Amicus Curiae Brief — Charles C. Liu, et al., Petitioners v. Securities and Exchange Commission

No. 18-1501

================================================================================================================

In The

Supreme Court of the United States

-----------------------------------------------------------------CHARLES C. LIU AND XIN WANG A/K/A LISA WANG,

Petitioners,

v.

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

-----------------------------------------------------------------On Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

-----------------------------------------------------------------BRIEF OF AMICUS CURIAE SECURITIES

INDUSTRY AND FINANCIAL MARKETS

ASSOCIATION IN SUPPORT OF PETITIONERS

-----------------------------------------------------------------IRA D. HAMMERMAN

KEVIN M. CARROLL

SECURITIES INDUSTRY

AND FINANCIAL

MARKETS ASSOCIATION

1101 New York Avenue, NW

Washington, D.C. 20005

(202) 962-7300

MICHAEL J. DELL

Counsel of Record

CHASE HENRY MECHANICK

KRAMER LEVIN NAFTALIS

& FRANKEL LLP

1177 Avenue of the Americas

New York, New York 10036

(212) 715-9100

mdell@kramerlevin.com

Attorneys for Amicus Curiae Securities Industry

and Financial Markets Association

================================================================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

TABLE OF CONTENTS

Page

INTEREST OF AMICUS CURIAE ......................

1

SUMMARY OF ARGUMENT ..............................

4

ARGUMENT ........................................................

7

I.

SEC DISGORGEMENT IS NOT “EQUITABLE RELIEF” UNDER SECTION 21(d)(5)

OF THE EXCHANGE ACT.........................

7

A. Kokesh Established That SEC Disgorgement Operates as a Penalty Under 28

U.S.C. § 2462 .........................................

8

B. SEC Disgorgement Does Not Otherwise

Correspond to a Remedy “Typically

Available in Equity” ............................. 14

II.

BECAUSE CONGRESS HAS EXPRESSLY

AUTHORIZED THE SEC TO OBTAIN

CIVIL PENALTIES, SEC DISGORGEMENT

IS NOT “APPROPRIATE OR NECESSARY

FOR THE BENEFIT OF INVESTORS” ....... 23

III.

SEC DISGORGEMENT IS NOT AVAILABLE

UNDER PROVISIONS OF THE SECURITIES LAWS AUTHORIZING COURTS TO

“ENJOIN” VIOLATIONS ............................ 29

CONCLUSION..................................................... 33

ii

TABLE OF AUTHORITIES

Page

CASES

Beals v. Washington International, Inc.,

386 A.2d 1156 (Del. Ch. 1978) ................................11

Brady v. Daly,

175 U.S. 148 (1899) .................................................14

Chauffeurs, Teamsters & Helpers,

Local No. 391 v. Terry,

494 U.S. 558 (1990) .................................................22

Clinton v. Goldsmith,

526 U.S. 529 (1999) ........................................... 24, 25

Curtis v. Loether,

415 U.S. 189 (1974) .................................................10

F.T.C. v. AMG Capital Management, LLC,

910 F.3d 417 (9th Cir. 2018) ....................................30

F.T.C. v. Amy Travel Service, Inc.,

875 F.2d 564 (7th Cir. 1989) ....................................30

F.T.C. v. Bronson Partners, LLC,

654 F.3d 359 (2d Cir. 2011) .....................................19

F.T.C. v. Credit Bureau Center, LLC,

937 F.3d 764 (7th Cir. 2019) ........................ 30, 31, 32

F.T.C. v. WV Universal Management, LLC,

877 F.3d 1234 (11th Cir. 2017) ................................30

Franklin v. Gwinnett County Public Schools,

503 U.S. 60 (1992) ...................................................24

Great-West Life & Annuity Ins. Co. v. Knudson,

534 U.S. 204 (2002) ......................................... passim

iii

TABLE OF AUTHORITIES—Continued

Page

Huntington v. Attrill,

146 U.S. 657 (1892) .................................................14

Kansas v. Nebraska,

135 S.Ct. 1042 (2015) ..............................................23

Kokesh v. S.E.C.,

137 S.Ct. 1635 (2017) ...................................... passim

Kungys v. U.S.,

485 U.S. 759 (1988) .................................................24

Lamine v. Dorrell,

2 Ld. Raym. 1216, 92 Eng. Rep. 303

(K.B. 1705) ...............................................................16

Livingston v. Woodworth,

15 How. 546 (1854) ..................................................10

Mass. Mut. Life Ins. Co. v. Russell,

473 U.S. 134 (1985) .................................................28

Meghrig v. KFC Western, Inc.,

516 U.S. 479 (1996) ..................................... 27, 31, 32

Mertens v. Hewitt Associates,

508 U.S. 248 (1993) ................................. 7, 10, 11, 14

Middlesex County Sewerage Auth. v.

National Sea Clammers Ass’n,

453 U.S. 1 (1981) .....................................................28

Miller v. Gammie,

335 F.3d 889 (9th Cir. 2003) ....................................13

Montanile v. Board of Trustees of Nat.

