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, et al.,

Petitioners,

v.

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF OAK MANAGEMENT CORPORATION

AS AMICUS CURIAE

IN SUPPORT OF NEITHER PARTY

DAVID K. MOMBORQUETTE

McDermott

Will & Emery LLP

340 Madison Ave

New York, NY 10173

MICHAEL B. KIMBERLY

Counsel of Record

PAUL W. HUGHES

MATTHEW A. WARING

SARAH P. HOGARTH

McDermott

Will & Emery LLP

500 North Capitol St. NW

Washington, DC 20001

(202) 756-8000

mkimberly@mwe.com

Counsel for Amicus Curiae

i

TABLE OF CONTENTS

Table of Authorities.................................................... ii

Interest of the Amicus Curiae and Summary

of Argument ..............................................................1

Argument .....................................................................3

A. Courts in securities cases often order

funds “disgorged” from wrongdoers to be

paid over to victims as restitution ......................4

B. Oak’s case is a quintessential example of

traditional restitutionary relief granted

under the banner of “disgorgement” ...................8

C. Restitution is an ancient equitable

remedy that should be preserved in

securities cases .................................................. 10

1. Ordering the return of wrongfullyobtained property is at the very core of a

court’s equitable powers ..............................10

2. A federal court’s inherent power to

order equity exists independent of its

power to order statutorily-authorized

remedies .......................................................12

3. The Court should limit its holding to the

facts of this case and not prejudge

courts’ authority to order truly equitable

relief in securities cases ...............................14

Conclusion .................................................................15

ii

TABLE OF AUTHORITIES

Cases

Atlas Life Ins. Co. v. W.I. Southern, Inc.,

306 U.S. 563 (1939) .............................................. 13

California Pub. Emps. Ret. Sys. v. ANZ Sec., Inc.,

137 S. Ct. 2042 (2017) .......................................... 14

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

534 U.S. 204 (2002) .............................................. 12

Grupo Mexicano de Desarrollo S.A. v.

Alliance Bond Fund, Inc.,

527 U.S. 308 (1999) .............................................. 13

Kansas v. Nebraska,

135 S. Ct. 1042 (2015) .......................................... 14

Kokesh v. SEC,

137 S. Ct. 1635 (2017) ........................................ 3, 7

Porter v. Warner Holding Co.,

328 U.S. 395 (1946) .............................................. 14

SEC v. Ahmed,

308 F. Supp. 3d 628 (D. Conn. 2018) ................. 8, 9

SEC v. Ahmed,

343 F. Supp. 3d 16 (D. Conn. 2018)....................... 8

SEC v. Andes,

1986 WL 1212 (E.D. Pa. Jan. 23, 1986) ................ 7

SEC v. Bhagat,

2008 WL 4890890 (N.D. Cal. Nov. 12, 2008) ........ 7

SEC v. DiBella,

409 F. Supp. 2d 122 (D. Conn. 2006) ..................... 7

SEC v. Drexel Burnham Lambert, Inc.,

956 F. Supp. 503 (S.D.N.Y. 1997) .......................... 4

SEC v. First Pac. Bancorp,

142 F.3d 1186 (9th Cir. 1998) ................................ 6

iii

Cases—continued

SEC v. Lund,

570 F. Supp. 1397 (C.D. Cal. 1983) ....................... 6

SEC v. McGinn, Smith & Co.,

98 F. Supp. 3d 506 (N.D.N.Y. 2015) ...................... 6

SEC v. P.B. Ventures,

1991 WL 218115 (E.D. Pa. Oct. 17, 1991) ............. 6

SEC v. Texas Gulf Sulphur Co.,

446 F.2d 1301 (2d Cir. 1971) ................................. 5

Towers Charter & Marine Corp. v.

Cadillac Ins. Co.,

894 F.2d 516 (2d Cir. 1990) ................................... 9

United States v. Gartner,

93 F.3d 633 (9th Cir. 1996) .................................... 6

Statutes and regulations

15 U.S.C. 78u(d)(5) ........................................ 2, 3, 6, 13

15 U.S.C. 7246(a)......................................................... 6

28 U.S.C. 2462 ............................................................. 3

Judiciary Act, § 11, 1 Stat. 73 (1789)........................ 13

Other authorities

Dan B. Dobbs, 1 Law of Remedies (2d ed. 1993)

