Liu v SEC

Allegations & issues

The SEC alleged that funds raised from immigrant investors for a cancer-treatment centre were misappropriated. The district court found for the SEC and ordered disgorgement approximating the amount raised, less funds remaining in project accounts. [1, pp. 2–3]

Key rulings & findings

A profit-stripping remedy was not categorically unavailable, but historical equity limited its amount, allocation and use. [1, pp. 6–14]

Admissions

The decision followed contested litigation and addressed the permissible remedy. It was not a settlement containing an admission provision. [1]

Disposition

Ninth Circuit judgment vacated; case remanded for further proceedings consistent with the opinion. [1, p. 20]

Penalties, damages & redress

The Supreme Court did not fix a final monetary amount. It required review of the disgorgement award, including legitimate expenses and the treatment of each defendant’s profits. [1, pp. 14–20]

Restrictions & obligations

The Supreme Court’s ruling focused on equitable monetary relief under 15 U.S.C. §78u(d)(5). [1]

Net profits and the purpose of the award

The Court rejected both an unrestricted power to recover gross receipts and the argument that disgorgement could never be equitable relief. Historical equity allowed a court to remove profits from wrongdoing, but did not generally permit an award that turned the remedy into punishment. [1, pp. 6–14]

That distinction required attention to legitimate business expenses. The lower court was to examine whether particular expenses had independent value or merely furthered a fraudulent scheme, rather than assume that every expenditure must be deducted or that none could be. [1, pp. 18–20]

Questions returned to the lower courts

The opinion examined payment for victims, joint liability and net-profit calculation separately. It recognised that partners engaged in concerted wrongdoing could present a different case from unrelated defendants, while warning against making one defendant surrender another’s profits without an equitable basis. [1, pp. 14–18]

The Court left application of these principles to the proceedings on remand, including issues concerning the ultimate destination of the money. Describing the result simply as “the SEC lost” would miss that the Court preserved a constrained disgorgement remedy while requiring reconsideration of the award before it. [1, pp. 14–20]

THE UNDERLYING RECORD

Primary sources

Read the full documents for their precise wording and context. Regulator summaries are identified separately from court records.