Note

In Liu of Disgorgement: A Call to Revise the SEC’s Civil Remedy Toolkit to Effectively Deter Market-Harming Securities Law Violations

Introduction

Picture this—

You and your band of criminally inclined chefs have been participating in “Thievesgiving” over a span of ten years. Wines are from California, dough is from New Jersey, corn is from Iowa, lobster is from Maine, oranges are from Florida, and the cheese, of course, is from Wisconsin. Indeed, there are only two requirements to attend Thievesgiving: (1) Each of the ingredients in whatever you make must come from a different grocery store in a different state; and (2) all of the ingredients must be stolen. After the most recent Thievesgiving, federal law enforcement catches wind and brings you in for questioning. You crack and, unable to maintain the thieves’ code any longer, divulge the intricacies of your scheme. After explaining your role in misappropriating ingredients from an innumerable amount of scattered and unknown grocery stores, the agent sitting across from you demands that you “disgorge” all the ingredients so that they may be returned to the stores. Confused, you reply: “But that’s . . . impossible.1 Couldn’t I just pay you for the value of what I stole?” After taking a pause to consider the marching orders from Washington, the agent accepts the cash you have on you and begins rationing it in small incremental piles. Again, confused, you ask: “Are you really going to try to track down a food cart in Florida to pay them $0.70 for an orange I stole eight years ago?” Without lifting their head, the agent responds: “Well, I can’t keep it! The Director was very clear that I may only disgorge you of your unlawful gains.”

It is an imperfect analogy but you get the gist. You, a market-harming2 wrongdoer, have engaged in unlawful conduct and derived a benefit, at which point a federal agency steps in and attempts to return the unlawful gains to a limited class of victims through disgorgement—even where it is infeasible to identify who has been harmed. Over the last decade, the U.S. Securities & Exchange Commission (“SEC”) has become increasingly reliant on disgorgement,3 both as a necessary mechanism to achieve deterrence-based judgements and as a vehicle to return money to investors who have been harmed by violations of the federal securities laws.4 With over half of U.S. households investing in the stock market,5 millions of American families are dependent on the SEC and its ability to ensure the safety of their personal savings, pension funds, and employment benefits from bad actors in our capital markets.

However, the SEC’s ability to deter wrongdoers from engaging in discrete instances of violative conduct is in jeopardy. Two recent Supreme Court cases have narrowed the scope of disgorgement through its inception as an equitable remedy,6 and Congress’s subsequent attempt to preserve the SEC’s remedial authority has fallen short.7 This Note argues that the SEC’s tenured reliance on disgorgement exposes it to significant procedural risk, where the SEC may be unable to secure deterrence-based judgements in market-harming violations that prove incompatible with disgorgement. Indeed, even litigating the scope of disgorgement will prove to be a drain on SEC resources, as the agency feels pressured to keep the remedy alive to accomplish its deterrence-based objectives. To remedy this problem, Congress should enact a comprehensive civil penalty scheme that is based on multiples of a wrongdoer’s gross profits—escaping the need to fit disgorgement to incompatible circumstances and allowing the agency to efficiently serve its deterrence-based mission.

Background

Scholarly debate surrounds the origins of “disgorgement,”8 its scope in SEC civil enforcement proceedings,9 and how the 2021 National Defense Authorization Act (“The NDAA”)10 could impact its application going forward. Section II.A. will trace the history behind today’s understanding of disgorgement, Section II.B. discusses a brief history of SEC remedies and how the Commission’s application of disgorgement has evolved over time, and Section II.C. recounts how the disgorgement provision within The NDAA was passed into law.

The History Behind Disgorgement

Conventional wisdom says that “a wrongdoer should not be permitted to profit from his wrong.”11 Indeed, this is the maxim upon which application of disgorgement is routinely justified.12 However, despite the judiciary’s regular use of this truism as ammunition to bolster its reasoning that disgorgement falls under “those categories of relief that were typically available in equity,”13 the modern discussion of disgorgement in civil proceedings does little to lay out the outer boundaries of the doctrine.14 While legal relief will normally entail a request for monetary damages, equitable relief usually involves “requiring a person take or stop a certain action.”15 As such, treating disgorgement as a purely equitable remedy where a person is required to return money can be an uncomfortable exercise; however, the distinction becomes clearer by examining the principles underlying restitution16—the remedy under which disgorgement derived much of its meaning.

The rationale behind disgorgement is not a new concept and began to take form under the doctrine of restitution.17 Restitution was derived independently from remedies that were deemed purely legal or equitable, and both sets of courts fashioned their own versions of restitutionary remedies with the goal of preventing unjust enrichment.18 Because restitution bears a passing similarity to notions of restoration, some judges and practitioners can mistakenly understand the remedy only as a means “of making plaintiff whole or restoring a previous status quo.”19 However, where preventing unjust enrichment is concerned, restitution is more naturally understood as a means to deny defendants the benefit of their wrong—not just compensation for an injured plaintiff.20 Like restitution, the principles underlying disgorgement were molded in common law courts as well as courts of equity and, as a result, have been applied as both a legal and an equitable remedy to prevent defendants’ unjust enrichment.21 While “disgorgement” generally refers to the process of stripping ill-gotten profits from a defendant, the principles underlying the doctrine have been applied as: (1) a quasi-punitive measure at common law, (2) an account of profits via constructive trust22 in the courts of equity, and (3) a penalty in modern civil proceedings.23

Common law courts conflating restitution with “damages” perhaps helps explain the confusion surrounding the boundaries of disgorgement.24 Historically, the remedy for a “restitutionary action[] at law has been a money judgment,” with the amount of relief being measured by the amount of money a defendant received.25 Put another way—legal restitution was calculated to reach a figure that would make the plaintiff(s) whole. As such, legal restitution’s application bore many similarities to simple judgements for compensatory damages and inveigled courts to conflate the two, eroding the formalistic separation between restitution’s victim-oriented roots and other relief’s deterrence-based objectives.26 Congress has done little to help clarify this distinction, using the term inconsistently across various statutes and necessarily giving “restitution” a context-specific definition—its breadth to be determined by principles of statutory interpretation.27 Today, courts seem to conflate the character of a judgement that includes disgorgement with goals more properly suited for one that includes monetary damages, applying disgorgement without regard to the existence of a victim-class (as underlies its restitutionary upbringing) and even opting to inflict additional deterrence-based harm to the defendant through penalties.28 In this sense, even the most reserved application of disgorgement may form the foundation for a court judgement to take on a quasi-punitive—and necessarily inequitable—nature.

Alternatively, the restitutionary application of disgorgement in the courts of equity began with the use of a “constructive trust” and were molded through in rem proceedings.29 In these circumstances, plaintiffs may forgo suing for conversion of property and bring an equitable claim to have the property itself ejected from the constructive trustee’s possession.30 An “account of profits” similarly leaned on the notion of a constructive trust and allowed pecuniary liability be imposed on defendants who receive money from plaintiffs in a fiduciary relationship.31 In the context of an “account of profits,” the “trustee [was] liable to account to the beneficiary for the value of the trust fund.”32 Both the constructive trust and account of profits are instruments that found footing in the courts of equity and involved a defendant being forced to return—not the value of the asset held in constructive trust—but instead the asset itself where it could be identified and was within the defendant’s possession.33 In doing so, a defendant would be stripped of the benefit (or profit) they possess from the asset, disgorging the asset in a manner that prevents the defendant’s unjust enrichment to the benefit of victims.

What happens if a remedy is not limited to the recovery of identifiable profits for victims but still labeled “disgorgement”? Well, arguably, it still may be properly labeled as a modern version of disgorgement; however, its application as an equitable remedy cannot withstand scrutiny. As the Supreme Court observed in Liu v. SEC, the label “disgorgement” as applied to any remedy “is a creation of the 20th century.”34 In reliance on nomenclature like “account of profits” and historic ties to equitable principles, “courts came to accept as a truism the notion that disgorgement is inherently an ancillary equitable remedy.”35 However, disgorgement necessarily becomes a legal remedy by contriving historic principles that anchor its application in the courts of equity.36 Indeed, “[w]hen [an] order makes no pretense of requiring the actual disgorgement of anything the defendant possesses or has access to, it is neither disgorgement nor an exercise of equitable power. It is a mere personal liability to pay a money judgment—the quintessence of a remedy at law.”37 Similarly, if a court orders that a defendant disgorge the gross amount originally invested by a plaintiff after the defendant has incurred legitimate and lawful losses on the investment (and thus independent from any benefit derived by the defendant), the order goes beyond simply preventing unjust enrichment by requiring the defendant to “disgorge” more than their net ill-gotten profits.38 Although application of disgorgement in the above contexts contrives the claim that it is being administered in an equitable fashion, modern acquiescence in the result lends support to the idea that “disgorgement” is not an inherently equitable remedy and may properly be administered as a penalty itself.39

Thus, we are left with three common understandings of disgorgement: (1) quasi-punitive disgorgement as administered at common law, where it operates without a victim-focus and can instead provide a deterrence-based justification for additional legal punishment;40 (2) equitable disgorgement as administered in the courts of equity, where a defendant is required to relinquish a specified asset in their possession to neutralize their net profit;41 and (3) punitive disgorgement as applied in modern civil courts, where a defendant is ordered to pay a money judgement without regard to possession of the asset, their net personal benefit derived from the asset, or victims—constituting a penalty itself.42

The SEC’s Remedial Authority

Congress established the SEC in response to the stock market crash of 1929 and to combat the surrounding public distrust of the nation’s capital markets.43 Pursuant to the Securities Exchange Act of 1934, the SEC was created and authorized to seek “injunctions barring future violations of the securities laws and refer[] cases to the Department of Justice for criminal prosecution.”44 For the first thirty years of its existence, the SEC was a relatively weak federal agency45 until the courts and Congress began to expand its remedial authority.46

In 1971, the SEC was successful in attaining its first judgement for restitution in SEC v. Texas Gulf Sulphur Co.47 There, defendants were charged with insider trading and other violations of the Exchange Act for issuing a company press release containing misleading statements.48 The Second Circuit upheld an injunction in favor of the SEC against two individual defendants and went on to affirm the Commission’s request for restitution of profits.49 The Second Circuit bolstered its decision on the notion that district courts have inherent equitable powers and may grant such relief where appropriate.50 In response to defendants’ contention that the SEC lacked authority to seek any remedy but an injunction, the court indicated that it did not read Congress’s explicit authorization for the SEC to seek injunctions as a restriction to pursue other remedies that fall within the courts’ power to administer.51 Following the decision in Texas Gulf Sulphur Co., the SEC began to regularly seek and be awarded disgorgement in its civil enforcement proceedings,52 and the judiciary’s willingness to uphold these judgements began to insulate the notion that disgorgement must necessarily be an equitable remedy.53

In 1990, the SEC was given another remedial tool by Congress: the ability “to seek monetary penalties against securities law violators.”54 For all violations outside of insider trading, these penalties are administered in three tiers of severity and penalize a defendant by forcing them to either pay (1) a set statutory amount per violation55 or (2) a sum of money equal to the “gross amount of pecuniary gain.”56 The ability to seek money penalties greatly increased the SEC’s authority to recover illicit financial gains57 and has resulted in severe judgements against defendants by coupling the deterrence-based monetary penalties with disgorgement.58 In 2002, the Sarbanes-Oxley Act explicitly gave the SEC authority to seek “any equitable relief that may be appropriate or necessary for the benefit of investors.”59 With affirmative Congressional authorization to seek equitable remedies in place, the SEC no longer needed to appeal to district courts’ inherent authority to apply equitable remedies and could “cite [the Sarbanes-Oxley Act] as statutory authority for ordering disgorgement.”60

In 2017, the modern acceptance of disgorgement as an “inherently equitable remedy”61 came under fire in Kokesh v. SEC.62 In Kokesh, the SEC brought suit against a defendant for allegedly misappropriating $34.9 million in connection with offering investment advice through various business entities.63 The defendant argued that the SEC’s application of disgorgement was not a form of equitable relief—but instead, a penalty and thus subject to a five-year statute of limitations under 28 U.S.C. § 2462.64 The Supreme Court agreed and went on to hold that the SEC’s use of disgorgement is more punitive than equitable where it: (1) is imposed as a deterrent for violations of public law; (2) often leaves the defendant in a worse-off position by disgorging the full amount taken from investors (with no deductions for business-expenses); and (3) is not directly compensatory (where the SEC does not transfer the disgorged funds from the fraudster back to harmed investors).65 In a footnote, the Court seemed to squarely challenge the SEC’s ability to be awarded disgorgement at all, stating: “Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.”66