§ 4.1(1) ................................................................... 4

§ 4.2(3) .................................................................. 12

§ 4.3(1) .................................................................. 12

William W. Goodrich, Restitution—Modern

Application of an Ancient Remedy,

9 Food, Drug, & Cosmetic L.J. 565 (1954) .......... 11

Thomas Lee Hazen, 5 Treatise on the Law of

Securities Regulation (2005) .................................. 7

iv

Other authorities—continued

George E. Palmer, Law of Restitution (1978) ........... 12

Max Radin, The Roman Law of Quasi-Contract,

23 VA. L. REV. 241(1937) ...................................... 11

Restatement of Restitution § 160 (1936) .................. 12

INTEREST OF THE AMICUS CURIAE

AND SUMMARY OF ARGUMENT

Oak Management Corporation is the investment

manager of several multi-sector, multi-stage venture

capital funds that focus on high-growth opportunities

in information technology, the internet and consumer

sector, financial services technology, healthcare services and technology, and clean energy. Many of the

investors in these funds are major public and private

pension funds and educational institutions.1

Oak can attest from firsthand experience the importance of truly equitable remedies in cases brought

by the Securities and Exchange Commission. One of

Oak’s former partners—Iftikar Ahmed—defrauded the

firm and its funds of tens of millions of dollars over the

better part of a decade, before fleeing the country. The

SEC filed a complaint against Ahmed; the district

court in turn froze all of Ahmed’s U.S. assets (amounting to tens of millions of dollars), assigning them to a

court-appointed receiver. After the district court found

Ahmed civilly liable for securities fraud, it assessed

$21 million in statutorily authorized fines. But it also

ordered “disgorgement” of nearly $42 million in illgotten gains, pledged by the government to be returned

to the defrauded investors. That sum—although less,

taken alone, than the value of investors’ losses—will go

a long way to remedying the harm caused.

Although labeled “disgorgement” by the district

court—as is common in securities cases—the award

entered in Oak’s case is substantively a restitution

1

No counsel for a party authored this brief in whole or in part,

and no party other than amicus or its counsel made a monetary

contribution to fund the preparation or submission of the brief.

Petitioners have filed a blanket consent to the filing of amicus

briefs. Respondent consented to the filing of this brief.

2

award. Restitution is a form of traditional equitable

relief available to victims of wrongdoing since time

immemorial. Over the centuries, equity courts have

developed a number of restitutionary devices, including

constructive trusts, equitable liens, and accountings for

profits. Each of these remedies—like the so-called disgorgement remedy awarded in Oak’s case—requires

the defendant to give up wrongfully obtained property

and return it to his victims. Such relief both prevents

the defendant from profiting from his misconduct and

restores the status quo ante to those harmed. Regardless whether it is identified as disgorgement, restitution, or by some other label, there is no clearer example

of traditional equitable relief.

The “disgorgement” order entered in the present

case involves a very different kind of relief. For one

thing, the amount of relief ordered exceeds petitioners’

gains from their wrongdoing. For another thing, there

is no indication that the money (even if petitioners still

possessed it) would be returned to petitioners’ victims.

The order here is therefore not traditionally equitable

in any sense of the word. Rather, it is merely a civil

penalty dressed up with the equitable-sounding “disgorgement” label.

In resolving the question presented here, the Court

should focus on substance, not form. As petitioners’

case shows, the “disgorgement” label is sometimes applied to civil penalties; as Oak’s case shows, however,

the same label is also applied to equitable restitution.

The distinction makes all the difference, because true

equitable relief is expressly authorized by the

securities laws (see 15 U.S.C. 78u(d)(5)) and would be

available pursuant to the court’s traditional, inherent

power even were it not. Not so of civil penalties.

Petitioners do not meaningfully address the distinction between “disgorgement” as civil penalty and

3

“disgorgement” as equitable restitution. Instead, petitioners take the broad position that any relief labelled

“disgorgement,” regardless of its substance, is categorically off the table in SEC enforcement suits. But this

case does not present that question; it asks only

whether courts are permitted to assess civil penalties

not expressly authorized by statute.

We take no position on the answer to that question.

We write only to stress that the Court should limit its

holding here to the substance of the order entered

against petitioners, without getting hung up on the

district court’s use of the word “disgorgement.” As

Oak’s case demonstrates, courts just as often use that

word to describe traditional equitable awards authorized by 15 U.S.C. 78u(d)(5) and the courts’ inherent

authority. The Court should be careful not to say

anything in its decision in this case that might hinder

a district courts’ authority to enter such equitable

relief when warranted.