Elevator Industry Health Benefit Plan,

136 S.Ct. 651 (2016) ........................................ passim

iv

TABLE OF AUTHORITIES—Continued

Page

Nielsen v. Preap,

139 S.Ct. 954 (2019) ................................................24

Northwest Airlines, Inc. v. Transport Workers

Union of America, AFL-CIO,

451 U.S. 77 (1981) ...................................................28

Ohio v. Kentucky,

410 U.S. 641 (1973) .................................................23

Owner-Operator Independent Drivers Ass’n,

Inc. v. Landstar System, Inc.,

622 F.3d 1307 (11th Cir. 2010) ................................30

Porter v. Warner Holding Co.,

328 U.S. 395 (1946) ............................................. 3, 32

Root v. Lake Shore & M.S. Ry. Co.,

105 U.S. 189 (1881) .................................................21

S.E.C. v. Ahmed,

343 F.Supp.3d 16 (D. Conn. 2018) ..........................13

S.E.C. v. Banner Fund Intern.,

211 F.3d 602 (D.C. Cir. 2000) ..................................19

S.E.C. v. Commonwealth Chem. Securities, Inc.,

574 F.2d 90 (2d Cir. 1978) .......................................15

S.E.C. v. Cuban,

634 F.Supp.2d 713 (N.D. Tex. 2009) ........................22

S.E.C. v. Dorozhko,

574 F.3d 42 (2d Cir. 2009) .......................................22

S.E.C. v. First City Fin. Corp., Ltd.,

890 F.2d 1215 (D.C. Cir. 1989) ................................12

v

TABLE OF AUTHORITIES—Continued

Page

S.E.C. v. First Jersey Securities, Inc.,

101 F.3d 1450 (2d Cir. 1996) ...................................13

S.E.C. v. Fischbach Corp.,

133 F.3d 170 (2d Cir. 1997) .......................................9

S.E.C. v. Happ,

392 F.3d 12 (1st Cir. 2004) ......................................13

S.E.C. v. Inorganic Recycling Corp.,

No. 99-CV-10159 (GEL), 2002 WL 1968341

(S.D.N.Y. Aug. 23, 2002) ..........................................25

S.E.C. v. Jammin Java Corp.,

No. 2:15-CV-8921 (SVW), 2017 WL 4286180

(C.D. Cal. Sept. 14, 2017) ........................................13

S.E.C. v. Jones,

155 F.Supp.3d 1180 (D. Utah 2015) ........................15

S.E.C. v. Kokesh,

No. 09-CV-1021 (SMV), 2015 WL 11142470

(D.N.M. Mar. 30, 2015) ............................................20

S.E.C. v. Lund,

570 F.Supp. 1397 (C.D. Cal. 1983) ............................9

S.E.C. v. Metter,

706 Fed. Appx. 699 (2d Cir. 2017) ...........................13

S.E.C. v. Patel,

61 F.3d 137 (2d Cir. 1995) .......................................12

S.E.C. v. Quing N. Wong,

252 F.Supp. 608 (D.P.R. 1966) .................................26

S.E.C. v. Rajaratnam,

918 F.3d 36 (2d Cir. 2019) .......................................25

vi

TABLE OF AUTHORITIES—Continued

Page

S.E.C. v. Razmilovic,

738 F.3d 14 (2d Cir. 2013) .......................................25

S.E.C. v. Revolutions Medical Corp.,

No. 1:12-CV-3298 (LMM), 2018 WL 2057357

(N.D. Ga. Mar. 16, 2018) ..........................................13

S.E.C. v. Seibald,

No. 95-CV-2081 (LLS), 1997 WL 605114

(S.D.N.Y. Sept. 30, 1997) .........................................15

S.E.C. v. Texas Gulf Sulphur Co.,

312 F.Supp. 77 (S.D.N.Y. 1970) ...............................26

S.E.C. v. Weaver,

773 Fed. Appx. 354 (9th Cir. 2019) .........................13

S.E.C. v. World Capital Market, Inc.,

864 F.3d 996 (9th Cir. 2017) ....................................20

S.E.C. v. WorldCom, Inc.,

273 F.Supp.2d 431 (S.D.N.Y. 2003) .........................29

S.E.C. v. Zada,

787 F.3d 375 (6th Cir. 2015) ....................................27

Saad v. S.E.C.,

873 F.3d 297 (D.C. Cir. 2017) ................................ 8, 9

Sereboff v. Mid Atlantic Medical Services, Inc.,

547 U.S. 356 (2006) .................................................20

Stevens v. Gladding,

17 How. 447 (1855) ..................................................10

Stolz v. Franklin,

258 Ark. 999, 531 S.W.2d 1 (Ark. 1975) ..................10

vii

TABLE OF AUTHORITIES—Continued

Page

Tull v. U.S.,

481 U.S. 412 (1987) ......................................... passim

U.S. v. Burke,

504 U.S. 229 (1992) .................................................11

U.S. v. O’Hagan,

521 U.S. 642 (1997) .................................................22

Varity Corp. v. Howe,

516 U.S. 489 (1996) .................................................24

STATUTES AND REGULATIONS

All-Writs Act (28 U.S.C. § 1651(a)) .............................24

Employee Retirement Income Security Act of

1974 (ERISA), 88 Stat. 891 .....................................17

§ 502 ........................................................................24

§ 502(a)(3) (29 U.S.C. § 1132(a)(3)) ............. 17, 18, 24

§ 502(a)(5) (29 U.S.C. § 1132(a)(5)) .........................24

Federal Trade Commission Act

§ 13(b) (15 U.S.C. § 53(b)) .................................. 30, 31

15 U.S.C. § 53(b)(1) ..................................................31

Insider Trading Sanctions Act of 1984, Pub. L.

No. 98–376, § 2, 98 Stat. 1264, 1264 (1984) ...........26

Securities Act of 1933, 48 Stat. 85 (15 U.S.C.

§ 77a et seq.) ..............................................................2

§ 17(a)(2) (15 U.S.C. § 77q(a)(2)) ...............................4

15 U.S.C. § 77t(d) .....................................................25

viii

TABLE OF AUTHORITIES—Continued

Page

15 U.S.C. § 77t(d)(3)(C) ...........................................27

§ 20(b) (15 U.S.C. § 77t(b)) .............................. passim

Securities Enforcement Remedies and Penny

Stock Act of 1990, Pub. L. No. 101–420, 104

Stat. 931 ....................................................................1

Securities Exchange Act of 1934, 48 Stat. 891

(15 U.S.C. § 78a et seq.) .............................................2

§ 10(b) (15 U.S.C. § 78j(b)) .......................................22

§ 21(d)(1) (15 U.S.C. § 78u(d)(1)) ..................... passim

15 U.S.C. § 78u(d)(3) ...................................................25

15 U.S.C. § 78u(d)(3)(C)(iii) ........................................27

§ 21(d)(5) (15 U.S.C. § 78u(d)(5)) ..................... passim

15 U.S.C. § 78u–1(2)....................................................26

15 U.S.C. § 78u–6(h)(1)(C)(ii) .....................................27

15 U.S.C. § 80a–41(e) ..................................................25

15 U.S.C. § 80a–41(e)(3)(C) .........................................27

15 U.S.C. § 80b–9(e) ....................................................25

15 U.S.C. § 80b–9(e)(3)(C) ...........................................27

15 U.S.C. § 7246(a) ......................................................26

28 U.S.C. § 2462 ........................................ 3, 5, 8, 13, 14

31 U.S.C. § 3729(a)(1)(G) ............................................27

33 U.S.C. § 1319(d) ......................................................11

42 U.S.C. § 1395y(a)(3)(A)...........................................27

42 U.S.C. § 2000e–5(g) ................................................11

ix

TABLE OF AUTHORITIES—Continued

Page

42 U.S.C. § 6972(a) ......................................................31

17 C.F.R. § 240.14e–3(a) .............................................22

RESTATEMENTS AND TREATISES

D. Dobbs & C. Roberts, Law of Remedies: Damages, Equity, Restitution § 4.4 (3d ed. 2018)

§ 4.3(1) .....................................................................16

§ 4.3(5) ............................................................... 21, 22

§ 4.4 ................................................................... 10, 13

1 D. Dobbs, Law of Remedies, § 4.3(1) (2d ed.

1993) ........................................................................17

W. Hale, Law of Damages (2d ed. 1912) .....................10

1 G. Palmer, Law of Restitution (1978)

§ 1.4 .........................................................................17

§ 3.7 .........................................................................17

§ 3.7(b) .....................................................................16

S. Symons, Pomeroy’s Equity Jurisprudence

(5th ed. 1941)

Vol. II, § 429 .............................................................16

Vol. IV, § 1234 ..........................................................19

Restatement of Restitution, § 160, Comment a

(1936) ................................................................. 17, 19

x

TABLE OF AUTHORITIES—Continued

Page

Restatement (Third) of Restitution and Unjust

Enrichment (2011)

§ 4, Comment c ........................................................15

§ 4, Comment d ................................................. 16, 20

§ 51, Comment h .......................................................9

1 T. Sedgwick, Measure of Damages § 371 (8th

ed. 1891) ..................................................................10

2 J. Sutherland, Law of Damages § 392 (3d ed.

1903) ........................................................................10

OTHER AUTHORITIES

Francesco A. DeLuca, Sheathing Restitution’s

Dagger Under the Securities Acts: Why Federal Courts Are Powerless to Order Disgorgement in SEC Enforcement Proceedings, 33

Rev. Banking & Fin. 899 (2014) ..............................16

Joel Eichengrun, Remedying the Remedy of Accounting, 60 Ind. L. J. 463 (1985) ..................... 21, 22

Christopher C. Langdell, A Brief Survey of Equity Jurisdiction (pt. 2), 2 Harv. L. Rev. 241

(1889) .......................................................................21

Michael J. Missal and Richard M. Phillips, The

Securities Enforcement Manual: Tactics and

Strategies (2d ed. 2007) ...........................................28

xi

TABLE OF AUTHORITIES—Continued

Page

Colleen P. Murphy, Misclassifying Monetary

Restitution, 55 S.M.U. L. Rev. 1577 (2002) .............16

Russell G. Ryan, The Equity Façade of SEC Disgorgement, 4 Harv. Bus. L. Rev. Online (2013) .......26

1

INTEREST OF AMICUS CURIAE

The Securities Industry and Financial Markets

Association (“SIFMA”) is the leading trade association

for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets.

On behalf of our industry’s nearly one million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors,

equity and fixed income markets and related products

and services. We serve as an industry coordinating

body to promote fair and orderly markets, informed

regulatory compliance, and efficient market operations

and resiliency. We also provide a forum for industry

policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets

Association (“GFMA”). For more information, visit

http://www.sifma.org.1

In 1990, Congress, in the Securities Enforcement

Remedies and Penny Stock Act of 1990 (the “Remedies

Act”), Pub. L. No. 101–420, 104 Stat. 931, authorized

the SEC to seek monetary penalties equal to (or even

exceeding) the defendant’s “pecuniary gain.” This case

presents the question whether the securities laws

also provide Respondent Securities and Exchange

1

All parties have consented to this filing. This brief was not

authored in whole or in part by counsel for any party. No such

counsel or any party made a monetary contribution to fund the

preparation or submission of this brief. No person or entity other

than SIFMA, its members, or its counsel made a monetary contribution to the preparation or submission of this brief.