In 2020, the Court was able to address the footnote raised in Kokesh head-on in Liu v. SEC.67 There, defendants argued that the SEC had no right to seek disgorgement at all because, outside of monetary penalties,68 the SEC only had statutory authorization to seek injunctions and equitable relief.69 Thus, under Kokesh, the defendants argued that SEC disgorgement was necessarily a penalty and incompatible with the Commission’s statutorily authorized remedies.70 The Court clarified that the SEC had been relying on a version of disgorgement that constituted a penalty, but affirmed that the remedy can be applied in a manner consistent with traditional notions of equitable relief.71 As such, the Court held that the SEC may continue seeking disgorgement as equitable relief72—but sought to reign in the agency’s power in applying the remedy.73 To be applied as equitable relief, the Court held that: (1) The amount disgorged should be distributed back to investors (leaving open the question of whether depositing the proceeds with the Government through the U.S. Treasury can be “for the benefit of investors”74); (2) disgorgement can only be applied to multiple defendants to hold them jointly and severally liable where they played equally culpable roles in the fraud; and (3) the amount disgorged cannot exceed the defendant’s net profits.75

The NDAA’s Disgorgement Provision

After the Kokesh decision in 2017, SEC officials grew weary of its implications.76 Specifically, officials were concerned that much of the funds they had previously been able to target with disgorgement were now time-barred based on the statute of limitations for penalties under § 2462—and that the Supreme Court explicitly called into question the Commission’s authority to seek disgorgement at all.77 In 2019, “while the Liu case was still pending in the lower courts,” legislators began to put forth bills to address both these concerns.78 The three bills that were introduced all expressly authorized the SEC to seek disgorgement in civil enforcement proceedings79 and set forth various statutes of limitations to be applied to the remedy.80 Yet, none of the three bills cleared both the House and Senate, and it did not appear that the 116th Congress would be able to remedy the uncertainty brought on by Kokesh81—until “legislation closely resembling the stalled Senate disgorgement bill resurfaced in . . . [the 2021] 1,480-page National Defense Authorization Act (NDAA), just days before the bill overwhelmingly passed both houses of Congress.”82

The Senate was the first to introduce legislation relevant to the SEC’s power to seek disgorgement83 and submitted another bill to Congress later that year with nearly identical language.84 The Senate proposals expressly gave the SEC authority to seek “disgorgement . . . by the person who received any unjust enrichment as a result of such violation.”85 Despite authorizing “disgorgement,” the Senate did not define the term in either bill but did mandate that the amount collected “shall be offset by any amount of restitution that the person is ordered to pay.”86 Lastly, the Senate proposals sought to codify a five-year statute of limitations for disgorgement, with a longer limitation being allotted for both equitable remedies and restitution.87 Notably, the Senate proposals allowed the statute of limitations to begin running from the last date of unjust enrichment88—not, as Kokesh held, when the SEC’s cause of action first accrued.89

The House put forth its own proposal to codify the SEC’s authority to seek disgorgement.90 The Investor Protection and Capital Markets Fairness Act would give the SEC authority to seek “[d]isgorgement in the amount of any unjust enrichment obtained as a result of the act or practice with respect to which the Commission is bringing such an action or proceeding.”91 Again, the bill did not expressly define “disgorgement”; however, it did include a construction provision that forbid the courts from construing disgorgement as a penalty.92 Lastly, the bill sought to establish a statute of limitations period for disgorgement of fourteen years.93 Like its Senate counterparts, the statutory period would not begin to run until “after the alleged violation.”94

On January 1, 2021, Congress overrode President Donald Trump’s veto and passed The NDAA into law.95 The overarching purpose of The NDAA was to lay the basis for 2021 military spending, and, as a result, legislative history addressing the sudden addition of section 6501, the SEC disgorgement provision, is scant.96 Buried in the 1,480 page military spending bill, section 6501 borrows language from the previous Congressional attempts to pass SEC disgorgement authority into law97 and seems to lean more heavily in favor of the Senate’s proposals.98 Now codified under 15 U.S.C. § 78u(d), The NDAA, without defining the disgorgement,99 authorized the SEC to disgorge “any unjust enrichment by the person who received such unjust enrichment as a result of such violation.”100 For violations of a few enunciated provisions of the securities laws101 and “any other provision . . . for which scienter must be established[,]” The NDAA set the statute of limitations for disgorgement at ten years102 and, for all other violations (lacking scienter), at five years.103 The NDAA also adopted the Senate’s proposal104 for a ten year statute of limitations for equitable or injunctive relief, but without any mention of restitution.105 Borrowing from both arms of Congress, The NDAA’s provisions governing statutes of limitations would not begin to run until the last violation of the securities laws,106 and the now-revised version of § 78u(d) would “apply . . . to any action or proceeding that is pending on, or commenced on or after, the date of enactment of this Act.”107

Modern Issues Facing SEC Disgorgement

Even before The NDAA passed into law, Liu’s holding casted doubt on the SEC’s ability to efficiently seek disgorgement in discreet classes of securities law violations. Indeed, under the Court’s three-prong test, application of the remedy would be most frustrated where injured investors are difficult to identify. The NDAA’s disgorgement provision was passed to preserve the SEC’s ability to continue seeking the remedy—but did little to explain whether the remedy will enjoy pre-Liu flexibility or will be constrained by Liu as the SEC faces future challenges. Section III.A. discusses the uncertainties left in the wake of Liu and Section III.B. highlights the shortcomings of The NDAA.

Problems in Liu of The NDAA

Since its acceptance by the judiciary as an authorized remedy through the present day, disgorgement has proven to be the SEC’s most effective tool in recovering monetary judgements from defendants.108 Although Liu was an offering fraud case,109 the breadth of the Supreme Court’s holding implicated the SEC’s authority to seek disgorgement across a variety of securities law violations.110 The Court’s requirement that SEC disgorgement must adhere to historic equitable principles has raised new hurdles in obtaining profits-based money judgements from market-harming violations that do not present a readily ascertainable class of victims.111 Perhaps most troubling is the survival of Kokesh after Liu, beckoning the question of whether the Court has tacitly acquiesced to the idea of two different versions of disgorgement.112

Market-Harming Violations

Violations that harm the broader securities markets envelop situations where a group of injured investors is difficult or impossible to ascertain. Although the Liu Court technically left open the question of whether distributing disgorged funds to the Government through the U.S. Treasury is acceptable “where it is infeasible to distribute the collected funds to investors,”113 commentators agree that the SEC must do more than simply substitute investor repayment for Treasury allocation.114 In fact, the Court seemed to lean against the notion, calling into question whether distribution “feasibility is relevant at all to equitable principles.”115 The inability to pinpoint a subset of injured investors frustrates Liu’s general requirement that “the SEC . . . return a defendant’s gains to wronged investors for their benefit,”116 and violations of the securities laws involving insider trading, market manipulation, and the Foreign Corrupt Practices Act are exemplary of these difficulties.117

Insider Trading

Dating back to Texas Gulf Sulphur, the SEC has regularly sought disgorgement-based remedies as equitable relief in insider trading cases.118 Insider trading is commonly understood as the buying or selling of a security “on the basis of material, nonpublic information about the security.”119 Under the insider trading umbrella, there exists (1) “classical” insider trading—involving a company insider that trades securities based on material nonpublic company information or gives a tippee such information to trade upon, and (2) “misappropriation” insider trading—involving a company outsider uncovering material nonpublic information and trading on that information or enabling others to do so.120 Although the SEC regularly sought disgorgement in insider trading cases pre-Liu, commentators have criticized the judiciary’s willingness to “disgorge” tippee profits from tippers121 and courts have wrestled with the practical flaws associated with identifying victims and distributing disgorged funds.122

The SEC’s application of disgorgement as an equitable remedy in insider trading cases has long been flawed.123 In the seminal Texas Gulf Sulpher case, the Second Circuit upheld the first SEC request for a disgorgement-based remedy in order to deprive insider trading defendants “of the gains of their wrongful conduct.”124 In contravention of historic equitable considerations, the court required that a tipper-defendant be held liable for profits realized by his tippees, notwithstanding the fact that he did not have a claim to—nor even possession of—these profits.125 In the court’s view, prompting the tipper to “disgorge” a sum of money independent from any ill-gotten profits he realized was justified to preserve company insiders’ “duty to refrain from trading on the basis of inside information.”126 Reading between the lines of Texas Gulf Sulpher’s deterrence-based reasoning, perhaps the court’s pained stretching of equitable principles can be appreciated as a product of its era. Indeed, at the time of the opinion, Congress had yet to grant the SEC authority to seek civil penalties and tippee-based liability theories were not sufficiently developed.127 Troublingly however, the practice of holding tippers liable for their tippees’ profits continued even after the advent of Congressionally authorized penalties and the refinement of tippee-based liability theories.128

In addition, both the courts and the SEC have historically struggled to identify a class of harmed investors to whom they should disgorge the funds to in a manner consistent with equitable relief—the first question being who even fits the description of “injured.”

[I]n classic insider trading cases, for example, it can be difficult to trace the precise securities bought or sold to individual purchasers or sellers who were, at least theoretically, the victims of the unlawful transaction. In misappropriation-based insider trading cases . . . the victim is typically the entity or person from whom the information was misappropriated, but gains by the perpetrator may not have been taken from this putative victim’s pockets.129

In fact, the two subsets of insider trading—classical and misappropriation—have been held to encompass varying levels of liability-exposure to investors in private lawsuits, where investors may be able to state a claim against company insiders who engage in classical insider trading, but are unable to state a claim against other traders under a misappropriation theory on similar facts.130 Although such a rule may seem sensible from a fiduciary duty standpoint, implicit in the result is the recognition of one class of shareholders as “injured” and the rejection of the other’s claim—despite the fact that the effect to shareholder equity would be virtually the same under either theory.131

Even assuming that company investors are always entitled to disgorged funds under either theory, identifying the “injured” shareholders remains a problem. Intuitively, shareholders who trade directly with an individual in possession of material nonpublic information seem likely to qualify as the injured investors to whom disgorged profits should be given to; however, such an allocation would result in a windfall to any investor(s) who simply sought to execute a trade without regard to whom the trade was with or knowledge of nonpublic information.132 The notion of limiting disgorged funds to this group of investors is especially problematic in the event the bad actor’s trade is of such magnitude that it “moves the market,” wrongfully effecting the pricing of downstream trading until the inside information becomes public.133 To address these concerns, courts have engaged in discretionary line-drawing exercises, specifying windows of time for investors to have traded134 in order to qualify as a victim and be eligible for disgorged funds.135 Even after clearing the aforementioned hurdles, there are still questions regarding whether the injured investors shall collect on an equal basis or a pro rata basis136 and how the SEC can verify a claimant’s entitlement to the disgorged funds.137

With the modern existence of tippee liability theories and through the judiciary’s willingness to painstakingly recognize a limited class of “injured” investors, the impracticality of seeking disgorgement in insider trading cases is more apparent than ever.138 This proposition rang clear post-Liu and seemed to be acknowledged by the SEC in SEC v. Govender.139 There, a non-insider tipper received material nonpublic information from an insider executive and proceeded to sell that information to a non-insider tippee for $222,788.140 The SEC sought to disgorge this amount and impose a civil penalty on the tipper of $668,364141—a three-time multiple of the tipper’s gross pecuniary gain.142Liu was decided during the litigation’s pendency and “[t]he SEC [subsequently] withdrew its request for disgorgement . . . seek[ing] only the civil penalty amount.”143 After considering the sought-after civil penalty, the court held the tipper liable for a $445,576—two-times the amount of gross pecuniary gain.144

Even though the SEC has historically been successful in advocating for checkered liability theories and non-causal, temporal standards of harm in insider trading cases, disgorgement’s post-Liu death would not significantly impact the agency’s remedial power. Unlike other securities law violations that require civil penalties be (1) capped at a statutorily calculated amount or (2) equal to the gross amount of a defendant’s pecuniary gain,145 insider trading civil penalties may be ordered up to an amount of “three times the profit gained or loss avoided as a result of such unlawful purchase, sale, or communication.”146 Thus, even in the absence of disgorgement, the SEC has express authority to seek financial penalties that deprive defendants of their profits and exact a deterrence-based punishment equal to two-times the defendant’s profit.147 This scheme of liability extends to tippers and tippees alike,148 avoiding the need to reshape the contours of equitable relief and fit disgorgement’s square peg into insider trading’s round hole. In addition, a money judgement in the form of a civil penalty instead of disgorgement poses no bar to victim distribution.149 While such an initiative seems unduly burdensome anyway,150 the option remains open to the SEC upon recognizing an eligible class of victims.151

