Liu v. SEC (18-1501)
argument 18-1501Liu v. SEC
Supreme Court of the United States
52 min
6 speakers
8 chapters
transcribed 5 days ago
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Transcript
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What is the SEC’s argument that disgorgement orders are penalties requiring statutory authority?
We'll hear argument next in Case 18-1501, Liu v. the Securities and Exchange Commission. Mr. Rapaoui.
Mr. Chief Justice, and may it please the Court, SEC disgorgement orders compel a payment to the Treasury as a consequence for violation of a public law. An order like that is a penalty, as this Court's unanimous decision in Kokesh makes clear. A penalty must be authorized by statute. so must any action by an administrative agency. There is no statutory authority for the SEC to seek disgorgement orders from a federal court, and therefore it cannot. I have three main points to make this morning. First, the text, structure, and context of the securities laws offer a straightforward route to reversal. Congress has created for SEC court actions a tiered system of civil money penalties that does not include disgorgement.
Congress has also given the SEC authority for an order requiring accounting and disgorgement using those very words in an administered proceeding, but no similar authority for court actions. And Congress has given other agencies clear textual authority for judicial disgorgement orders. Using traditional tools of statutory construction, the result is clear. The SEC can seek the authorized penalties, but no others. Second, the statute's allowance for equitable relief does not help the SEC because penalties are not equitable relief. That has been the law for centuries. There is no principal distinction between the characteristics that make SEC disgorgement a penalty under Kokesh and those that make it a penalty under the old equity rule.
Its purpose is to punish disobedience of a public law. Any return of money or property to those injured by the violation is discretionary at best and often never happens. Third, the phrase equitable relief, enacted as part of Sarbanes-Oxley in 2002, did not ratify circuit court cases that had approved SEC disgorgement. Those cases, beginning with Texas Gulf Sulphur, did not look to statutory text. They certainly did not settle the meaning of text that did not even exist yet. Instead, we have here only congressional silence, and silence does not give an agency any authority to act, much less the authority to punish. Mr. Rapaway, you started out by saying Kokesh labeled this a penalty and equity doesn't enforce penalties, and that's it.
But Kokesh was in a specific context. It said for statute of limitations purposes, it is a penalty. Okay. For a different purpose, it need not be characterized as a penalty. For determining whether the fraudster can retain the profits of the fraud, that's something different. But the notion that because we categorize it in one context, the scourgement 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. So all Kokesh did was say, for statute of limitations purposes, this is a penalty. It did not say. In fact, it was specific in footnoting that it was not saying that in every context it is a penalty. Justice Ginsburg, I certainly agree that this Court reserved this question in Kokesh in footnote 3. And my argument is not that the holding of that case resolves this case, but the reasoning of that case can't effectively be distinguished from this case. And my reasons for saying that are that the Issues to which this Court looked in Kokesh in determining whether SEC disgorgement is a penalty track the reason or the justifications or the cases in which equity said it would not enforce penalties.
The most important of those is Kokesh's second reason, which is that it found that SEC disgorgement has primarily a punitive purpose.
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Chapters
8 chapters
1
What is the SEC’s argument that disgorgement orders are penalties requiring statutory authority?
0:00–6:29
2
How does the government’s three‑point framework challenge the existence of statutory authority for court‑ordered disgorgement?
6:29–13:23
3
Why does the government claim that the equitable‑relief provision of Sarbanes‑Oxley does not legitimize disgorgement as a penalty?
13:23–20:34
4
How do the Justices question whether Kokesh’s penalty characterization applies to other contexts, such as deterrence or victim restitution?
20:34–25:40
5
What is the debate over whether disgorgement should be calculated on net profits versus gross gains, and which expenses are deductible?
25:40–32:59
6
How does the Court’s historical analysis of equitable remedies, like accounting and restitution, affect the modern disgorgement dispute?
32:59–39:19
7
What arguments are presented about the proper destination of disgorged funds—Treasury, investors, or the SEC itself?
39:19–46:30
8
Why does the government ultimately request that the Supreme Court reverse the lower courts’ disgorgement orders?
46:30–52:58