2

Commission (the “SEC”), in judicial enforcement proceedings, the remedy of disgorgement, which the Remedies Act does not mention in the context of such

proceedings, and which is often duplicative of penalties

the Remedies Act authorizes.

SIFMA does not condone illicit conduct and deeply

respects the critical role of the SEC in protecting investors and the securities arena. Certainly, bad actors

should not profit from their misconduct. However, the

appropriate remedies against wrongdoers who violate

the securities laws are the civil penalties Congress has

explicitly created, and they are adequate to redress

misconduct and prevent illicit windfalls. Congress has

not authorized the SEC to obtain disgorgement as an

equitable or appropriate remedy in addition to the civil

penalties. The courts and the SEC should not go beyond the clearly defined remedies Congress has provided.

The SEC asserts its authority to obtain disgorgement derives from two sources and both allow it to seek

certain forms of equitable relief. First, the SEC argues

disgorgement is implicitly permitted by provisions of

the securities laws that authorize federal courts to “enjoin” violations of the Securities Act of 1933 (the “Securities Act”), 48 Stat. 85 (15 U.S.C. § 77a et seq.), as

amended, and the Securities Exchange Act of 1934 (the

“Exchange Act”), 48 Stat. 891 (15 U.S.C. § 78a et seq.),

as amended. Opp. to Cert. at 5 (citing 15 U.S.C.

§§ 77t(b), 78u(d)(1)). According to the SEC, this “legislative grant of authority to ‘enjoin’ statutory violations

encompasses the power to order a violator ‘to disgorge

3

profits . . . acquired in violation’ of the relevant statutory provisions.” Opp. to Cert. at 5 (quoting Porter v.

Warner Holding Co., 328 U.S. 395, 398-99 (1946)).

Second, the SEC argues disgorgement is authorized by section 21(d)(5) of the Exchange Act, 15 U.S.C.

§ 78u(d)(5). See Opp. to Cert. at 5-6. Section 21(d)(5)

provides:

In any action or proceeding brought or instituted by the Commission under any provision

of the securities laws, the Commission may

seek, and any federal court may grant, any equitable relief that may be appropriate or necessary for the benefit of investors.

15 U.S.C. § 78u(d)(5).

This Court’s decision in Kokesh v. S.E.C., 137 S.Ct.

1635 (2017), however, undermines the SEC’s argument

that disgorgement is equitable within the meaning of

those statutes. The Court unanimously held that disgorgement is subject to a five-year statute of limitations under 28 U.S.C. § 2462, which applies to actions

“for the enforcement of any civil fine, penalty, or forfeiture.” The Court explained this statute of limitations

applies because “SEC disgorgement constitutes a penalty.” Kokesh, 137 S.Ct. at 1642. It “go[es] beyond compensation, [is] intended to punish, and label[s]

defendants wrongdoers as a consequence of violating

public laws.” Id. at 1645 (citation and internal quotation marks omitted). If SEC disgorgement operates as

a penalty under the securities laws, it cannot be regarded as equitable under those laws.

4

In 2016, the SEC commenced this enforcement

proceeding against Petitioners in the United States

District Court for the Central District of California. After finding Petitioners liable under section 17(a)(2) of

the Securities Act, 15 U.S.C. § 77q(a)(2), the District

Court entered an order enjoining future securities violations and requiring Petitioners to pay approximately

$26.7 million in disgorgement and $8.2 million in civil

penalties. See Pet. App. 29a-42a, 62a-63a. On appeal to

the Ninth Circuit, Petitioners argued the District

Court lacked the power to order disgorgement in light

of Kokesh. The Ninth Circuit affirmed the order of the

District Court, holding “disgorgement” is an “equitable

remed[y]” and Kokesh is not “ ‘clearly irreconcilable’ ”

with “longstanding” precedent authorizing such relief.

Pet. App. at 6a-7a. The Ninth Circuit’s ruling fails to

appreciate that Kokesh has undermined the notion

that disgorgement is an equitable remedy under the

securities laws. The Ninth Circuit’s ruling is also unsupported by the relevant statutory text and inconsistent with guidance from this Court on the meaning

of the term “equitable relief.”

------------------------------------------------------------------

SUMMARY OF ARGUMENT

Congress has never expressly authorized the

award of disgorgement in judicial enforcement proceedings brought by the SEC. Nevertheless, the SEC

contends (Opp. to Cert. at 5-6) that § 21(d)(5) of the Exchange Act, which allows “equitable relief that may be

appropriate or necessary for the benefit of investors,”

5

permits disgorgement. 15 U.S.C. § 78u(d)(5). In the alternative, the SEC contends (Opp. to Cert. at 5) its authority to order disgorgement derives from sections

20(b) of the Securities Act and 21(d)(1) of the Exchange

Act, which allow courts to “enjoin” violations. The SEC

is mistaken on both counts.

1. Section 21(d)(5) of the Exchange Act does not

authorize courts to order disgorgement in judicial proceedings as “equitable relief.” This Court has made

clear that when a federal statute refers to “equitable

relief,” the term means categories of relief that were

typically available in equity during the days of the divided bench. SEC disgorgement does not meet that

test.

a. It is well-established that during the days of

the divided bench equity courts had no authority to order civil penalties. That means they could not have ordered disgorgement in an SEC judicial proceeding

because, as Kokesh found, disgorgement operates as

a civil penalty under 28 U.S.C. § 2462, and not a form

of equitable restitution. As this Court explained in

Kokesh, disgorgement is in many cases “not compensatory,” often “exceeds the profits gained as a result of the

violation,” and is “imposed for the purpose of deterring

infractions of public laws.” 137 S.Ct. at 1643-44.

b. SEC disgorgement also bears none of the hallmarks of a remedy historically available in equity because it is a purely monetary judgment that does not

attach to specific funds or property. Nor can it be

6

analogized to the remedy of an accounting, which was

historically available only against a fiduciary.

2. Even if SEC disgorgement could be characterized as equitable, it would not be available under section 21(d)(5) of the Exchange Act. Congress did not

authorize all “equitable relief ” in that section, but only

relief that is “appropriate or necessary for the benefit

of investors.” SEC disgorgement is not “appropriate or

necessary” in an SEC judicial enforcement proceeding

because Congress has provided an adequate alternative remedy, namely, civil penalties for violation of the

securities laws up to the greater of the defendant’s “pecuniary gain” or a fixed minimum.

3. SEC disgorgement is not authorized by provisions enabling courts to “enjoin” securities law violations. Disgorgement is not an injunction. Nor can it be

awarded as relief ancillary to an injunction. The text of

sections 20(b) of the Securities Act and 21(d)(1) of the

Exchange Act shows they are forward-looking provisions intended to address ongoing or future violations;

they do not authorize backward-looking remedies such

as disgorgement by implication.

------------------------------------------------------------------

7

ARGUMENT

I.

SEC DISGORGEMENT IS NOT “EQUITABLE RELIEF” UNDER SECTION 21(d)(5)

OF THE EXCHANGE ACT

Section 21(d)(5) of the Exchange Act provides:

In any action or proceeding brought or instituted by the Commission under any provision

of the securities laws, the Commission may

seek, and any Federal court may grant, any

equitable relief that may be appropriate or

necessary for the benefit of investors.

15 U.S.C. § 78u(d)(5).

This Court has explained that when a federal statute employs the phrase “equitable relief,” it “must

mean something less than all relief.” Great-West Life &

Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209 (2002)

(emphasis in the original) (quoting Mertens v. Hewitt

Associates, 508 U.S. 248, 258 n. 8 (1993)). It refers to

“those categories of relief that were typically available

in equity” before the merger of law and equity courts.

Id. at 210 (emphasis in the original) (quoting Mertens,

508 U.S. at 256); see Montanile v. Board of Trustees of

Nat. Elevator Industry Health Benefit Plan, 136 S.Ct.

651, 657 (2016). That does not include SEC disgorgement because, as explained below, such disgorgement

is not analogous to a remedy typically available in equity.