Market Manipulation

Market manipulation occurs when a trader uses “facially legitimate trading methods in order to camouflage non-bona fide trades” to induce others into buying or selling a security,152 utilizing practices such as “spoofing”153 or “microcap fraud.”154 Market manipulation harms the stock market as a whole, making it nearly impossible to identify victims to return disgorged funds to and comply with Liu.155 Manipulative trading is commonly attributed to high-frequency traders that prey upon a variety of securities, affecting a multitude of investors and companies across the stock market.156 By taking advantage of short-term pricing fluctuations, these bad actors are able to go undetected, inhibiting the SEC’s ability to retroactively tether and quantify disgorged funds to investors who have no relationship with the wrongdoer or knowledge of the wrongdoing.157 Indeed, absent the relevant parties’ complicity in identifying investors who traded on the pricing fluctuation and a time-consuming effort by SEC forensic accountants to ration the ill-gotten profits, seeking disgorgement in these contexts is simply infeasible after Liu.158 Further, even if the SEC plausibly argues that they could identify a relevant investor base and allocate the disgorged funds, the issue remains that “market manipulation, by effecting actual price movement. . . . in multiple assets, can impact every market participant”—not just holders of the manipulated securities.159

Despite its pre-Liu practice of seeking disgorgement in the above contexts, the SEC seems to have acknowledged that disgorgement is a difficult remedy to apply to market manipulators.160 In SEC v. Lek Sec. Corp., the SEC litigated a pre-Liu market manipulation violation against Avalon, a high frequency trading firm, and two controlling defendants.161 The defendants were alleged to have engaged in spoofing162 for fifty-four months and cross-market manipulation for thirty-eight months,163 bringing in approximately $28 million in revenue—$4,495,564 of which was distributed to the defendants.164 The SEC sought and was granted disgorgement of the latter amount and moved for a third-tier civil penalty of $13.8 million to be administered against each defendant.165 After considering its broad discretion over civil penalties, the court held that a $5 million penalty against each defendant was appropriate and reserved the right to raise the amount to $7.5 million “[i]n the event that no order of disgorgement may be enforced.”166 During the subsequent appeal, Liu was decided, and the matter was remanded to the district court to reconsider its holding.167 Upon the SEC’s concession that “disgorgement in this particular case would present significant practical obstacles,”168 the agency acknowledged that the remedy would not be enforceable under Liu and accepted the court’s imposition of a $7.5 million civil penalty in lieu of disgorgement.169

In the context of market manipulation, seeking disgorgement is rendered impractical where violative conduct touches so many parties. However, the uptick in these cases is that the SEC will often have footing to argue for exorbitant civil monetary penalties. Title 15 U.S.C. § 78u(d)(3)(B) allows for the SEC to impose a civil penalty at the greater of (1) a set statutory amount “for each violation” or (2) an amount equal to “the gross amount of pecuniary gain to such defendant.”170 Courts have construed “each violation” in a light favorable to the SEC, allowing every individual trade to count as a separate violation and thus compounding the civil penalty calculation.171 Where manipulative trading practices often entail multiple transactions over a period of time, the SEC can achieve compounded monetary penalties based on a high volume of transactions—going beyond a defendant’s gross pecuniary gain and thus serving as a deterrent.172 However, such a result is necessarily predicated on the existence of a sufficient number of transactions, risking the SEC’s ability to adequately deter low-volume trading violations.173

Foreign Corrupt Practices Act

Violations of the Foreign Corrupt Practices Act (“FCPA”) generally consist of bribing “foreign officials to assist in obtaining or retaining business” or failing to maintain accurate accounting records to provide assurance that assets are being allocated “in accordance with management’s authorization.”174 Although FCPA violations represent a comparatively small percentage of SEC actions,175 they make up a disproportionately large amount of the money awarded to the agency—with disgorgement constituting the brunt of the judgements.176 The resolutions are nearly always arrived at through settlements and rarely enter civil court at all, with companies opting to quickly and quietly resolve the matter in SEC administrative proceedings.177 The SEC also shares FCPA authority with the Department of Justice.178 As such, the threat of criminal prosecution hangs in the wind and offers companies even more incentive to quietly comply on the SEC’s terms.179 Through this dynamic emerged the practice of lowering or removing SEC civil penalty amounts in exchange for self-reporting and cooperation during settlement proceedings—especially if there is a concurrent criminal action.180 However, the request that the company or individual disgorge all ill-gotten profits has unwaveringly remained.181

FCPA violations pose a wide variety of complicated difficulties associated with Liu compliance. However, while FCPA liability theories and corporate comingling of legitimate and illegitimate profits certainly present an array of Liu issues,182 victim identification is likely the most salient concern plaguing the SEC. As the agency itself admitted before the Supreme Court, FCPA disgorgement is “not returned to investors because there really is no obvious universe of individual victims from an FCPA violation.”183 Such an admission reveals a dubious problem facing SEC disgorgement after Liu reaffirmed that any form of equitable relief must be encompassed by “categories of relief that were typically available in equity.”184 Indeed, while the Court recognized that precedent did not require a fiduciary relationship to effectuate an equitable accounting of profits, the common antecedent in each relevant piece of precedent was a victim for whom the wrongdoer held the profits in constructive trust.185 To avoid transforming disgorgement into a simple money judgement, it seems sensible that the SEC would need to identify some beneficiary that was victimized by the act of committing an FCPA violation.186 Investors of the implicated company seem like a good starting-point; yet the violative act in this context can enhance a corporation’s bottom line and increase shareholder value by securing business with foreign governments.187 Foreign governments, their citizens and “competitor[s] of the bribe-paying compan[ies]” may be victims—yet it is difficult to square how allotting disgorged funds with these parties would benefit investors188 and otherwise forces the SEC to administer a distribution plan that is likely beyond the agency’s scope and capability.189

With these issues facing FCPA disgorgement, it is not difficult to see why the SEC has chosen to allocate disgorged funds with the Treasury before Liu—and perhaps partially explains why the agency was successful in continuing to do so after Liu.190 In pre-Liu 2020, the SEC initiated SEC v. Berko, an FCPA suit alleging that a defendant had received kickbacks from his role in bribing foreign officials on behalf of a client.191 While the suit was pending, Liu was decided and, in June of 2021, the parties sought court approval of their final settlement.192 Even though the initial prayer for relief included a request for a civil penalty and disgorgement,193 the only pecuniary remedy sought by the settlement proposal was disgorgement of net profits in the amount of $275,000.194 In its six-page Motion for Entry of Final Judgement, the SEC filled most of the space endeavoring to justify its use of the Treasury, highlighting that Liu did not go as far as holding that Treasury allocation was impermissible and that placing disgorged funds in the Treasury is more equitable than the alternative—“[a]llowing the defendant to retain the funds.”195 The SEC also leaned on the recently enacted NDAA as well as various doctrines that amplify the equitable powers of the courts.196 To the surprise of many,197 the court accepted the settlement that same day, adopting the SEC’s proposed Final Judgement and simply stating: “The Court finds that sending the disgorged funds to the United States Treasury . . . is consistent with equitable principles.”198

Even though settlements have no legally binding precedential value, the Berko resolution was surprising in that (1) the SEC actively sought disgorgement for violations of the FCPA after Liu and (2) the court approved the proposal and its allocation of disgorgement to the Treasury. Although impossible to know what went on during settlement negotiations, a few essential characteristics of the SEC’s remedial scheme are important to keep in mind in trying to reason through the outcome—whether it was correct or not. First, disgorgement has become the primary rainmaker in FCPA enforcement actions.199 It allows the SEC to exact massive amounts of illegally obtained profit under the guise of equity, escaping the need to coordinate their penal efforts with the Department of Justice.200 Second, if the agency rolled over and discontinued pleading disgorgement, they may often find themselves bootstrapped to effectively deter FCPA violations with civil penalties alone.201 For example, suppose an employee of a company violates one FCPA provision—15 U.S.C.
§ 78dd-1(a)(1)(B)—and receives $1 million in quid pro quo payment for a single bribe.202 Without disgorgement, the SEC likely may only be able to seek a civil penalty of $1 million,203 leaving the employee in no worse a financial position as before the violation.204 Finally, as is relevant in Berko, quiet settlement of FCPA cases has become rather common practice—as has been granting the SEC’s request for disgorgement.205 In Berko, like many other FCPA cases,206 the defendant simply did not litigate the merits of the violations or the relief sought207—making it very easy for the court to grant a historically routine request by the SEC and clear an unappealable resolution from its case docket.208

The Survival of Kokesh & Punitive Disgorgement

Interestingly, Liu never explicitly overruled Kokesh209; instead, it abrogated the SEC’s use of punitive disgorgement210 with an explicit instruction that it may only utilize equitable disgorgement in civil actions going forward.211 However, rather than reject one form of disgorgement and accept the other, the Court seemed to go to great lengths to preserve the idea that both versions may coexist212—but that the SEC only has statutory power to seek the equitable version.213 Indeed, the two decisions “make an odd pair,” implying the seemingly metaphysical existence of a punitive disgorgement, while mandating that future SEC civil proceedings reflect equitable disgorgement.214 Such a distinction would only be of note to the philosophers of federal agency pecuniary remedies—perhaps until The NDAA was passed into law in 2021.

The NDAA

After The NDAA overrode a presidential veto and became law in 2021, the SEC soon began citing section 6501 as statutory authority to seek disgorgement in civil proceedings.215 One notable change included striking language under § 78u(d)(3)(A) that set out civil penalty eligibility for violations other than insider trading, authorizing that those violations be eligible for “disgorgement . . . of any unjust enrichment by the person who received such unjust enrichment as a result of such violation.”216 The other notable change was the addition of § 78u(d)(7)–(9)—expressly allowing “disgorgement,” setting forth various statute of limitation provisions, and preserving the rights of private litigants to pursue relief.217 With these amendments applying “to any action or proceeding that is pending on, or commenced on or after, [January 1, 2021],”218 commentators began postulating the immediate impacts of the new legislation,219 and the SEC began levying arguments that the bill was implemented to alleviate Liu’s restrictiveness.220 However, a close examination of the bill’s language and the circumstances surrounding its enactment provide reason to doubt certainty on what section 6501 of The NDAA exactly does.

A Solution to an Ominous Footnote

One may float colorable arguments to the effect that section 6501 of The NDAA was a recycled statutory amendment that had been meant to address concerns brought on by Kokesh—not Liu. After Kokesh was decided, its impact on the SEC’s ability to collect disgorgement was significant and legislators took notice.221 When the Senate first introduced S.799, a bill with language nearly identical to section 6501 of The NDAA,222 the defendant in Liu had yet to even file a petition for certiorari to the Supreme Court.223 Over the coming months, other legislative initiatives comprised of similar language were put forward, plainly targeting the preservation of the SEC’s ability to seek disgorgement after Kokesh called it into question and Liu was situated to potentially dismantle the authority outright.224 Following the decision in Liu, Congress ceased putting forward disgorgement legislation—until section 6501 surfaced in The NDAA “on December 3, 2020, without any Congressional debate or discussion.”225 In substance, the only new item contained in section 6501 was a different statute of limitations scheme that allowed the SEC to disgorge ten-year profits for scienter-based violations and five-year profits for non-scienter violations226—a consideration that seems more relevant to Kokesh than it is to Liu.227 As to the rest, the argument that section 6501 was tailored to free the SEC from Liu’s restrictiveness is imperfect—“[t]he statutory language in Section 6501 . . . was crafted and debated many months before the Supreme Court issued its opinion in Liu.”228 Relatedly, some have read in legislative significance that disgorgement was now subject to a different statute of limitations scheme than equitable remedies.229 Thus, one can plausibly wonder if Congress was trying to codify “disgorgement” in its punitive application as it was being applied before Liu, with the language contained in section 6501 having been drafted to preserve SEC disgorgement—not redefine it.

The NDAA’s Immediate Impact

Absent a clear Congressional message that it intended to remove disgorgement from its anchoring principles in equity,230 it would appear that Liu is still good law and courts will continue to cling tightly to its teachings. However, this of course does not preclude the language of section 6501 from altering how the SEC seeks disgorgement in civil enforcement proceedings.231 For example, in SEC v. Ahmed, the SEC was successful in arguing that the action was “pending on” January 1, 2021 and could recover previously time-barred profits through disgorgement under the new statute of limitations for scienter-based violations.232 The court reached its decision while relying on Liu, reaffirming that disgorgement calculated with regard to net profits is proper and the amount should be awarded to victims.233 Relatedly, even without accompanying guidance detailing how the Berko court reached its decision to approve the SEC’s Final Judgement, it seems notable that the settlement was accepted alongside the SEC’s argument that The NDAA had effectively broadened its power.234 Although many are hesitant to say that The NDAA detracts anything from Liu,235 most agree that the amendment will lead to protracted investigations and litigation, accompanied by heightened expenses and a new settlement dynamic.236

The SEC’s Anti-Liu Arguments

Just because The NDAA does not facially appear to have diminished Liu has not stopped the SEC from asserting that it does. First, the reference to unjust enrichment in § 78u(d)(3)(ii) seems to reinforce Liu—namely, that disgorgement is properly calculated at a defendant’s net profits as opposed to gross profits or victim losses.237 However, the SEC has taken that language a step further, arguing that its inclusion denotes Congress’s wish that disgorgement be granted any time a defendant is unjustly enriched and without regard to whether the disgorged funds may be returned to victims or otherwise benefit investors.238 Such an argument asks whether § 78u(d)(5) still applies with equal force to SEC disgorgement239 or, in the alternative, whether disgorgement may be cherry-picked from the realm of equity and applied as a legal remedy240—even though the SEC has treated disgorgement as statutorily authorized equitable relief since The NDAA became law.241 While this interpretation of § 78u(d)(3)(ii) has yet to be scrutinized by the courts, the SEC’s position seems incompatible with the current statutory scheme and its continued designation of disgorgement as equitable relief; however, should the SEC prevail, its ability to seek disgorgement in market-harming violations would be strengthened and its use of the Treasury would likely be permissible.

