108 Iowa L. Rev. 469 (2022)

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Abstract

The Securities & Exchange Commission (“SEC”) was established to protect investors and the integrity of our capital markets. To further its protectionary role, the SEC can bring civil enforcement proceedings and has authority to seek disgorgement of a defendant’s ill-gotten profits on behalf of victims affected by violations of the federal securities laws. While the SEC’s mission is a noble one, the authority to seek disgorgement largely originated in equity and must conform to traditional notions of equitable relief—posing a unique challenge to discrete violations of securities laws with no readily ascertainable victims. Where a beneficiary of disgorged funds was a typical antecedent in a claim for equitable disgorgement, attempting to “disgorge” profits when it is impossible to tell from whom the profits originated effectively commissions a “modern” chapter in traditional equity jurisprudence. To preserve the SEC’s role as a market protector and prevent the courts from rewriting equity’s history, this Note argues that a different mechanism to calculate civil penalties should be implemented in response to violations that are incompatible with disgorgement—allowing the SEC to prevent wrongdoers from retaining the proceeds of their conduct and efficiently deterring future violations of the federal securities laws.