8

A. Kokesh Established That SEC Disgorgement Operates as a Penalty Under 28

U.S.C. § 2462

To resolve this case, the Court need look no further

than Kokesh’s holding that “SEC disgorgement constitutes a penalty” under 28 U.S.C. § 2462. 137 S.Ct. at

1642. That conclusion is dispositive because “a court in

equity . . . may not enforce civil penalties.” Tull v. U.S.,

481 U.S. 412, 424 (1987).

In Kokesh, this Court held SEC disgorgement is a

“penalty” subject to a five-year statute of limitations

under 28 U.S.C. § 2462, which applies to actions “for

the enforcement of any civil fine, penalty, or forfeiture.”

This Court observed that “[t]he violation for which

[disgorgement] is sought is committed against the

United States rather than an aggrieved individual—

this is why, for example, a securities-enforcement action may proceed even if victims do not support or are

not parties to the prosecution.” Kokesh, 137 S.Ct. at

1643. This Court explained that “[s]anctions imposed

for the purpose of deterring infractions of public laws,

are inherently punitive. . . .” Id. “Kokesh overturned a

line of cases” that “concluded that disgorgement was

remedial and not punitive.” Saad v. S.E.C., 873 F.3d

297, 305 (D.C. Cir. 2017) (Kavanaugh, J., concurring).

Kokesh found there are two unique attributes of

SEC disgorgement that make it penal under 28 U.S.C.

§ 2462. First, “in many cases, SEC disgorgement is

not compensatory.” Kokesh, 137 S.Ct. at 1644. Rather,

9

“disgorged profits are paid to the district court, and it

is within the court’s discretion to determine how and

to whom the money will be distributed.” Id. (citation

and internal quotation marks omitted). While “[s]ome

disgorged funds are paid to victims,” others are often

“dispersed to the United States Treasury.” Id. (citing

S.E.C. v. Fischbach Corp., 133 F.3d 170, 171 (2d Cir.

1997); S.E.C. v. Lund, 570 F.Supp. 1397, 1404-05 (C.D.

Cal. 1983)). “When an individual is made to pay a noncompensatory sanction to the Government as a consequence of a legal violation, the payment operates as a

penalty.” Id.; see also Saad, 873 F.3d at 305 (Kavanaugh, J., concurring) (under Kokesh, relief that

“does not provide anything to the victims to make them

whole . . . is a penalty, not a remedy”).

The second unique feature that renders SEC disgorgement penal is it often “exceeds the profits gained

as a result of the violation.” Kokesh, 137 S.Ct. at 1644.

“In such cases, disgorgement does not simply restore

the status quo; it leaves the defendant worse off.” Id. at

1645. As this Court observed, see id. at 1644-45, this

practice deviates from established principles of restitution, under which, “[a]s a general rule, the defendant

is entitled to a deduction for all marginal costs incurred in producing the revenues that are subject to

disgorgement,” since “making the defendant liable in

excess of net gains[ ] results in a punitive sanction. . . .”

Restatement (Third) of Restitution and Unjust Enrichment (the “Restatement”) § 51, Comment h, p. 216 (2011);

see also D. Dobbs & C. Roberts, Law of Remedies:

10

Damages, Equity, Restitution (“Dobbs”) § 4.4, p. 459

(3d ed. 2018).2

“As this Court has long recognized, courts of equity

would not—absent some express statutory authorization—enforce penalties or award punitive damages.”

Mertens, 508 U.S. at 270 (White, J., dissenting) (citing

Tull, 481 U.S. at 422 & n. 7; Stevens v. Gladding, 17

How. 447, 454-55 (1855); Livingston v. Woodworth, 15

How. 546, 559-60 (1854); 2 J. Sutherland, Law of Damages § 392, p. 1089 (3d ed. 1903); W. Hale, Law of Damages 319 (2d ed. 1912); 1 T. Sedgwick, Measure of

Damages § 371, p. 531 (8th ed. 1891)); see also Tull, 481

U.S. at 422 (“A civil penalty . . . could only be enforced

in courts of law”); Curtis v. Loether, 415 U.S. 189, 196

(1974) (“[P]unitive damages [are a] traditional form of

relief offered in the courts of law”); Stolz v. Franklin,

258 Ark. 999, 1008-09, 531 S.W.2d 1, 7 (Ark. 1975) (“It

has been held that one who appeals to a court of equity

for relief waives the award of punitive damages as a

2

The facts of this case illustrate how SEC disgorgement operates as a punitive measure. The District Court found Petitioners “personally” gained a total of $8.2 million from the Securities

Act violations at issue. Pet. App. at 42a. Nevertheless, it ordered

disgorgement in the amount of $26.7 million, representing the “total” amount taken from investors. Id. at 41a. The court declined

to deduct from this $26.7 million amounts Petitioners claimed

were spent on “ ‘legitimate’ business expenses.” Id. Moreover, the

$8.2 million Petitioners personally gained was counted twice, because the District Court also awarded civil penalties in the same

amount. See id. at 42a. Petitioners were ordered to pay in disgorgement and civil penalties more than four times the amount

of their combined personal gains, and prejudgment interest. See

id. at 62a.

11

matter of right”). “Historically, punitive damages were

unavailable in any equitable action on the theory that

‘the Court of Chancery as the Equity Court is a court

of conscience and will permit only what is just and

right with no element of vengeance.’ ” Mertens, 508 U.S.

at 270 n. 5 (White, J., dissenting) (quoting Beals v.

Washington International, Inc., 386 A.2d 1156, 1159

(Del. Ch. 1978)) (collecting authorities). Accordingly,

this Court has held that statutory language authorizing courts to award “equitable relief ” does not include

penalties and punitive damages. See id. at 255 (“And

though we have never interpreted the precise phrase

‘other appropriate equitable relief,’ we have construed

the similar language of Title VII of the Civil Rights Act

of 1964 (before its 1991 amendments)—‘any other equitable relief as the court deems appropriate,’ 42 U.S.C.

§ 2000e–5(g)—to preclude ‘awards for compensatory or

punitive damages’ ”) (quoting U.S. v. Burke, 504 U.S.

229, 238 (1992)).

Tull is this Court’s most recent and authoritative

decision on whether a monetary judgment for the federal Government is equitable or punitive. In Tull, the

Government sued a real estate developer who unlawfully filled in wetlands and sold some of the lots for

profit. See 481 U.S. at 415. The District Court denied

the defendant’s demand for a jury trial and, after a

bench trial, ordered him to pay civil penalties under

the Clean Water Act (the “CWA”), 33 U.S.C. § 1319(d).

See Tull, 481 U.S. at 415. This Court held the District

Court erred in denying the defendant a jury trial with

respect to his liability under the CWA because the

12

remedy the Government sought was legal, not equitable. “Remedies intended to punish culpable individuals, as opposed to those intended simply to extract

compensation or restore the status quo, were issued by

courts of law, not courts of equity.” Id. at 422. Since the

CWA seeks to “further retribution and deterrence,” it

“reflects more than a concern to provide equitable relief.” Id. at 423. Moreover, the civil penalties the District Court imposed exceeded the defendant’s

pecuniary gains from the violations, because not all of

the lots the defendant filled in were actually sold for

profit. See id. at 415, 423. Thus, the penalty was not

“limited to restoration of the status quo.” Id. at 424.

“[T]he District Court intended . . . to impose punishment,” which is “traditionally available only in a court

of law.” Id. at 423.

SEC disgorgement resembles the CWA penalty in

Tull in all relevant respects. In many cases, the purpose of SEC disgorgement is “retribution and deterrence,” not “compensation.” Id. at 422; see Kokesh, 137

S.Ct. at 1644. SEC disgorgement does not necessarily

result in any remuneration to victims. See Kokesh, 137

S.Ct. at 1644. And SEC disgorgement can exceed the

defendant’s pecuniary gains, often significantly. See id.

at 1644-45; cf. Tull, 481 U.S. at 415, 423.3

3

Another factor that makes SEC disgorgement punitive is

the burden of proof as to the amount. Courts have held that any

“risk of uncertainty in calculating disgorgement should fall on the

wrongdoer whose illegal conduct created that uncertainty.” S.E.C.

v. Patel, 61 F.3d 137, 140 (2d Cir. 1995) (brackets omitted) (quoting S.E.C. v. First City Fin. Corp., Ltd., 890 F.2d 1215, 1232 (D.C.