Second, even though the SEC had withdrawn its request for disgorgement in Govender,242 it seems to have resumed the practice of requesting disgorgement in insider trading cases.243 Although this practice is questionable for reasons outlined above,244 seeking disgorgement in an insider trading case is even more surprising post-NDAA—as the SEC has arguably lost its statutory authorization to do so. Prior to The NDAA, § 78u(d)(3)(A) set out which violations were eligible for the tiered civil penalty system in § 78u(d)(3)(B).245 In short, every violation would be eligible for this system of civil penalty calculation except insider trading—which has its own civil penalty scheme.246 After The NDAA became law, § 78u(d)(3)(A) was amended and now sets out which violations are eligible for both the tiered civil penalty system and disgorgement under § 78u(d)(7), exempting insider trading by reference to its respective civil penalty statute.247 Nonetheless, the SEC has indicated its intention to continue seeking disgorgement notwithstanding the practical challenges set out in Liu and a seemingly incompatible statutory scheme.248 Assuming the SEC is aware of this inconsistency, it would conceivably have to argue either that (1) The NDAA’s grant of disgorgement penetrates the exempted insider trading statute—a position seemingly in tension with at least one circuit,249 or (2) some other type of disgorgement exists250 other than “disgorgement” as set out in § 78u(d)(7), subjecting it to Kokesh, Liu, and bringing us back full circle to answer the question: What does the SEC mean by “disgorgement”?251

Disgorgement Should Not Be Applied to
Market-Harming Violations

At the end of the day, the courts, the Government, and academics are all engaged in helpless semantics, arguing that “disgorgement” has a definitive meaning where the remedy’s use has been, at best, amorphous.252 To be sure, equitable concepts like constructive trusts have unquestionably enjoyed a historic place in the English courts of equity; however, its purported progeny is plagued by its recent nomenclature253 and protean character.254 While disgorgement’s role may be easily enough understood in cases involving investment adviser violations255 or small-cap offering frauds,256 violations that harm the broader securities markets dwell in a gray area—stretching settled principles of equity to their limits and “invit[ing] decades of unproductive litigation just to figure out what [legislators] mean.”257 Indeed, a broader question presents itself concerning whether the SEC should be in the business of distributing private losses at all258; however, it should be accepted that the SEC at least possess the tools necessary to deter future securities law violations—whether those violations harm the market as a whole or not.

The Public Cost of Deterrence

In order to protect the investing public, the SEC “vigorously enforce[es] the federal securities laws to hold wrongdoers accountable and deter future misconduct.”259 Indeed, deterrence is a quintessential function of the SEC, and, through the use of both disgorgement and civil penalties, the Commission has been able to meet its objective by attaining financial judgements that consistently exceed a wrongdoers’ financial gain.260 Briefly, disgorgement is set at the amount of ill-gotten profits, and then a civil penalty is imposed to leave the wrongdoer worse off than before the violation.261 The civil penalty is frequently calculated at “the gross amount of pecuniary gain,” often mirroring the amount sought in disgorgement.262 Thus, the two remedies have become codependent on each other to achieve deterrence, where the absence of one could lead to situations where “the maximum liability economically is to return all the ill-gotten gains.”263

Although deterrence remains a primary objective for the SEC,264 its reliance on disgorgement as a quasi-punitive remedy and recent commitments to return money to investors265 have potential to overshadow the agency’s deterrence-based duties. As noted, coupling disgorgement with a civil penalty has become a near-necessary practice to financially deter violations of the securities laws.266 Where this presents issues is trying to apply disgorgement, a remedy the SEC still treats as equitable,267 to violations that are seemingly incompatible with equitable relief while arguably still constrained that such equitable relief “be appropriate or necessary for the benefit of investors.”268 This presents a Sophie’s choice to the agency: pervert traditional notions of equity jurisprudence or welcome challenges to the current civil penalty scheme’s ability to administer deterrence-based punishment on its own.

Rather than balk when faced with this choice, the SEC appears to have doubled down, continuing to seek disgorgement in market-harming securities violations and pledging its commitment to returning disgorged funds to victims—even where there are no victims before it.269 Outside of the public costs associated with establishing a new office dedicated to victim distribution, the SEC’s choice is an expensive one.270 In effect, the SEC challenges itself—and the courts—to fit modern market-harming securities violations into the remedial scheme contemplated by the English Court of Chancery in 1789.271 This will result in years of quarreling to determine disgorgement’s scope, painstaking efforts by the SEC to exhaust necessary avenues of victim identification, and a massive litigation bill for the American public—accompanied by an invoice for victim distribution.272 In the midst of all these concerns, private rights of action for injured investors continue to exist,273 and one may sensibly wonder how important it really is to keep disgorgement around.

Insider Trading Civil Penalties as an Alternative Framework

Without passing judgement on the SEC’s role in profits distribution,274 disgorgement appears to function well enough in cases where there exists a limited class of harmed investors and will continue to efficiently deter future misconduct in its quasi-punitive form.275 However, the same cannot be said for market-harming violations. Subject to infirmities regarding victim identification and distribution, there exists a multitude of arguments and questions to tease out before the SEC can confidently seek disgorgement and allocate the funds to the Treasury.276

Rather than have the SEC go through years of protracted litigation to address these infirmities—and potentially lose the ability to seek disgorgement at all in discrete circumstances—Congress should pass legislation making all market-harming securities violations eligible for the civil penalty scheme seen in insider trading violations. As discussed above,277 insider trading civil penalties are calculated at an amount “not [to] exceed three times the profit gained or loss avoided as a result of such unlawful purchase, sale, or communication.”278 A civil penalty calculated in multiples of one’s unlawful profit properly (1) deprives the wrongdoer of his financial gain and (2) serves as a deterrent by leaving the wrongdoer worse off than before the violation.279 By solely relying on a civil penalty in these contexts, the SEC would enjoy explicit authorization to allocate the sum of funds to the Treasury280and reserve the right to disburse the sum to a disgorgement fund.281 Finally, and with a wave to the 116th Congress, the statute of limitations for violations subject to this civil penalty scheme should begin running “after the latest date of the violation that gives rise to the action”282 and be expanded to reflect a ten-year statutory period for scienter-based violations, enabling the Commission to calculate its civil penalty amount based on long instances of conscious fraud.283

A Civil Penalty-Based Scheme’s Implications

Even though disgorgement constitutes the brunt of money judgements in SEC litigation,284 this modification to the statutory scheme should not diminish the agency’s ability to recover from wrongdoers. Given that orders for disgorgement and civil penalties are often calculated equally,285 applying a two-times profits-based civil penalty will render approximately the same amount in most cases, reserving the right to seek up to three times the profit to account for prejudgment interest or especially egregious conduct. Sole reliance on a civil penalty for market-harming violations would also alleviate the need to manufacture a class of victims or litigate whether the penalty is for the benefit of investors—a civil penalty is justified whenever an individual has violated a provision of the relevant securities laws.286 Further, and as would be equally noteworthy to defendants, the two remedies are generally treated similarly in bankruptcy as non-dischargeable debts.287 In sum, the SEC would be able to achieve nearly identical results as they currently do—but far more efficiently.

Should the SEC solely rely on civil penalties in its enforcement proceedings, the main differences would be procedural ones. For example, if the SEC seeks disgorgement, it is only required to put “a reasonable approximation of” ill-gotten profits before the court, at which point the burden shifts to the defendant to rebut the calculation.288 While this is certainly a useful procedural tool, its absence would likely not be that impactful in insider trading and market manipulation cases because a defendant’s profits can be easily calculated by analyzing their trading activity,289 thus posing little risk for uncertainty. FCPA violations present more risk of uncertainty when calculating a defendant’s profits; however, it is difficult to conclude that this consideration outweighs the benefits of avoiding disgorgement-related disputes during litigation or settlement—especially where most companies cooperate with the SEC anyway.290

Another consideration is that, if the SEC only brings a claim for disgorgement, it can argue that a defendant has no right to a jury trial based on traditional equity jurisprudence.291 Yet, this consideration is more notable to civil procedure students than it is in practice, as the SEC almost categorically applies both legal and equitable remedies to currently accomplish its deterrence-based objectives.292 Thus, solely relying on a legal remedy and waiving the argument that their claim is equitable would be of little consequence. Of some significance, however, is that defendants are unable to attain tax deductions stemming from civil penalties, while, after Liu, there is room to argue that disgorgement orders rooted in equitable restitution are tax deductible.293 This seems more relevant to the Internal Revenue Service than it is to the SEC, where market-harming wrongdoers will be unable to offset their federal tax liability after they have engaged in unlawful conduct; however, the consideration could be relevant to settlement discussions and reaching an appropriate civil penalty amount.294 Finally, to the extent sympathy still exists for a class of victims in market-harming violations, “there’s no shortage of private legal claims available against securities-law violators, nor private attorneys incentivized to pursue them.”295

Conclusion

The SEC’s mission to deter violations of the securities laws is of vital importance—and its commitment to investor reimbursement, a noble endeavor. While both objectives have historically been served by requiring that defendants disgorge their ill-gotten profits, the SEC’s overreliance on the remedy has exposed it to an array of litigable issues and, absent an alternative framework, will challenge the efficiency by which the agency carries out its duties for years to come. Where deterrence is concerned, returning disgorged funds to investors must take a backseat; and where a statutory scheme requires identifiable victims to seek deterrence-based remedies, it must be revamped. Our capital markets are increasingly modern; there should be little reason to consult the equity courts of eighteenth-century England on how to police them.

  1. [1]. See Russell G. Ryan, The Equity Façade of SEC Disgorgement, 4 Harv. Bus. L. Rev. Online 1, 10 (2013) (“[T]rue disgorgement should similarly mean that the defendant in fact possesses or at least has access to the asset being disgorged. Otherwise, calling the remedy ‘disgorgement’ is akin to a doctor advising an emaciated patient to disgorge last year’s Thanksgiving dinner.”).

  2. [2]. This Note uses the term “market-harming” to conveniently describe violations of the securities laws that do not present a readily identifiable class of harmed investor-victims. Even though modern courts have identified classes of non-investor victims in some of the violations discussed below, see, e.g., infra note 129, this Note treats violations as effectively victimless (and thus “market-harming”) whenever the SEC cannot readily return a wrongdoer’s profits to a class of investors.

  3. [3]. See Ryan, supra note 1, at 1 n.1; U.S. Sec. & Exch. Comm’n, Div. of Enf’t, 2020 Annual Report 17 [hereinafter 2020 Enforcement Report]. But see Press Release, Sec. & Exch. Comm’n, SEC Announces Enforcement Results for FY 2021 (Nov. 18, 2021), https://www.sec
    .gov/news/press-release/2021-238 [https://perma.cc/X3T7-PHJU] (“In fiscal year 2021 ... the SEC also obtained judgments and orders for nearly $2.4 billion in disgorgement and more than $1.4 billion in penalties ... represent[ing] a respective 33 percent decrease and 33 percent increase over amounts ordered in the prior fiscal year in these categories.”).

  4. [4]. See discussion infra Section IV.A.

  5. [5]. See Kim Parker & Richard Fry, More Than Half of U.S. Households Have Some Investment in the Stock Market, Pew Rsch. Ctr. (Mar. 25, 2020), https://www.pewresearch.org/fact-tank/2020/03
    /25/more-than-half-of-u-s-households-have-some-investment-in-the-stock-market [https://perma.cc
    /QP2U-2KFA].

  6. [6]. See discussion infra Section III.A.

  7. [7]. See discussion infra Section III.B.

  8. [8]. See Liu v. SEC, 140 S. Ct. 1936, 1951 (2020) (Thomas, J., dissenting) (noting the term was first seen in legal opinions from the twentieth century). But see Caprice L. Roberts, Supreme Disgorgement, 68 Fla. L. Rev. 1413, 1427–28, 1427 n.91 (2016) (equating “disgorgement” with “accounting of profits”—a remedy with historic roots in restitution and applied in common law courts of equity); Ryan, supra note 1, at 12 (“[T]he very label of disgorgement is a misnomer[.]”).

