdoers to keep their ill-gotten gains, thereby reducing the deterrent effect of the current remedial scheme,” the administration said in court papers.