13

The SEC asserts that “every court of appeals and

every district court that has considered the issue after

Kokesh has determined that nothing in that decision

calls into question the availability of disgorgement in

SEC enforcement actions.” Opp. to Cert. at 9. But neither of the court of appeals decisions cited by the SEC

substantively addressed whether Kokesh undermines

the availability of SEC disgorgement. In S.E.C. v. Metter, the Court cited pre-Kokesh authority for the proposition that courts have “broad discretion” to order

disgorgement, 706 Fed. Appx. 699, 702 (2d Cir. 2017)

(quoting S.E.C. v. First Jersey Securities, Inc., 101 F.3d

1450, 1474 (2d Cir. 1996)), and assumed without explanation that this precedent survived Kokesh. Similarly,

in S.E.C. v. Weaver, the Ninth Circuit stated that

Kokesh was “not ‘clearly irreconcilable’ with [the Ninth

Circuit’s] longstanding precedent on this subject,” 773

Fed. Appx. 354, 357 (9th Cir. 2019) (quoting Miller v.

Gammie, 335 F.3d 889, 900 (9th Cir. 2003)), but did not

engage in any further analysis.

Nor are the district court cases cited by the SEC

persuasive. Many are premised on the view that

Kokesh merely “clarif[ies] the statutory scope of [28

U.S.C.] § 2462.” E.g., S.E.C. v. Jammin Java Corp., No.

2:15-CV-8921 (SVW), 2017 WL 4286180, at *3 (C.D.

Cal. Sept. 14, 2017); accord S.E.C. v. Ahmed, 343

F.Supp.3d 16, 26 (D. Conn. 2018); S.E.C. v. Revolutions

Medical Corp., No. 1:12-CV-3298 (LMM), 2018 WL

Cir. 1989)); accord S.E.C. v. Happ, 392 F.3d 12, 31 (1st Cir. 2004).

As one treatise has suggested, “the punitive element” of this doctrine “is clear.” Dobbs, supra, § 4.4, p. 459 n. 439.

14

2057357, at *3 (N.D. Ga. Mar. 16, 2018). Kokesh applied

settled “principles in construing the term ‘penalty’ ”

under 28 U.S.C. § 2462. 137 S.Ct. at 1642 (citing Huntington v. Attrill, 146 U.S. 657 (1892); Brady v. Daly,

175 U.S. 148 (1899)).

The SEC argues “ ‘[t]he words “penal” and “penalty” have been used in various senses’ and are ‘elastic

in meaning.’ ” Opp. to Cert. at 8 (quoting Huntington,

146 U.S. at 666-67). That may be true, but it is beside

the point. What matters is not the fact that Kokesh labelled SEC disgorgement a penalty, but why it did so:

because the object of SEC disgorgement is retribution,

because it does not necessarily compensate injured investors, and because it often exceeds the defendant’s

actual gains. Under Tull, such a remedy cannot be

viewed as equitable.

B. SEC Disgorgement Does Not Otherwise

Correspond to a Remedy “Typically Available in Equity”

Even if the Court were to find Kokesh inapposite,

SEC disgorgement still would not be a form of “equitable relief ” under the securities laws, because it does

not correspond to any of “ ‘those categories of relief that

were typically available in equity’ during the days of

the divided bench.” Montanile, 136 S.Ct. at 657 (emphasis omitted) (quoting Mertens, 508 U.S. at 256).

To the extent lower courts have addressed

whether disgorgement is “equitable,” they have generally assumed that monetary remedies are “legal” when

15

they are measured by a victim’s actual damages, and

“equitable” when they are measured by the defendant’s

unjust enrichment. These cases have reasoned that

SEC disgorgement is based on the defendant’s gains,

and is therefore equitable. See, e.g., S.E.C. v. Commonwealth Chem. Securities, Inc., 574 F.2d 90, 95 (2d Cir.

1978) (“Disgorgement of profits in an action brought

by the SEC . . . appears to fit” the description of “[a]

historic equitable remedy” because “the court is not

awarding damages to which plaintiff is legally entitled

but is exercising the chancellor’s discretion to prevent

unjust enrichment”); S.E.C. v. Jones, 155 F.Supp.3d

1180, 1184 (D. Utah 2015) (disgorgement is equitable

because “the primary purpose of disgorgement is not to

compensate victims” but “to prevent wrongdoers from

unjustly enriching themselves through violations,

which has the effect of deterring subsequent fraud”)

(citations and quotation marks omitted); S.E.C. v.

Seibald, No. 95-CV-2081 (LLS), 1997 WL 605114, at *7

(S.D.N.Y. Sept. 30, 1997) (“The SEC does not sue for

common-law damages: it has suffered no loss. The basis of the action [for disgorgement], against all defendants, is equitable”).

These assumptions are flawed. “In the days of the

divided bench, restitution was available in certain

cases at law, and in certain others in equity.” GreatWest, 534 U.S. at 212 (citations omitted). See Restatement § 4, Comment c, at 30 (“The most widespread

error is the assertion that a claim in restitution or unjust enrichment is by its nature equitable rather than

legal”). Premerger courts of law could order monetary

16

remedies that would be described as “disgorgement” in

modern legal parlance. See Colleen P. Murphy, Misclassifying Monetary Restitution, 55 S.M.U. L. Rev. 1577,

1599-1600 (2002) (“Through the common counts in

general assumpsit, the law courts developed actions

based on the notion of unjust enrichment. One of the

common counts—the action for ‘money had and received’—encompassed a broad range of situations that

today would fall within liability based on unjust enrichment”) (footnote omitted); Francesco A. DeLuca,

Sheathing Restitution’s Dagger Under the Securities

Acts: Why Federal Courts Are Powerless to Order Disgorgement in SEC Enforcement Proceedings, 33 Rev.

Banking & Fin. 899, 905-06 (2014) (discussing Lamine

v. Dorrell, 2 Ld. Raym. 1216, 92 Eng. Rep. 303 (K.B.

1705)).

What generally separates legal and equitable restitution is not the way damages are measured (gains

versus losses), but, rather, the fact that equity has the

ability to “ignore formalities of title,” Dobbs, supra,

§ 4.3(1), p. 397, and “give relief to the claimant via

rights in identifiable assets.” Restatement § 4, Comment d, p. 32 (emphasis added); see also 1 G. Palmer,

Law of Restitution, § 3.7(b), p. 262 (1978); 2 S. Symons,

Pomeroy’s Equity Jurisprudence (“Pomeroy”), § 429, p.

198 (5th ed. 1941). As this Court explained in GreatWest:

[A] plaintiff could seek restitution in equity,

ordinarily in the form of a constructive trust

or an equitable lien, where money or property

identified as belonging in good conscience to

17

the plaintiff could clearly be traced to particular funds or property in the defendant’s possession. See [1 D. Dobbs, Law of Remedies,

§ 4.3(1), pp. 587-588 (2d ed. 1993); Restatement of Restitution, § 160, Comment a, pp.

641-642 (1936)]; 1 G. Palmer, Law of Restitution § 1.4, p. 17; § 3.7, p. 262 (1978). A court of

equity could then order a defendant to transfer title (in the case of the constructive trust)

or to give a security interest (in the case of the

equitable lien) to a plaintiff who was, in the

eyes of equity, the true owner. . . . Thus, for restitution to lie in equity, the action generally

must seek not to impose personal liability on

the defendant, but to restore to the plaintiff

particular funds or property in the defendant’s

possession.

534 U.S. at 213-14 (emphasis added).

In Great-West, the Court considered whether section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 88 Stat. 891, 29 U.S.C.

§ 1132(a)(3), authorized a lawsuit to enforce a reimbursement provision in an ERISA-governed plan. Section 502(a)(3) of ERISA, similar to section 21(d)(5) of

the Exchange Act, permits participants, beneficiaries,

and fiduciaries of ERISA plans to bring claims for “appropriate equitable relief.” 29 U.S.C. § 1132(a)(3); cf. 15

U.S.C. § 78u(d)(5). After an automobile accident, the

plan beneficiaries received payments from the plan for

their medical expenses. See Great-West, 534 U.S. at

207. The beneficiaries subsequently brought a tort action against the tortfeasors in state court, and then

18

settled the lawsuit. See id. The settlement proceeds

were not given directly to the beneficiaries; instead, a

portion was placed in a restricted trust and the remainder was given to the beneficiaries’ attorneys. See

id. at 207-08. Under the governing plan documents,

the beneficiaries were contractually required to reimburse the plan for benefits received from a third party.