  9. [9]. Ryan, supra note 1, at 3–4.

  10. [10]. William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, H.R. 6395, 116th Cong. § 6501 (2021) [hereinafter The NDAA].

  11. [11]. Peter Jaffey, The Nature and Scope of Restitution 12 (2000); see Liu, 140 S. Ct. at 1943.

  12. [12]. Jaffey, supra note 11, at 363.

  13. [13]. Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993); Liu, 140 S. Ct. at 1942.

  14. [14]. Ryan, supra note 1, at 1 n.3, 2.

  15. [15]. Courts of Equity vs. Courts of Law – When Are You Entitled to a Jury Trial in Civil Lawsuits, JD Porter LLC, https://www.jdporterlaw.com/285-2/court-equity-vs-courts-law-entitled-jury-trial-civil-lawsuits [https://perma.cc/9NPR-8ESQ].

  16. [16]. See Douglas Laycock, Modern American Remedies 6 (4th ed. 2012) (“Where the law/equity distinction is especially murky, as in restitution, lawyers and judges tend to overlook it, and the distinction becomes less and less important. Where the distinction is written into substantive law, judges have trouble applying it.”).

  17. [17]. Roberts, supra note 8, at 1416; see Ryan, supra note 1, at 10–11.

  18. [18]. See Laycock, supra note 16, at 6; Restatement (Third) of Restitution and Unjust Enrichment § 1 (Am. L. Inst. 2011).

  19. [19]. Laycock, supra note 16, at 492; see also Colleen P. Murphy, Misclassifying Monetary Restitution, 55 SMU L. Rev. 1577, 1578 (2002) (“Modern scholars have debated whether restitution should be defined solely as the law of unjust enrichment or whether it also includes ‘restoration’ remedies.”).

  20. [20]. Laycock, supra note 16, at 492. For clarity’s sake, if P invests money with D and then sues D based on a theory of equitable restitution, P only recovers D’s profits—meaning that P could recover less than the value of the original investment (or, theoretically, a “windfall profit” should D unlawfully use P’s investment to realize a more valuable profit). See Ius Comparatum—Global Studies in Comparative Law, Disgorgement of Profits 5 (Ewoud Hondius & André Janssen eds., 2015); see also Murphy, supra note 19, at 1582 (“In certain circumstances—typically those of conscious wrongdoing—the defendant may be required to disgorge any profits that it derived from the benefit, and the amount of recovery for unjust enrichment may therefore exceed the plaintiff’s loss.”).

  21. [21]. See Jaffey, supra note 11, at 374; Ius Comparatum, supra note 20, at 6 n.20.

  22. [22]. Jaffey, supra note 11, at 366, 374. Disgorgement has also been applied in ways that circumvent the need to rely on the idea of a constructive trust—for example, in intellectual property infringement claims. See Liu v. SEC, 140 S. Ct. 1936, 1944 (2020). However, in the context of SEC disgorgement, where a defendant has been unjustly enriched with a tangible pecuniary asset, the idea of a constructive trust may be relevant.

  23. [23]. See infra discussion accompanying notes 33–38.

  24. [24]. See Murphy, supra note 19, at 1586 (“[S]cholars write of ‘restitutionary damages’ and ‘disgorgement damages,’ with the term ‘damages’ seeming to have the meaning of monetary relief generally.”).

  25. [25]. Id. at 1602. Thus, this figure would be gauged without regard to the existence of a defendant’s earned profits—a consideration targeted by restitution in equity. See id.

  26. [26]. Id. at 1592 (“An emphasis on restoring something to the plaintiff leads to confusion about the difference between restitution and damages, because the main purpose of compensatory damages is also the ‘restoration’ of the plaintiff to its rightful position.”).

  27. [27]. See id. 1595–98.

  28. [28]. Jaffey, supra note 11, at 375. In fact, many applications of SEC disgorgement support this notion, where both disgorgement and monetary penalties are levied against defendants and usually result in a judgement that requires a defendant to pay out double their ill-gotten profit. See, e.g., SEC v. Penn, No. 14-cv-581, 2021 WL 1226978, at *15 (S.D.N.Y. Mar. 31, 2021); see also Ryan, supra note 1, at 13.

  29. [29]. See Jaffey, supra note 11, at 366.

  30. [30]. See id. at 366, 369–70.

  31. [31]. See id. at 365.

  32. [32]. Id.

  33. [33]. See Ryan, supra note 1, at 9–11.

  34. [34]. Liu v. SEC, 140 S. Ct. 1936, 1950 (2020) (Thomas, J., dissenting); see also Ryan, supra note 1, at 10 (“The Government Accounting Office has likewise reported that ‘[t]he use of the disgorgement sanction in securities law violation cases is a relatively recent phenomenon,’ and that ‘[d]isgorgement was first ordered in a securities law violation case in 1970.’” (alteration in original)).

  35. [35]. Ryan, supra note 1, at 3.

  36. [36]. See id. at 10.

  37. [37]. Id.

  38. [38]. See Liu, 140 S. Ct. at 1950.

  39. [39]. See generally Kokesh v. SEC, 137 S. Ct. 1635 (2017) (holding that disgorgement is a penalty where its application exceeds the profits gained by a defendant and thus is more consistent with deterrence rather than with principles of equity).

  40. [40]. See supra notes 24–28 and accompanying text.

  41. [41]. See supra notes 29–33 and accompanying text.

  42. [42]. See supra notes 34–39 and accompanying text.

  43. [43]. Susan M. Phillips & J. Richard Zecher, The SEC and the Public Interest 5, 8 (1981).

  44. [44]. Jennifer J. Schulp, Liu v. SEC: Limiting Disgorgement, but by How Much?, Cato Sup. Ct. Rev. 203, 205 (2020).

  45. [45]. Phillips & Zecher, supra note 43, at 13 (“[T]he SEC itself became known as [a] toothless tiger and a training ground for Wall Street securities lawyers.”).

  46. [46]. Schulp, supra note 44, at 205 (“By the 1960s, the commission began advancing more expansive interpretations of the securities laws, including developing a substantial insider-trading doctrine. The SEC also broadened its remedial power by appealing to the inherent equitable authority of courts to order ancillary relief.” (footnote omitted)).

  47. [47]. SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971).

  48. [48]. Id. at 1304.

  49. [49]. Id. at 1306–08.

  50. [50]. Id. at 1307–08.

  51. [51]. Id. at 1307.

  52. [52]. See Ryan, supra note 1, at 3 n.13.

  53. [53]. Id. at 3.

  54. [54]. Id. (discussing the Securities Enforcement Remedies and Penny Stock Reform Act).

  55. [55]. See SEC v. Fowler, 6 F.4th 255, 264 (2d Cir. 2021).

  56. [56]. 15 U.S.C. § 78u(d)(3)(B) (2018).

  57. [57]. See Ryan, supra note 1, at 3.

  58. [58]. See, e.g., Fowler, 6 F.4th at 264–67. For an explanation on the necessary, deterrence-based pairing of disgorgement and civil penalties in modern SEC civil proceedings, see infra Section IV.A.

  59. [59]. See § 78u(d)(5).

  60. [60]. See Ryan, supra note 1, at 4.

  61. [61]. Id. at 5.

  62. [62]. Kokesh v. SEC, 137 S. Ct. 1635, 1637–38 (2017).

  63. [63]. Id. at 1641.

  64. [64]. Id. at 1643–45; see also 28 U.S.C. § 2462 (“Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.”).

  65. [65]. Kokesh, 137 S. Ct. at 1643–45.

  66. [66]. Id. at 1642 n.3.

  67. [67]. Liu v. SEC, 140 S. Ct. 1936, 1937–39 (2020).

  68. [68]. See 15 U.S.C. § 78u(d)(3).

  69. [69]. Liu, 140 S. Ct. at 1940, 1946.

  70. [70]. Id. at 1946.

  71. [71]. See id. at 1946–47.

  72. [72]. Id. at 1940.

  73. [73]. See id. at 1947–50.

  74. [74]. Id. at 1948–49 (internal quotation marks omitted).

  75. [75]. Id. at 1947–50.

  76. [76]. Russ Ryan et al., Unpacking the SEC’s New Disgorgement Powers, 22 J. Inv. Compliance 180, 181 (2021); see Testimony on “Oversight of the Securities and Exchange Commissions”: Before the S. Comm. on Banking, Hous., and Urb. Affs., 116th Cong. (2020) (statement of Jay Clayton, Chairman, Sec. & Exch. Comm’n).

  77. [77]. Ryan et al., supra note 76, at 181.

  78. [78]. Id.; see Securities Fraud Enforcement and Investor Compensation Act of 2019, S. 799, 116th Cong. § 2 (2019); see also Investor Protection and Capital Markets Fairness Act, H.R. 4344, 116th Cong. § 2 (2019); Illicit Cash Act, S. 2563, 116th Cong. § 502 (2019).

  79. [79]. See, e.g., H.R. 4344 § 2.

  80. [80]. See Ryan et al., supra note 76, at 181–82.

  81. [81]. Id.

  82. [82]. Id. at 182.

  83. [83]. See S. 799 § 2.

  84. [84]. See Illicit Cash Act, S. 2563, 116th Cong. § 502 (2019).

  85. [85]. S. 799 § 2(a)(1)(B)(ii).

  86. [86]. Id. § 2(a)(3) (proposing that new language be added to § 78u(d) to authorize the SEC to seek disgorgement and restitution).

  87. [87]. See id. (proposing statute of limitations periods and including a ten-year period for equitable relief and restitution); see also S. 2563 § 502(a)(3) (proposing statute of limitations periods and including a twelve-year period for equitable relief and restitution).

  88. [88]. See S. 799 § 2(a)(3); S. 2563 § 502(a)(3).

  89. [89]. Ryan et al., supra note 76, at 186.

  90. [90]. Investor Protection and Capital Markets Fairness Act, H.R. 4344, 116th Cong. § 2 (2019).

  91. [91]. Id. § 2(a) (proposing new amendments be added to § 78u(d) to codify SEC disgorgement).

  92. [92]. See id.

  93. [93]. Id.

  94. [94]. See id.

  95. [95]. Ike Adams, Chris Mills & David Petron, SEC Disgorgement Authority May Be Limited Even After Recent Amendments to the ExchangeAct, ABA: Bus. L. Today (Jan. 27, 2021), https://www.sidley.com/
    -/media/publications/aba_business-law-today_jan20216.pdf?la=en[https://perma.cc/3CA8-AATU].

  96. [96]. Ryan et al., supra note 76, at 182 (“We have found only a single sentence in the Congressional Record that even vaguely alluded to these provisions before the final vote, suggesting that many legislators may have been completely unaware of their last-minute insertion into the otherwise unrelated defense spending bill.” (footnote omitted)).

  97. [97]. Compare The NDAA § 6501(a), with Securities Fraud Enforcement and Investor Compensation Act of 2019, S. 799, 116th Cong. § 2 (2019), and H.R. 4344, § 2, and Illicit Cash Act, S. 2563, 116th Cong. § 502 (2019).

  98. [98]. Ryan et al., supra note 76, at 182 (“[L]egislation closely resembling the stalled Senate disgorgement bill resurfaced in . .. this year’s 1,480-page National Defense Authorization Act (NDAA)[.]”).

  99. [99]. See The NDAA § 6501(a)(3); 15 U.S.C. § 78u(d)(7) (2020).

  100. [100]. See The NDAA, § 6501(a)(3); § 78u(d)(3)(A)(ii).

  101. [101]. These include Section 10(b) of the Exchange Act, Section 17(a)(1) of the Securities Act of 1933, and Section 206(1) of the Investment Advisers Act of 1940. See § 78u(d)(8)(A)(ii).

  102. [102]. See The NDAA § 6501(a)(3); § 78u(d)(8)(A)(ii).

  103. [103]. See The NDAA § 6501(a)(3); § 78u(d)(8)(A)(i).

  104. [104]. See Securities Fraud Enforcement and Investor Compensation Act of 2019, S. 799, 116th Cong. § 2(a)(3) (2019).

  105. [105]. See The NDAA § 6501(a)(3); § 78u(d)(8)(B).

  106. [106]. Ryan et al., supra note 76, at 186.

  107. [107]. The NDAA § 6501(b).

  108. [108]. See Schulp, supra note 44, at 203; 2020 Enforcement Report, supra note 3, at 17; David Levintow, Down, but Not Out: After Liu, Disgorgement Challenges for the SEC in FCPA Enforcement, 28 PIABA Bar J. 179, 181 (2021) (“Disgorgement, the equitable remedy upheld (with caveats) by the Court, is the principal sanction imposed by the SEC on alleged wrongdoers.”).