See id. at 207. The plan’s assignee sued the beneficiaries for reimbursement from the settlement proceeds.

See id. at 208. The assignee argued its claim was for

“restitution,” which it “characterize[d] as a form of equitable relief ” under § 502(a)(3). Id. at 212.

This Court held the action was properly dismissed

because, despite petitioners’ characterization, the

claim was not one that would typically be available in

equity. The Court observed that “the funds to which

petitioners claim an entitlement under the Plan’s reimbursement provision—the proceeds from the settlement of [the beneficiaries’] tort action—are not in [the

beneficiaries’] possession.” Id. at 214. “The basis for petitioners’ claim is not that [the beneficiaries] hold particular funds that, in good conscience, belong to

petitioners, but that petitioners are contractually entitled to some funds for benefits that they conferred.” Id.

(emphasis in the original).

In Montanile, this Court addressed facts similar to

Great-West, except that the beneficiary in Montanile

actually took possession of the settlement funds. See

136 S.Ct. at 656. After the plan brought an action for

reimbursement under section 502(a)(3) of ERISA, the

beneficiary claimed he had “spent almost all of the

19

settlement funds.” Id. Nevertheless, the District Court

held the beneficiary liable for the full amount of the

settlement, concluding that, “even if [he] had dissipated some or all of the settlement funds, the [plan]

was entitled to reimbursement from [his] general assets.” Id. This Court held the District Court’s order was

error because the plan’s claim was not for a form of relief typically available in equity. The Court again explained that “[e]quitable remedies ‘are, as a general

rule, directed against some specific thing; they give or

enforce a right to or over some particular thing . . . rather than a right to recover a sum of money generally

out of the defendant’s assets.’ ” Id. at 658-59 (quoting 4

Pomeroy § 1234, p. 694). Thus, “at equity, a plaintiff ordinarily could not enforce any type of equitable lien if

the defendant once possessed a separate, identifiable

fund to which the lien attached, but then dissipated it

all,” as the Montanile beneficiary had done. Id. at 659.

SEC disgorgement cannot be reconciled with

Great-West and Montanile. Like the restitution orders

in those cases, SEC disgorgement seeks “to obtain a

judgment imposing a merely personal liability upon

the defendant to pay a sum of money.” Great-West, 534

U.S. at 213 (quoting Restatement of Restitution § 160,

Comment a, pp. 641-42 (1936)). See F.T.C. v. Bronson

Partners, LLC, 654 F.3d 359, 373 (2d Cir. 2011)

(“[W]hen a public entity seeks disgorgement it does not

claim any entitlement to particular property. . . .”);

S.E.C. v. Banner Fund Intern., 211 F.3d 602, 617 (D.C.

Cir. 2000) (describing SEC disgorgement as an “obligation to return a sum equal to the amount wrongfully

20

obtained, rather than a requirement to replevy a specific asset. . . .”). Because SEC disgorgement “is accomplished exclusively by a judgment for money” and does

not “resort to any of the ancillary remedial devices traditionally available in equity,” it is purely legal. See Restatement § 4, Comment d, p. 32.

SEC disgorgement resembles the legal remedies

described in Great-West and Montanile in another respect: it frequently requires defendants to disgorge

funds that are no longer, or never were, in their possession. See Kokesh, 137 S.Ct. at 1644; cf. Sereboff v. Mid

Atlantic Medical Services, Inc., 547 U.S. 356, 362-63

(2006). “Thus, for example, an insider trader may be

ordered to disgorge . . . the benefit that accrues to third

parties whose gains can be attributed to the wrongdoer’s conduct.” Kokesh, 137 S.Ct. at 1644 (citation and

internal quotation marks omitted). Moreover, as this

case demonstrates, a defendant may be required to disgorge funds that have already been distributed to third

parties or used to pay expenses that reduce the defendant’s net profit. See Pet. App. at 41a; see also S.E.C. v.

World Capital Market, Inc., 864 F.3d 996, 1007 (9th Cir.

2017) (“[O]ngoing possession of the funds is not required for disgorgement”); S.E.C. v. Kokesh, No. 09-CV1021 (SMV), 2015 WL 11142470, at *10 (D.N.M. Mar.

30, 2015) (requiring defendant “to give up his ill-gotten

gains—even those . . . he caused to be paid to third parties”), aff ’d, 834 F.3d 1158 (10th Cir. 2016), rev’d, 137

S.Ct. 1635. Great-West and Montanile establish that an

action for restitution cannot be characterized as

21

equitable where it attempts to reach funds the defendant has dissipated or otherwise does not possess.

Great-West acknowledged “a limited exception” to

the general rule that equity acts only upon specific

funds or property: an action for an “accounting.” 534

U.S. at 214 n. 2. But SEC disgorgement cannot be analogized to an accounting, as the latter historically was

available only against a fiduciary:

The theory of the common law action [of accounting] was that the obligation to account

arose out of the relationship created between

the parties where one received the property of

another to use and manage in the latter’s behalf. To establish this obligation, it was necessary to show . . . a fiduciary relationship

between the parties. . . .

Joel Eichengrun, Remedying the Remedy of Accounting, 60 Ind. L. J. 463, 465 (1985) (footnote omitted); see

also Christopher C. Langdell, A Brief Survey of Equity

Jurisdiction (pt. 2), 2 Harv. L. Rev. 241, 248 (1889) (in

proceedings upon a bill of account, “[t]here must be a

fiduciary relation between the plaintiff and the defendant”); Dobbs, supra, § 4.3(5), p. 416. For example, in

Root v. Lake Shore & M.S. Ry. Co., the Court held that

a bill for accounting could not be brought against a

non-fiduciary patent infringer where there were no

other grounds to invoke equitable jurisdiction: “That

would be a reductio ad absurdum, and, if accepted,

would extend the jurisdiction of equity to every case of

tort, where the wrong-doer had realized a pecuniary

profit from his wrong.” 105 U.S. 189, 214 (1881).

22

Unlike an action for an accounting, a securities violation—and thus SEC disgorgement—need not be

based on a breach of fiduciary duty. To take one example, SEC rule 14e–3(a), 17 C.F.R. § 240.14e–3(a), imposes “a ‘disclose or abstain from trading’ command

that does not require specific proof of a breach of fiduciary duty.” U.S. v. O’Hagan, 521 U.S. 642, 676 (1997).

In addition, some courts have held a defendant may be

liable under § 10(b) of the Exchange Act, 15 U.S.C.

§ 78j(b), without breaching a fiduciary duty. See S.E.C.

v. Dorozhko, 574 F.3d 42 (2d Cir. 2009) (a “hacker” who

did not breach a fiduciary duty in obtaining material

nonpublic information may be liable under § 10(b));

S.E.C. v. Cuban, 634 F.Supp.2d 713, 725 (N.D. Tex.

2009) (“a duty sufficient to support liability under the

misappropriation theory can arise . . . absent a preexisting fiduciary or fiduciary-like relationship”), vacated

on other grounds, 620 F.3d 551 (5th Cir. 2010). Thus,

SEC disgorgement is not analogous to an accounting.4

The SEC argues “[t]his Court has repeatedly characterized disgorgement as an equitable remedy.” Opp.

to Cert. at 5. However, most of the cases the SEC cites

preceded Great-West and Montanile and made this

point only in dicta. See Chauffeurs, Teamsters &

4

The term “accounting” has also been applied to actions,

even against non-fiduciaries, “where the accounts between the

parties were complicated or where there were mutual accounts,

or cases where discovery was needed.” Eichengrun, supra, at 467;

see also Dobbs, supra, § 4.3(5), pp. 415-16. But SEC disgorgement

does not resemble this type of action either, because its availability does not depend on the complexity of the case.

23

Helpers, Local No. 391 v. Terry, 494 U.S. 558, 570

(1990); Tull, 481 U.S. at 424.

Kansas v. Nebraska, 135 S.Ct. 1042 (2015), although decided after Great-West, is inapposite. Kansas

arose from the Court’s original jurisdiction to adjudicate disputes between the States. See id. at 1051. The

Court ordered Nebraska to disgorge the gains it derived from its breach of an interstate compact, which

exceeded the losses suffered by Kansas, the injured

party, and said this was equitable relief. See id. at

1056-58. But as the Court also explained, “suits between the States . . . are ‘basically equitable in nature.’ ” Id. at 1051 (quoting Ohio v. Kentucky, 410 U.S.