  109. [109]. Internet Fraud, U.S. Sec. & Exch. Comm’n (June 25, 2013), https://www.sec.gov/fast-answers/answersinternethtm.html [https://perma.cc/NPP7-X8UW] (“Generally speaking, an offering fraud involves a security of some sort that is offered to the public, where the terms of the offer are materially misrepresented.”). In the context of a small-cap offering fraud, as exemplified in Liu, the Court’s limitations on disgorgement are more feasible. The universe of harmed investors is confined to those who invested in a singular, small company solely on the basis of false/misleading statements by an issuer, and disgorged funds may be returned to victims on a pro rata basis. See, e.g., SEC v. Rinfret, No. 19-cv-6037, 2020 WL 6559411, at *6 (S.D.N.Y. Nov. 9, 2020).

  110. [110]. See generally Schulp, supra note 44 (applying open questions left by Liu to other securities law violations where disgorgement has been sought). See 2020 Enforcement Report, supra note 3, at 7.

  111. [111]. See, e.g., Levintow, supra note 108, at 201–04, 210–12.

  112. [112]. See Schulp, supra note 44, at 223–24.

  113. [113]. Liu v. SEC, 140 S. Ct. 1936, 1948 (2020).

  114. [114]. See, e.g., Schulp, supra note 44, at 220.

  115. [115]. Liu, 140 S. Ct. at 1948 n.5

  116. [116]. Id. at 1948.

  117. [117]. Notably, these types of violations do not require a fiduciary relationship be established between the injured party and wrongdoer, seemingly contriving the historic application of an account of profits on its face. See discussion supra Section II.A. However, profits-based equitable remedies have been allowed to proceed in patent infringement cases absent such a relationship and bolster the idea that a fiduciary relationship is not a prerequisite to disgorgement. See Liu, 140 S. Ct. at 1944.

  118. [118]. Verity Winship, Disgorgement in Insider Trading Cases: FY2005-FY2015, 71 SMU L. Rev. 999, 1000–02 (2018).

  119. [119]. Insider Trading, U.S. Sec. & Exch. Comm’n, https://www.investor.gov/introduction-inve
    sting/investing-basics/glossary/insider-trading [https://perma.cc/B843-ELQZ].

  120. [120]. See Schulp, supra note 44, at 221; see also John K. Robinson, Note, A Reconsideration of the Disgorgement Remedy in Tipper-Tippee Insider Trading Cases, 62 Geo. Wash. L. Rev. 432, 432–34, 434 n.9 (1994) (discussing disgorgement’s shortcomings in tipper-tippee insider trading cases).

  121. [121]. See Robinson, supra note 120, at 432–34.

  122. [122]. See Paul Gonson & Randall W. Quinn, The Disgorgement Dilemma: Who Gets the Money Covered by the SEC in Insider Trading Cases?, 35 Fed. Bar News & J. 192, 193–95 (1988).

  123. [123]. See Robinson, supra note 120, at 447 (“[T]he traditional disgorgement remedy was not wholly suited to the insider trading cases to which it was applied, resulting in what most accurately is defined as a distant relative of traditional disgorgement.”).

  124. [124]. SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971).

  125. [125]. Id. (noting that applying disgorgement’s principles in this context is “more of a hardship”).

  126. [126]. Id.

  127. [127]. See Robinson, supra note 120, at 433.

  128. [128]. See id. at 447–52; see, e.g., SEC v. Clark, 915 F.2d 439, 454 (9th Cir. 1990); SEC v. Warde, 151 F.3d 42, 49 (2d Cir. 1998); SEC v. Contorinis, 743 F.3d 296, 302–04 (2d Cir. 2014).

  129. [129]. Ryan et al., supra note 76, at 185. Given the general acceptance that the proper “victim” in misappropriation-based insider trading schemes is the company that had its information misappropriated, it is troubling that the SEC has been successful in seeking disgorgement in these cases where they do not “return” the disgorged funds to the company. See, e.g., SEC v. Sabrdaran, 252 F.Supp. 3d 866 (N.D. Cal. 2017); Final Judgment Against Defendants Sasan Sabrdaran and Farhang Afsarpour at 2, SEC v. Sabrdaran, No. 14-cv-4825 (N.D. Cal. June 15, 2017). The docket in Sabrdaran does not reflect a court-submitted proposal for distribution as contemplated in the Final Judgement.

  130. [130]. See Moss v. Morgan Stanley Inc., 719 F.2d 5, 16 (2d Cir. 1983).

  131. [131]. See Gonson & Quinn, supra note 122, at 193–94 (citing Moss and noting that the SEC takes the position that the outcome in Moss was wrong). Of course, there may be a more drastic and long-term impact to shareholder value if, for example, a high-ranking company officer engages in insider trading. However, such a consideration is only relevant to the long-term implications after the conduct is discovered—not to the issue of whether and which investors were harmed by the act of insider trading itself.

  132. [132]. See id. at 194 (“There seems to be no good reason why [an investor] should be the only one to recover while someone who, equally unaware of the material information possessed by the inside trader, sold two minutes earlier or later gets nothing.”).

  133. [133]. See id. at 195 (noting that trading activity can affect market movements).

  134. [134]. Often allowing windows to capture times both before and after the trades at issue take place. See id.

  135. [135]. Id.

  136. [136]. See id. (noting that the SEC favors equal distribution among qualifying claimants, advocating that such an approach is consistent with equitable principles); Stenger & Stenger, Distribution of Disgorgement Funds to Investors § 7.02 (2015), https://www.stengerlaw.com/book/dis
    tribution-of-disgorgement-funds-to-investors [https://perma.cc/2SB2-L2KP].

  137. [137]. For an example of the many parties who assert a claim to disgorged funds and the difficulty of striking a proper balance when many parties may assert they were indirectly injured through insider trading, see SEC v. Levine, 881 F.2d 1165, 1171–74 (2d Cir. 1989); see also Information for Harmed Investors, U.S. Sec. & Exch. Comm’n (May 18, 2022), https://www.sec.gov
    /enforce/information-for-harmed-investors [https://perma.cc/5SDW-U46B] (detailing the many parties implicated in a claims process, including third-party fund administrators, broker-dealers, and investors themselves).

  138. [138]. But see Complaint at 1–3, SEC v. Trovias, No. 21-cv-05925 (S.D.N.Y. July 9, 2021) (seeking disgorgement in an insider trading case post-Liu).

  139. [139]. SEC v. Govender, No. 18-cv-7685, 2020 WL 5758997, at *2 (S.D.N.Y. Sept. 28, 2020).

  140. [140]. Id. at *1.

  141. [141]. Id. at *2.

  142. [142]. See 15 U.S.C. § 78u-1(a)(2) (allowing the SEC to seek insider trading civil penalties in an amount “not [to] exceed three times the profit gained or loss avoided”).

  143. [143]. Govender, 2020 WL 5758997, at *2.

  144. [144]. Id. at *2–4. Notably, this calculation mirrors the judgements for violations in which the SEC is encouraged to seek disgorgement. See supra note 28; see also Dixie L. Johnson, Carmen J. Lawrence & Jamie Stinson, The Evolution and 2020 Status of Cooperation in SEC Enforcement Investigations, 75 Bus. Law. 2427, 2461 (2020) (“[P]enalties in FCPA matters ‘often are set at an amount equal to the disgorgement amount[.]’” (alteration in original) (quoting Andrew Ceresney, Dir. of Div. of Enf’t, U.S. Sec. & Exch. Comm’n, Remarks at University of Texas School of Law’s Government Enforcement Institute in Dallas, Texas: The SEC’s Cooperation Program: Reflections on Five Years of Experience (May 13, 2015), https://www.sec.gov/news/speech/sec-cooperation-program.html [https://perma.cc/PH2H-PEAZ])).

  145. [145]. See § 78u(d)(3)(B).

  146. [146]. § 78u-1(a)(2).

  147. [147]. See id.

  148. [148]. See id. § 78u-1(a)(1).

  149. [149]. See § 7246(a).

  150. [150]. See supra text accompanying notes 123–44.

  151. [151]. See § 7246(a).

  152. [152]. See Joseph Zabel, Rethinking Open- and Cross-Market Manipulation Enforcement, 15 Va. L. & Bus. Rev. 417, 417 (2021) (providing an overview of different manipulative trading tactics).

  153. [153]. For example, “spoofing” involves Trader A placing a buy order to purchase Company X’s stock at a value below the current market price. In order to execute such a trade, Trader A, already possessing a significant amount of Company X stock, intentionally drives down the market value of the shares by placing a sizeable amount of sell orders. When faced with an apparent and imminent increase in supply of Company X stock on the open market, “[m]arket participants will lower the price at which they are willing to sell their shares of Company X to reflect the new market price,” at which point Trader A’s initial buy order shall execute, and they may cancel the sell order, prompting the market price to bounce back to reflect the security’s original value. See id. at 439.

  154. [154]. Microcap fraud is another form of market manipulation, where the low-priced stock of very small companies trades off of national securities exchanges and is more susceptible to inaccurate pricing through the spread of false information by ill-intentioned investors. Microcap Fraud, U.S. Sec. & Exch. Comm’n, https://www.investor.gov/additional-resources/spotlight/m
    icrocap-fraud [https://perma.cc/476D-E22E]; see also Zabel, supra note 152, at 430–31 (describing schemes traditionally reliant on microcap frauds, such as “pump and dump” and “short and distort” schemes).

  155. [155]. See Zabel, supra note 152, at 427.

  156. [156]. See id. at 420–21, 420 n.9, 427.

  157. [157]. See id. at 426–27.

  158. [158]. In fact, a windfall to the subset of harmed investors may occur if the manipulator’s trading profits were allocated to the investors with whom he traded. This Note examines such a phenomenon in the context of insider trading and may warrant concern when applied to select market manipulation cases. See supra text accompanying notes 132–33.

  159. [159]. Zabel, supra note 152, at 427.

  160. [160]. But see Complaint at 1–2, SEC v. Melnick, No. 21-cv-04054 (N.D. Ga. Sept. 30, 2021); Complaint at 1–3, SEC v. Gallagher, No. 21-cv-08739 (S.D.N.Y. Oct. 26, 2021); Complaint at 1
    –3, SEC v. Muller, No. 21-cv-06048 (S.D.N.Y. July 14, 2021). While this Note does not purport to examine the intricacies of SEC administrative proceedings, it is noteworthy that the agency has steadfastly continued seeking disgorgement after Liu when it proceeds in-house. See, e.g., Press Release, Sec. & Exch. Comm’n, J.P. Morgan Securities Admits to Manipulative Trading in U.S. Treasuries (Sept. 29, 2020), https://www.sec.gov/news/press-release/2020-233 [https://perma
    .cc/7NDQ-F3U6].

  161. [161]. SEC v. Lek Sec. Corp., No. 17-cv-1789, 2020 WL 1316911, at *1 (S.D.N.Y. Mar. 20, 2020).

  162. [162]. Also known as “layering.” See id. at *2.

  163. [163]. Id. at *7. “Cross market manipulation” is the buying/selling of stock to impact the pricing of corresponding options. For further explanation, see id. at *2 and Zabel, supra note 152, at 452–60.

  164. [164]. Lek Sec. Corp., 2020 WL 1316911, at *2, *4.

  165. [165]. Id. at *3–6. Treating each month that the defendants engaged in the respective manipulative tactics as one “violation” under 15 U.S.C. § 78u(d)(3)(B)(iii) (2018), the SEC arrived at a civil penalty of $13.8 million by multiplying a statutory amount of $150,000 by 92 months. See id. at *7.

  166. [166]. Id. at *9–10, *10 n.13.

  167. [167]. SEC v. Lek Sec. Corp., No. 17-cv-1789, 2021 WL 751395, at *1 (S.D.N.Y. Feb. 9, 2021).

  168. [168]. Plaintiff SEC’s Reply Regarding the Impact of Liu v. SEC on the Final Judgment at 2, SEC v. Lek Sec. Corp., No. 17-cv-1789, 2021 WL 751395 (S.D.N.Y. Feb. 9, 2021), ECF No. 592.

  169. [169]. Lek Sec. Corp., 2021 WL 751395, at *1.

  170. [170]. § 78u(d)(3)(B).

  171. [171]. See, e.g., SEC v. Pentagon Cap. Mgmt. PLC, 725 F.3d 279, 288 n.7 (2d Cir. 2013); SEC v. Dang, No. 20-cv-01353, 2021 WL 1550593, at *8 (D. Conn. Apr. 19, 2021); see also Lek Sec. Corp., WL 1316911, at *9 (describing counting each series of trades within a month as one violation as reasonable); SEC v. Kenton Cap., Ltd., 69 F.Supp. 2d 1, 17 n.15 (D.D.C. 1998) (calculating the number of violations by each injured investor); SEC v. Rinfret, No. 19-cv-6037, 2020 WL 6559411, at *8 (S.D.N.Y. Nov. 9, 2020) (noting that courts have calculated the number of violations based on each violated statute or treating multiple unlawful acts as part of one scheme).