641, 648 (1973)). Therefore, the Court was merely exercising its “equitable apportionment power . . . to prevent one State from taking advantage of another.” Id.

at 1052. Kansas has no relevance to the question here,

which does not concern a suit between States.

II.

BECAUSE CONGRESS HAS EXPRESSLY

AUTHORIZED THE SEC TO OBTAIN

CIVIL PENALTIES, SEC DISGORGEMENT

IS NOT “APPROPRIATE OR NECESSARY

FOR THE BENEFIT OF INVESTORS”

Even if SEC disgorgement were considered “equitable relief,” that would not automatically make it a

permissible remedy. Section 21(d)(5) does not provide

a blanket grant of authority to order all “equitable relief.” Congress has limited the equitable relief a court

may order to relief that is “appropriate or necessary for

24

the benefit of investors.” 15 U.S.C. § 78u(d)(5). As required by the “cardinal rule of statutory interpretation

that no provision should be construed to be entirely redundant,” Kungys v. U.S., 485 U.S. 759, 778 (1988) (plurality opinion of Scalia, J.); see also Nielsen v. Preap,

139 S.Ct. 954, 969 (2019), the Court should give effect

to that statutory limitation.

This Court has construed the modifiers “necessary” or “appropriate” in similar statutes to preclude

equitable relief where an alternative form of relief

would be adequate. See generally Franklin v. Gwinnett

County Public Schools, 503 U.S. 60, 75-76 (1992) (“[I]t

is axiomatic that a court should determine the adequacy of a remedy in law before resorting to equitable

relief ”). For example, in Varity Corp. v. Howe, this

Court ruled that sections 502(a)(3) and (5) of ERISA,

which authorize “appropriate equitable relief,” 29

U.S.C. § 1132(a)(3), (5), act as “ ‘catchall’ provisions . . .

for injuries caused by violations that § 502 does not

elsewhere adequately remedy.” 516 U.S. 489, 512 (1996)

(emphasis added). “[W]here Congress elsewhere provided adequate relief for a beneficiary’s injury” under

ERISA, “there will likely be no need for further equitable relief, in which case such relief normally would not

be ‘appropriate’ ” within the meaning of the statute. Id.

at 515.

Similarly, in Clinton v. Goldsmith, this Court held

the All-Writs Act—which authorizes courts to “issue all

writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law,” 28 U.S.C. § 1651(a)—does not authorize

25

the United States Court of Appeals for the Armed

Forces to bar the President and military officials from

removing certain military personnel from the rolls of

the Air Force. 526 U.S. 529, 537-40 (1999). The Court

explained that, although the All-Writs Act does not expressly refer to equitable relief, it is “essentially equitable.” Id. at 537. Thus, since the servicemembers

“demanding to be kept on the rolls” could have brought

an action in the federal courts or resorted to other administrative bodies in the military for “alternative

remedies,” the writ was “unjustifiable either as ‘necessary’ or as ‘appropriate.’ ” Id. at 537-40.

In the securities enforcement context, disgorgement is never “necessary” or “appropriate” because the

SEC has statutory authority to collect civil penalties,

which are an equivalent, if not stronger, form of relief.

The Remedies Act gives the SEC authority to seek civil

penalties for violations of the Securities Act, the Exchange Act, the Investment Company Act of 1940, and

the Investment Advisers Act of 1940 that may equal,

and in some cases exceed, the “gross amount of [the

defendant’s] pecuniary gain.” 15 U.S.C. §§ 77t(d),

78u(d)(3), 80a–41(e), 80b–9(e). See S.E.C. v. Razmilovic, 738 F.3d 14, 38 (2d Cir. 2013) (defendant’s “disgorgeable gain” was his “maximum civil penalty” under

§ 78u(d)(3)), cert. denied, 572 U.S. 1018 (2014). Some

courts have held that, like equitable disgorgement,

civil penalties may be based on gains of third parties,

see, e.g., S.E.C. v. Rajaratnam, 918 F.3d 36, 41-44 (2d

Cir. 2019), or funds that the defendant no longer possesses, see, e.g., S.E.C. v. Inorganic Recycling Corp., No.

26

99-CV-10159 (GEL), 2002 WL 1968341, at *4 (S.D.N.Y.

Aug. 23, 2002). Moreover, the consequences for investors of civil penalties or SEC disgorgement are largely

the same: in both cases, the proceeds may, but need not

be, remitted to the injured investors. See 15 U.S.C.

§ 7246(a); cf. Kokesh, 137 S.Ct. at 1644.5

Prior to the Remedies Act, the tools available to

the SEC in civil enforcement proceedings were generally limited to injunctions. See Kokesh, 137 S.Ct. at

1640. It was during that period, in the 1960’s and

1970’s, that “most of the seminal SEC disgorgement

cases were decided.” Russell G. Ryan, The Equity Façade of SEC Disgorgement, 4 Harv. Bus. L. Rev. Online

3 (2013); see, e.g., S.E.C. v. Texas Gulf Sulphur Co., 312

F.Supp. 77, 91 (S.D.N.Y. 1970), aff ’d in part and rev’d

in part, 446 F.2d 1301 (2d Cir. 1971); S.E.C. v. Quing N.

Wong, 252 F.Supp. 608, 613 (D.P.R. 1966). As one former Assistant Director of the SEC’s Division of Enforcement has commented, “the temptation for the

SEC to request and the courts to grant disgorgement

based on questionable theories was understandable,”

but today “there are no compelling reasons to stretch

disgorgement beyond its limits.” Ryan, supra, at 3.

To continue to allow equitable disgorgement in

SEC enforcement proceedings, notwithstanding the

availability of civil penalties, would be to effectively

5

The Insider Trading Sanctions Act of 1984, Pub. L. No. 98–

376, § 2, 98 Stat. 1264, 1264 (1984), as amended, also authorizes

the SEC to obtain civil penalties against insider traders up to

“three times the profit gained or loss avoided.” 15 U.S.C. § 78u–

1(2).

27

expose defendants to double-disgorgement: once as a

civil penalty, and again as “equitable relief.” See S.E.C.

v. Zada, 787 F.3d 375, 383 (6th Cir. 2015) (observing

that an award of disgorgement and civil penalties in

the amount of defendant’s “ ‘ill-gotten gain’ ” “effectively double[d] the amount he owes the SEC”). But if

the intent of the statute were to authorize double penalties, Congress could have said so explicitly, as it has

in numerous other statutory provisions. See, e.g., 15

U.S.C. § 78u-6(h)(1)(C)(ii) (authorizing double back pay

for whistleblower retaliation claims under DoddFrank); 31 U.S.C. § 3729(a)(1)(G) (allowing “3 times the

amount of damages which the Government sustains”

in False Claims Act lawsuits); 42 U.S.C. § 1395y(a)(3)(A)

(establishing a private cause of action for damages in

“an amount double the amount otherwise provided”

against insurers under Medicare).6

Congress’ decision, in the Remedies Act, to enact a

provision authorizing civil penalties but not SEC disgorgement in judicial proceedings brought by the SEC,

is further evidence that Congress did not intend SEC

disgorgement to be available. This Court has repeatedly emphasized that implied remedies are disfavored,

especially where a statute already contains explicit

mechanisms for its enforcement. See Meghrig v. KFC

Western, Inc., 516 U.S. 479, 488 (1996) (“It is an

6

The statutory provision that an action for civil penalties

“may be brought in addition to any other action that the Commission or the Attorney General is entitled to bring,” 15 U.S.C.

§§ 77t(d)(3)(C), 78u(d)(3)(C)(iii), 80a–41(e)(3)(C), 80b–9(e)(3)(C),

clarifies that civil penalties are not exclusive of other relief, such

as an injunction, but does not authorize equitable disgorgement.

28

elemental canon of statutory construction that where

a statute expressly provides a particular remedy or

remedies, a court must be chary of reading others into

it”) (brackets omitted) (quoting Middlesex County Sewerage Auth. v. National Sea Clammers Ass’n, 453 U.S.