  172. [172]. Cf. Lek Sec. Corp., 2020 WL 1316911, at *9 (acknowledging that the SEC’s identification of ninety-two violations to reach a $13.8 million civil penalty was properly calculated against a disgorgement order of approximately $5 million, representing the collective defendants’ gross pecuniary gain).

  173. [173]. Suppose Investor A participates in a “pump and dump” microcap fraud, selling her stock in Company Z at a premium and realizing a profit in excess of $100,000 after her colleague, Investor B, disseminates false information to artificially inflate the value of Company Z shares. If the number of violations is fixed to Investor A’s single trade, the SEC would be forced to seek a civil penalty capped at Investor A’s gross pecuniary gain (without an equal amount sought in disgorgement to allow the civil penalty to maintain its character as a deterrence-based penalty). A higher civil penalty could conceivably be imposed based on Investor A’s potential violation of statutes governing the dissemination of false information; however, the point is that it is not difficult to imagine situations where the SEC is strained to plead that a civil penalty should exceed a defendant’s gross pecuniary gain.

  174. [174]. See Spotlight on Foreign Corrupt Practices Act, U.S. Sec. & Exch. Comm’n (Feb. 2, 2017), https://www.sec.gov/spotlight/foreign-corrupt-practices-act.shtml [https://perma.cc/5869-UX2Z]; see also Levintow, supra note 108, at 186 (“Broadly speaking, the FCPA prohibits the making of improper payments to foreign government officials and requires strict recordkeeping and internal controls requirements to both deter violations and facilitate potential enforcement actions.”).

  175. [175]. See 2020 Enforcement Report, supra note 3, at 16; see also Levintow, supra note 108, at 188.

  176. [176]. Levintow, supra note 108, at 188 (noting that 2018–19 FCPA violations made up only three percent of SEC enforcement actions but twenty-two percent of financial awards).

  177. [177]. See id. at 199.

  178. [178]. Id. at 200.

  179. [179]. See id.

  180. [180]. See Johnson et al., supra note 144, at 2460–63 (clarifying that this practice has only become a recent phenomenon in FCPA enforcement after 2018).

  181. [181]. See id. The SEC has continued to disgorge funds from FCPA violators in their administrative proceedings after Liu. See Press Release, Sec. & Exch. Comm’n, SEC Charges World’s Largest Advertising Group with FCPA Violations (Sept. 24, 2021), https://www.sec.gov/news/press-release
    /2021-191 [https://perma.cc/W34A-5VFA]. Since Liu, the SEC has not litigated any FCPA actions in federal court seeking disgorgement; however, the agency was recently able to procure a post-Liu order approving a settlement with an allotment for disgorgement. See discussion infra notes 190–208 and accompanying text.

  182. [182]. The SEC often relies on a theory of respondeat superior to hold U.S. companies liable for their foreign subsidiaries’ FCPA bribery and accounting misconduct without evincing any proof of the parent company’s role in the misconduct—seemingly inapposite to the Liu Court’s skepticism of joint and several disgorgement liability. See Levintow, supra note 108, at 208. Furthermore, Liu’s requirement that disgorgement be calculated with regard to legitimate business expenses is troublesome in the FCPA context, where the relevant corporations and affiliates are often large, established companies and arguably may incur legitimate operational or advisory expenses associated with performance under bribery-induced government work. Id. at 209–11. For a full discussion of these issues, see id. at 205–13.

  183. [183]. Transcript of Oral Argument at 35, Liu v. SEC, 140 S. Ct. 1936 (2020) (No. 18-1501).

  184. [184]. Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993).

  185. [185]. Liu v. SEC, 140 S. Ct. 1936, 1944 (2020) (citing cases resolving patent-infringement disputes and “an action against the governing committee of a stock exchange”); see id. at 1942 (“The ‘basic contours of [equitable relief] are well known’ and can be discerned by consulting works on equity jurisprudence.” (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 217 (2002))).

  186. [186]. See Levintow, supra note 108, at 202.

  187. [187]. See id. (“[S]hareholders of a company that bribes a foreign government official are not victims of fraud in the same way as are investors duped by a Ponzi scheme, or those whose funds are misappropriated by an unscrupulous investment adviser.”). Even if an enforcement action is brought against the company, identifying shareholders as victims can be speculative as they are only pecuniarily victimized “to the extent [the] action damages the company’s reputation and share price.” Id. Further, the damage should have to neutralize the net benefit derived from the violation or handicap long-term shareholder value—inviting further debate and speculation.

  188. [188]. Levintow, supra note 108, at 203; see Liu, 140 S. Ct. at 1948 (maintaining that equitable relief must satisfy § 78u(d)(5)’s requirement to be administered “for the benefit of investors”).

  189. [189]. See Levintow, supra note 108, at 202–03.

  190. [190]. The Author is aware of a resolution similar to Berko regarding a market manipulation claim. See Judgment as to Defendant Mark J. Melnick at 3–5, SEC v. Melnick, No. 21-cv-04054 (N.D. Ga. Nov. 4, 2021). While these settlements have no legally binding value, it seems noteworthy that the SEC continues to frame its requests for relief around disgorgement.

  191. [191]. Complaint at 1–5, SEC v. Berko, No. 20-cv-01789 (E.D.N.Y. Apr. 13, 2020) [hereinafter Berko Complaint].

  192. [192]. See Plaintiff’s Motion for Entry of Final Judgment at 1–2, SEC v. Berko, No. 20-cv-01789 (E.D.N.Y. June 23, 2021) [hereinafter Berko Motion for Final Judgment].

  193. [193]. Berko Complaint, supra note 191, at 36.

  194. [194]. Berko Motion for Final Judgment, supra note 192, at 2.

  195. [195]. See id. at 3–4.

  196. [196]. See id. at 3–5.

  197. [197]. See, e.g., In Resolving the Berko Enforcement Action, What About Liu?, FCPA Professor (June 25, 2021), https://fcpaprofessor.com/resolving-berko-enforcement-action-liu [https://perma.cc/6LZ9-Z7SH] (“[T]he SEC ignored Liu’s ‘and is awarded to victims’ prong and encouraged the court to require Berko to nevertheless pay disgorgement which the court ordered—seemingly in violation of Liu.”).

  198. [198]. Final Judgment as to Defendant Asante Berko at 4, SEC v. Berko, No. 20-cv-01789 (E.D.N.Y. June 23, 2021) [hereinafter Berko Final Judgment].

  199. [199]. See Johnson et al., supra note 144, at 2460.

  200. [200]. See id. at 2460–62.

  201. [201]. This is because FCPA violators have potential to reign in huge profits while violating very few statutes. See, e.g., Berko Complaint, supra note 191, at 34–36. If civil penalties were only available in Berko—and accepting the complaint’s alleged profit of $2 million—the third-tier statutory scheme would only allow the greater amount of (1) $100,000 for “each violation” or (2) $2 million (without any prejudgment interest). See 15 U.S.C. § 78u(d)(3)(B)(iii) (2018). The SEC alleged that the defendant violated and aided and abetted a violation of the FCPA—thus a narrow reading of “each violation” would render approximately $200,000—far less than what would be needed to deter conduct resulting in $2 million of profit. If the SEC could identify 21+ separate instances of conduct that violated the statute(s), it may be able to escape mandatory imposition of a single penalty capped at net profit.

  202. [202]. See § 78dd-1(a)(1)(B) (forbidding inducement of a “foreign official to use his influence with a foreign government” through payment or gift).

  203. [203]. See § 78u(d)(3).

  204. [204]. Additionally, this forces the SEC to forgo a request for prejudgment interest on the disgorged profits—a regular pairing with SEC disgorgement. See, e.g., SEC v. Ahmed, No. 15CV675, 2021 WL 2471526 (D. Conn. June 16, 2021) (applying prejudgment interest after Liu).

  205. [205]. See Levintow, supra note 108, at 200 n.150 (“Not a single company fought its FCPA charges in court in 2019.”); Johnson et al., supra note 144, at 2461 (“It is typical in FCPA resolutions that disgorgement is ordered in the SEC case and a penalty is imposed in the criminal case.”).

  206. [206]. See, e.g., Levintow, supra note 108, at 200 n.150.

  207. [207]. Throughout the litigation, the defendant continuously asked for extensions to respond to the complaint in light of settlement discussions. See Consent Motion for Extension of Time to File Answer re 1 Complaint at 1, SEC v. Berko, No. 20-cv-01789 (E.D.N.Y. Apr. 15, 2021), ECF No. 15.

  208. [208]. One could also plausibly argue that the resolution of this case was shaped by a desire to put a relatively modest settlement before the court and gauge its willingness to uphold disgorgement’s allocation to the Treasury. The initial complaint pled that the defendant received up to $2 million in bribes, yet the parties settled at a number far less more than a year later. Compare Berko Complaint, supra note 191, at 34 ($2,000,000), with Berko Final Judgment, supra note 198, at 3–4 ($275,000 plus prejudgment interest). Further, the settlement did not include any attempt at a civil penalty. See Berko Final Judgment, supra, note 198, at 3–4. There is also no public evidence of a concurrent Department of Justice suit and, if anything, it appears the defendant was less than cooperative with the SEC. See generally Motion for Pre-Motion Conference Concerning Service Under Fed. R. Civ. P. 4(f), SEC v. Berko, No. 20-cv-01789 (E.D.N.Y. Sept. 10, 2020) (highlighting service issues and prolongment). By exempting the civil penalty, the SEC did not give the court an easy opportunity to strike one remedy and apply the other, framing the alternative here as: “[a]llowing [the defendant] to retain his personal financial gain resulting from the alleged misconduct.” Berko Motion for Final Judgment, supra note 192, at 4.

  209. [209]. Schulp, supra note 44, at 223.

  210. [210]. See supra text accompanying notes 61–75.

  211. [211]. See Liu v. SEC, 140 S. Ct. 1936, 1946 (2020).

  212. [212]. See Transcript of Oral Argument, supra note 183, at 5–6 (“[T]he notion that because we categorize it in one context, disgorgement, as a penalty, does not necessarily carry over to another. There was a great legal scholar who has been often quoted by this Court, Walter Wheeler Cook, who said the tendency to assume that a word appearing in two or more legal contexts and so in connection with more than one purpose—one purpose is statute of limitations, another is depriving the fraudster of the profits of the fraud—to assume that characterization in one context carries over to another is a notion that has all the tenacity of original sin and must constantly be guarded against.” (emphasis added)).

  213. [213]. See Liu, 140 S. Ct. at 1946 (“[T]he Kokesh Court evaluated a version of the SEC’s disgorgement remedy that seemed to exceed the bounds of traditional equitable principles. But that decision has no bearing on the SEC’s ability to conform future requests for a defendant’s profits to the limits outlined in common-law cases awarding a wrongdoer’s net gains.”).

  214. [214]. See Caselaw Developments 2020, 76 Bus. Law. 1069, 1076 (2021).

  215. [215]. See, e.g., Supplemental Authority filed by USSEC at 1, SEC v. Camarco, No. 19-01486 (10th Cir. Jan. 5, 2021).

  216. [216]. See The NDAA § 6501(a)(1)(B)(ii); 15 U.S.C. § 78u(d)(3)(A)(ii) (2020).

  217. [217]. See The NDAA § 6501(a)(3); § 78u(d)(7)–(9).

  218. [218]. The NDAA § 6501(b).

  219. [219]. See, e.g., Adams et al., supra note 95, at 1–2; David Levintow, Sorry, But the NDAA Did Not Just Redefine Disgorgement, FCPA Blog (Feb. 23, 2021, 7:48 AM), https://fcpablog.com/2021/02/23/
    sorry-but-the-ndaa-did-not-just-redefine-disgorgement [https://perma.cc/2F5F-FGZ8].

  220. [220]. See SEC v. Blackburn, 15 F.4th 676, 681–82, 681 n.4 (5th Cir. 2021) (“The SEC argues in the alternative that the amended law applies to this case that was pending when it was enacted and gives district courts broader authority to order disgorgement than the general ‘equitable relief’ provision of section 78u(d)(5) that Liu interpreted. But we need not address this argument.”); Berko Motion for Final Judgment, supra note 192, at 3–5.

  221. [221]. See U.S. Sec. & Exch. Comm’n, Division of Enforcement 2019 Annual Report 21 (2019) (“The Division estimates that the Kokesh ruling has caused the Commission to forgo approximately $1.1 billion dollars in disgorgement in filed cases.”); Adams et al., supra note 95, at 2 (detailing congressional commentary regarding Kokesh’s impact).