1, 14-15 (1981)); Mass. Mut. Life Ins. Co. v. Russell, 473

U.S. 134, 146 (1985) (“The presumption that a remedy

was deliberately omitted from a statute is strongest

when Congress has enacted a comprehensive legislative scheme including an integrated system of procedures for enforcement”) (quoting Northwest Airlines,

Inc. v. Transport Workers Union of America, AFL-CIO,

451 U.S. 77, 97 (1981)).

Finally, the conclusion that disgorgement is not

“appropriate” or “necessary” under section 21(d)(5) does

not make that provision superfluous. In SEC enforcement proceedings, courts have relied on their equitable

powers to grant a range of remedies other than disgorgement. See generally Michael J. Missal and Richard M. Phillips, The Securities Enforcement Manual:

Tactics and Strategies 218-19 (2d ed. 2007). Most notably, “the SEC has increasingly invoked equitable

powers of federal courts to seek the appointment of independent monitors empowered to oversee companies

or particular aspects of company operations.” Id. at

219 n. 196 (collecting examples). In the proceedings

against WorldCom, Inc., for example, the District

Court explained that, “[u]nder the [court-appointed]

Corporate Monitor’s watchful eye,” the company “replaced its entire board of directors,” hired a new CEO,

and “fired or accepted the resignation of every

29

employee accused . . . of having participated in the

fraud. . . .” S.E.C. v. WorldCom, Inc., 273 F.Supp.2d 431,

432 (S.D.N.Y. 2003).7 In light of the vast equitable powers the SEC wields, it cannot plausibly be argued that

eliminating the disgorgement remedy will render the

provision for “equitable relief ” toothless.

III. SEC DISGORGEMENT IS NOT AVAILABLE UNDER PROVISIONS OF THE SECURITIES LAWS AUTHORIZING COURTS TO

“ENJOIN” VIOLATIONS

The SEC contends (Opp. to Cert. at 5) that judicial

authority to order disgorgement also derives from

sections 20(b) of the Securities Act and 21(d)(1) of the

Exchange Act, which authorize courts to “enjoin” violations. 15 U.S.C. §§ 77t(b), 78u(d)(1). Section 20(b) of the

Securities Act states, in relevant part:

Whenever it shall appear to the Commission

that any person is engaged or about to engage

in any acts or practices which constitute or

will constitute a violation . . . the Commission

may . . . bring an action . . . to enjoin such acts

or practices, and upon a proper showing, a permanent or temporary injunction or restraining order shall be granted without bond.

15 U.S.C. § 77t(b). Section 21(d)(1) of the Exchange Act

contains nearly identical wording. See 15 U.S.C.

§ 78u(d)(1).

7

SIFMA takes no position here on whether this or any other

form of equitable relief is authorized under applicable statutes.

30

But the SEC cannot recast SEC disgorgement as

an injunction. As this Court has explained, “neither [a

mandatory injunction nor a prohibitory injunction]

contemplates . . . ’damages’ or ‘equitable restitution.’ ”

Meghrig, 516 U.S. at 484. “Injunctive relief constitutes

a distinct type of equitable relief; it is not an umbrella

term that encompasses restitution or disgorgement.”

Owner-Operator Independent Drivers Ass’n, Inc. v.

Landstar System, Inc., 622 F.3d 1307, 1324 (11th Cir.

2010), reh’g en banc denied, 410 Fed. Appx. 295 (11th

Cir. 2010), cert. denied, 565 U.S. 814 (2011).

Nor can SEC disgorgement be characterized as an

ancillary remedy pursuant to a court’s equitable authority to order an injunction. The Seventh Circuit recently addressed this issue in the context of § 13(b) of

the Federal Trade Commission Act (the “FTCA”), 15

U.S.C. § 53(b), which is worded similarly to sections

20(b) of the Securities Act and 21(d)(1) of the Exchange

Act. Overruling its own precedent, the Seventh Circuit

concluded that the statute does not authorize disgorgement as relief ancillary to an injunction. See F.T.C. v.

Credit Bureau Center, LLC, 937 F.3d 764, 771-86 (7th

Cir. 2019) (overruling F.T.C. v. Amy Travel Service, Inc.,

875 F.2d 564 (7th Cir. 1989)); but see F.T.C. v. AMG

Capital Management, LLC, 910 F.3d 417, 426-27 (9th

Cir. 2018) (stating that restitution may be awarded ancillary to an injunction under the FTCA), cert. filed

(Oct. 21, 2019); F.T.C. v. WV Universal Management,

LLC, 877 F.3d 1234, 1239 (11th Cir. 2017) (same), cert.

denied, 138 S.Ct. 2679 (2018). As the Seventh Circuit

recognized, “[a]n implied restitution remedy doesn’t sit

31

comfortably with the text of section 13(b) [of the

FTCA],” because that section applies only where the

defendant is “ ‘violating’ or ‘about to violate’ the law.”

Credit Bureau Center, 937 F.3d at 772. See 15 U.S.C.

§ 53(b)(1). That language shows the FTCA’s injunction

provision is “forward-facing,” and cannot be read to encompass a backward-facing remedy such as restitution. Credit Bureau Center, 937 F.3d at 772. A contrary

reading would be untenable because it would “condition the Commission’s ability to secure restitution for

past conduct on the existence of an ongoing or imminent unlawful conduct.” Id. at 772-73. These “tensions

. . . dissipate if we read section 13(b) to mean what it

says: The remedy is limited to injunctive relief.” Id. at

774.

In reaching its conclusion the Seventh Circuit relied heavily on Meghrig, supra, in which this Court

held that restitution of prior cleanup costs was not

available under the citizen suit provision of the Resource Conservation and Recovery Act of 1976, 42

U.S.C. § 6972(a). That provision authorizes courts to

“restrain any person who has contributed or who is

contributing to” the handling of solid or hazardous

waste “which may present an imminent and substantial endangerment to health or the environment,” or

“order such person to take such other action as may

be necessary, or both.” 42 U.S.C. § 6972(a). As this

Court observed in Meghrig, the statute’s use of language such as “may present” and “imminent” demonstrates that it “was designed to provide a remedy that

ameliorates present or obviates the risk of future

32

‘imminent’ harms, not a remedy that compensates for

past cleanup efforts.” 516 U.S. at 485-86.

Meghrig and Credit Bureau Center are instructive

because sections 20(b) of the Securities Act and

21(d)(1) of the Exchange Act employ similar forwardlooking language. Specifically, these provisions apply

only when a person “is engaged” or “about to engage”

in a violation. 15 U.S.C. §§ 77t(b), 78u(d)(1). Thus, as in

Meghrig and Credit Bureau Center, these provisions

cannot be read to authorize disgorgement, which is

predicated on past harms.

Finally, Porter, supra, cited by the SEC (Opp. to

Cert. at 5), does not compel a different conclusion.

First, the Court in Porter was careful to note that the

restitution granted in that case did not operate as a

civil penalty. See 328 U.S. at 402; see also Tull, 481 U.S.

at 424 (distinguishing Porter). Because SEC disgorgement operates as a civil penalty under the securities

laws, Porter is inapposite. Second, the statute at issue

in Porter expressly authorized the District Court to

grant an “injunction . . . or other order,” id. at 399 (emphasis added), and the Court found restitution was “a

proper ‘other order.’ ” Id. The Securities Act and Exchange Act provisions at issue do not contain analogous language permitting a court to enter an “other

order.”

------------------------------------------------------------------

33

CONCLUSION

For the foregoing reasons, the judgment of the

United States Court of Appeals for the Ninth Circuit

should be reversed.

December 20, 2019

Respectfully submitted,

IRA D. HAMMERMAN

KEVIN M. CARROLL

SECURITIES INDUSTRY

AND FINANCIAL

MARKETS ASSOCIATION

1101 New York Avenue, NW

Washington, D.C. 20005

(202) 962-7300

MICHAEL J. DELL

Counsel of Record

CHASE HENRY MECHANICK

KRAMER LEVIN NAFTALIS

& FRANKEL LLP

1177 Avenue of the Americas

New York, New York 10036

(212) 715-9100

mdell@kramerlevin.com

Attorneys for Amicus Curiae Securities Industry

and Financial Markets Association