  222. [222]. The main substantive differences in S.799 are: (1) the inclusion of the SEC’s ability to seek restitution for victims, offsetting a defendant’s disgorgement liability; and (2) a five-year statute of limitations for all applications of disgorgement. Compare The NDAA § 6501, with Securities Fraud Enforcement and Investor Compensation Act of 2019, S. 799, 116th Cong. § 2 (2019).

  223. [223]. See Application for an Extension of Time Within Which to File Petition for a Writ of Certiorari to The United States Court of Appeals for the Ninth Circuit at 4, Liu v. SEC, 140 S. Ct. 1936 (2020) (No. 18-1501); Adams et al., supra note 95, at 2.

  224. [224]. See Adams et al., supra note 95, at 2.

  225. [225]. Id.

  226. [226]. See The NDAA § 6501(a)(3).

  227. [227]. See generally Kokesh v. SEC, 137 S. Ct. 1635 (2017) (holding that SEC disgorgement is subject to a five-year statute of limitations).

  228. [228]. Adams et al., supra note 95, at 2.

  229. [229]. See Samuel Bray, The Changing Face of the SEC Restitution Remedy, Reason (Jan. 7, 2021, 9:45 AM), https://reason.com/volokh/2021/01/07/the-changing-face-of-the-sec-restitution-remedy [https://perma.cc/6U7R-TYPW] (“It is inescapable from the text and headings that the authorized remedy of ‘disgorgement’ is not being classified as an equitable remedy.”). Contra Levintow, supra note 219 (“[S]pelling out a longer limitations period for disgorgement in some instances should not be misinterpreted as a legislative attempt to redefine SEC disgorgement as legal restitution.”).

  230. [230]. Cf. Bray, supra note 229 (“[T]he word disgorgement doesn’t tell us anything about whether the remedy sought is legal or equitable.”).

  231. [231]. Adams et al., supra note 95, at 3.

  232. [232]. SEC v. Ahmed, No. 15-cv-675, 2021 WL 2471526, at *4–6 (D. Conn. June 16, 2021).

  233. [233]. See id. at *2.

  234. [234]. See supra notes 190–208 and accompanying text.

  235. [235]. See SEC v. Blackburn, 15 F.4th 676, 681 n.4 (5th Cir. 2021).

  236. [236]. See, e.g., Russ Ryan, How the SEC Became the Investor’s Collection Agent, LinkedIn (Jan. 4, 2021), https://www.linkedin.com/pulse/how-sec-became-investors-collection-agent-russ-ryan [https:
    //perma.cc/U37Q-EMBC]; see also Kara Brockmeyer, Andrew J. Ceresney, Arian M. June & Robert B. Kaplan, The SEC’s Expanded Disgorgement Authority Complicates Investigations and Settlements, Debevoise & Plimpton (Jan. 4, 2021), https://www.debevoise.com/insights/publications/2021
    /01/the-secs-expanded-disgorgement-authority [https://perma.cc/5JNF-JSSH] (detailing relevant settlement considerations post-Liu).

  237. [237]. See Liu v. SEC, 140 S. Ct. 1936, 1949–50 (2020).

  238. [238]. See Brief of SEC, Appellee at 47–48, SEC v. Blackburn, 15 F.4th 676 (5th Cir. 2021) (No. 20-30464) [hereinafter Brief of SEC]; Berko Motion for Final Judgment, supra note 192, at 3–4.

  239. [239]. And thus must “be appropriate or necessary for the benefit of investors.” 15 U.S.C
    § 78u(d)(5) (2020).

  240. [240]. See Ryan et al., supra note 75, at 183, 185; Sarah Aberg & Chris Bosch, Legislation Misses Mark to Expand SEC Disgorgement Powers, N.Y. L.J. (Mar. 15, 2021, 10:23 AM), https://www.law.com/newyorklawjournal/2021/03/15/legislation-misses-mark-to-expand-sec-disgorgement-powers/?slreturn=20211006002656.

  241. [241]. See e.g., Brief of SEC, supra note 238, at 47–48 (relying on equitable maxims); Berko Motion for Final Judgment, supra note 192, at 5 (advocating for the court to utilize expansive equitable authority); see also Ryan et al., supra note 76 at 183 (“Congress has previously codified other SEC remedies that were previously considered equitable—such as injunctions and officer/director bars—yet those remedies are still widely considered equitable despite their statutory codification.”).

  242. [242]. See supra notes 138–43 and accompanying text.

  243. [243]. See Complaint & Demand for Jury Trial at 1–3, SEC v. Watson, No. 21-cv-05923 (S.D.N.Y. July 9, 2021) [hereinafter Watson Complaint].

  244. [244]. See discussion supra Section III.A.1.i; see also Joshua T. Lobert, Cong. Rsch. Serv., LSB10409, Liu v. SEC: The Supreme Court to Consider Whether Disgorgement Is an Equitable Remedy in SEC Enforcement Actions 3 (2020) (“[A]s the co-director of the SEC’s Division of Enforcement noted in a 2018 speech, the SEC views disgorgement as restitutionary ... and it often uses disgorged funds to make harmed investors whole.” (emphasis added)).

  245. [245]. 15 U.S.C. § 78u(d)(3)(A).

  246. [246]. See id.; § 78u-1(a).

  247. [247]. See 15 U.S.C. § 78u(d)(3)(A) (2020); § 78u-1(a).

  248. [248]. See Watson Complaint, supra note 243, at 1–3.

  249. [249]. See generally SEC v. Rosenthal, 650 F.3d 156 (2d Cir. 2011) (holding that the SEC may not disregard insider trading’s separate statute for profits-based penalty calculation and, instead, seek a tiered penalty at a statutory amount, even though the traders did not gain any profits or avoid any loses).

  250. [250]. Likely under § 78u(d)(5) as equitable relief and necessarily arguing that § 78u(d)(7) encompasses a legal remedy. However, this would be inconsistent with the SEC’s current treatment of § 78u(d)(7). See supra note 241 and accompanying text.

  251. [251]. Cf. Aberg & Bosch, supra note 240 (“[T]he statute falls short even here because it leaves room for defendants to argue that a remedy fashioned as disgorgement that operates as a penalty is not, in fact, disgorgement, but a penalty subject to § 2462’s five-year statute of limitations, bringing the matter full circle back to the holding in Kokesh.”).

  252. [252]. Transcript of Oral Argument at 52, Kokesh v. SEC, 137 S. Ct. 1635 (2017) (No. 16-529) (noting that there is nothing that requires disgorgement to necessarily entail distribution to victims because “[w]e’re just making it up”).

  253. [253]. See Liu v. SEC, 140 S. Ct. 1936, 1950–53 (2020) (Thomas, J., dissenting).

  254. [254]. Liu, 140 S. Ct. at 1943 (majority opinion).

  255. [255]. See, e.g., SEC, v. Kellen, No. CV 20-3861, 2021 WL 4907238, at *3–5 (C.D. Cal. Sept. 14, 2021); see also Levintow, supra note 108, at 202 (“[S]hareholders of a company that bribes a foreign government official are not victims of fraud in the same way as are investors duped by a Ponzi scheme, or those whose funds are misappropriated by an unscrupulous investment adviser.”).

  256. [256]. See, e.g., SEC v. Blackburn, 15 F.4th 676, 681–82 (5th Cir. 2021).

  257. [257]. Ryan, supra note 236.

  258. [258]. See id.

  259. [259]. What We Do, U.S. Sec. & Exch. Comm’n (Nov. 22, 2021), https://www.sec.gov/about
    /what-we-do [https://perma.cc/RRW8-KSKQ].

  260. [260]. See The Securities Law Enforcement Remedies Act of 1989: Hearing on S.647 Before the Subcomm. on Sec. of the S. Comm. on Banking, Hous., and Urb. Affs., 101st Cong. 32 (1990) (statement of Richard C. Breeden, Chairman, Sec. & Exch. Comm’n) [hereinafter Breeden statement].

  261. [261]. See id.

  262. [262]. See Lobert, supra note 244, at 4 (internal quotation marks omitted) (quoting 15 U.S.C.
    § 789(d)(3)(B)).

  263. [263]. Breeden statement, supra note 260, at 32. As noted above, this problem can be mitigated by calculating a civil penalty by multiplying a set statutory amount “for each violation” in appropriate cases. See text accompanying notes 170–73.

  264. [264]. See 2020 Enforcement Report, supra note 3, at 9.

  265. [265]. See, e.g., Press Release, Sec. & Exch. Comm’n, SEC Names Nichola L. Timmons Chief of New Office of Bankruptcy, Collections, Distributions, and Receiverships (Oct. 7, 2020), https://
    www.sec.gov/news/press-release/2020-250 [https://perma.cc/Q5B5-9U3H].

  266. [266]. See supra text accompanying notes 259–63.

  267. [267]. See supra note 241 and accompanying text.

  268. [268]. See 15 U.S.C. § 78u(d)(5) (2020).

  269. [269]. See id.; Ryan, supra note 236.

  270. [270]. See Ryan, supra note 236.

  271. [271]. See Liu v. SEC, 140 S. Ct. 1936, 1951 (2020) (Thomas, J., dissenting).

  272. [272]. See Ryan, supra note 236.

  273. [273]. See id.; see also § 78u(d)(9) (“Nothing in paragraph (7) may be construed as altering any right that any private party may have to maintain a suit for a violation of this chapter.”).

  274. [274]. See Ryan, supra note 236.

  275. [275]. See, e.g., SEC v. Blackburn, 15 F.4th 676, 682 (5th Cir. 2021) (“The district court’s order—requiring disbursements to already-identified victims with court supervision to ensure compliance with that edict—easily satisfies Liu. We do not hold that this scheme is the only way to satisfy Liu as other cases may present greater challenges for ensuring that disgorgement benefits victims.” (footnote omitted)).

  276. [276]. See supra Part III.

  277. [277]. See supra text and accompanying notes 145–51.

  278. [278]. 15 U.S.C. § 78u-1(a)(2) (2020).

  279. [279]. See generally SEC v. Govender, No. 18-cv-7685, 2020 WL 5758997 (S.D.N.Y. Sept. 28, 2020) (applying a civil penalty at two times the defendant’s profits).

  280. [280]. See § 78u-1(d)(1).

  281. [281]. See id.; § 7246.

  282. [282]. § 78u(d)(8)(A).

  283. [283]. The current statute of limitations for civil penalties is five years. See Gabelli v. SEC, 568 U.S. 442, 454 (2013).

  284. [284]. See 2020 Enforcement Report, supra note 3, at 17.

  285. [285]. See, e.g., Johnson et al., supra note 144, at 2461; see sources cited supra note 28.

  286. [286]. See §§ 78u(d)(3)(A), 78u-1(a)(1).

  287. [287]. See, e.g., SEC v. Palmisano, 135 F.3d 860, 866 (2d Cir. 1998) (“[D]isgorgement and penalty orders are not dischargeable in bankruptcy.”). But see Holly Baird, Comment, The Preclusive Effect of Disgorgement Orders in Non-Dischargeability Actions Under § 523(a)(19), 30 Emory Bankr. Dev. J. 383, 396–405 (2014) (describing discreet instances of disgorgement orders being dischargeable by relief or nominal defendants who did not participate in the fraud itself).

  288. [288]. Ryan, supra note 1, at 4–5 (internal quotation marks omitted).

  289. [289]. See, e.g., SEC v. Happ, 392 F.3d 12, 31–32 (1st Cir. 2004).

  290. [290]. See Johnson et al., supra note 144, at 2461–62.

  291. [291]. See SEC v. Rind, 991 F.2d 1486, 1488 (9th Cir. 1993).

  292. [292]. See supra Section IV.A.

  293. [293]. See David Petron, Nathan Clukey & Laura Barzilai, Preserving Disgorgement Tax Deductibility in SEC Settlements, Sidley Austin (Oct. 18, 2021), https://www.sidley.com//media/publications
    /law360—preserving-disgorgement-tax-deductibility-in-sec-settlements.pdf?la=en [https://perma.cc
    /4QAD-45CH].

  294. [294]. Cf. id. (“With proper planning and preparation, however, parties who settle SEC enforcement actions involving disgorgement may be able to satisfy the identification and establishment requirements to claim a deduction for federal tax purposes.”).

  295. [295]. Ryan, supra note 236.

*

J.D. Candidate, The University of Iowa College of Law, 2023; B.S., Babson College, 2017.



I would like to extend a heartfelt thank you to the brilliant practitioners who drove me toward this topic and provided me with their insights throughout my writing process. You all have made a lifelong impact on my work. I would also like to thank my family and friends, who have had to feign interest in the theoretical shortcomings of equitable remedies for the past year. From being told I had incorrectly spelled “lieu” throughout the piece by my parents (and “Lou” O’Malley), to sharing a particularly spirited conversation about Liu’s implications with Joseph Daileader, I cherish your comments and appreciate you all more than anything in the world.