ARGUMENT

This Court held two years ago, in Kokesh v. SEC,

137 S. Ct. 1635 (2017), that a claim for disgorgement

by the SEC is a claim for a “penalty” within the meaning of 28 U.S.C. 2462, the general statute of limitations for civil penalty actions. Petitioners ask this

Court to hold that, in light of Kokesh, the SEC lacks

authority to seek anything called “disgorgement,”

because the securities laws authorize only the award of

civil monetary penalties and equitable relief—and a

“penalty” cannot be equitable relief.

Petitioners paint with too broad a brush. Not all

remedies that courts refer to as “disgorgement” are the

same; although some disgorgement awards (like the

one in this case) resemble penalties, others require the

defendant to return wrongfully-obtained property to

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victims. The latter kind of awards are not penalties—

they are akin to traditional restitution orders, of the

sort that courts of equity have awarded for centuries.

Before going further, a clarification is in order:

Consistent with leading treatises, we use the term

“restitution” to mean relief that “measures the remedy

by the defendant’s gain and seeks to force disgorgement of that gain.” Dan B. Dobbs, 1 Law of Remedies

§ 4.1(1), at 555 (2d ed. 1993). Understood in this way,

restitution is distinct from damages, which “measures

the remedy by the plaintiff’s loss and seeks to provide

compensation for that loss.” Ibid. Some cases have

distinguished restitution and disgorgement differently,

suggesting that the measure of restitution is the

victim’s damage, while the measure of disgorgement is

the wrongdoer’s profit. See, e.g., SEC v. Drexel Burnham Lambert, Inc., 956 F. Supp. 503, 507 (S.D.N.Y.

1997) (“[R]estitution aims to make the damaged

persons whole, while disgorgement aims to deprive the

wrongdoer of ill-gotten gains.”).

These different definitions underscore our central

point here—that, rather than focusing on labels, the

Court should consider the substance of the relief

ordered in any given case. In Oak’s case, the SEC

described the equitable relief ordered by the district

court as “disgorgement.” That is the correct label in the

Drexel Burnham sense. The correct label in the Dobbs

treatise sense is “restitution.” The substance, which is

what matters, is the same either way.

A. Courts in securities cases often order funds

“disgorged” from wrongdoers to be paid over

to victims as restitution

For reasons unclear, courts and commentators

often have described monetary awards obtained by the

SEC for violations of the securities laws as “disgorge-

5

ment,” regardless how the money is ultimately disposed of. Overuse of the term “disgorgement” obscures

the fact that many of the monetary awards in securities cases are, in fact, traditional restitution. They are,

in other words, the kind of equitable relief that courts

have ordered for centuries.

1. That was true in the very first case awarding

monetary relief at the SEC’s behest, SEC v. Texas Gulf

Sulphur Co., 446 F.2d 1301 (2d Cir. 1971). There, the

district court required certain defendants who had

fraudulently purchased stock in Texas Gulf to pay the

company the profits they had obtained through the

wrongful trades.

The Second Circuit rejected the notion that the

award was a “penalty assessment,” explaining (correctly) that “[r]estitution of the profits on these transactions merely deprives the [defendants] of the gains of

their wrongful conduct.” Texas Gulf, 446 F.2d at 1308.

The defendants had argued that the relief was not

restitutionary because “it contains no element of

compensation to those who have been damaged” (i.e.,

those who sold stock to the defendants), but the court

disagreed. It explained that Texas Gulf had suffered

reputational harm as a result of the insider trading,

and that it was permissible for the district court to

order restitution to Texas Gulf. Ibid.

In the years since Texas Gulf, many other courts

have awarded or upheld disgorgement that was, in

substance, traditional restitution. For example:

• In SEC v. First Pac. Bancorp, 142 F.3d 1186,

1192 (9th Cir. 1998), the Ninth Circuit affirmed a district order requiring disgorgement of

fraudulently retained proceeds and return of

those proceeds to investors as “restitution.”

6

•

In United States v. Gartner, 93 F.3d 633, 635

(9th Cir. 1996), the Ninth Circuit noted that in

a prior securities case, the defendant had been

ordered “to disgorge the exact amount which

he had fraudulently obtained from investors,

and the disgorged money was to be returned to

the defrauded investors.”

• In SEC v. McGinn, Smith & Co., 98 F. Supp.

3d 506, 521 (N.D.N.Y. 2015), the district court

ratified the SEC’s proposal to “return the disgorged profits to defrauded investors.”

• In SEC v. P.B. Ventures, 1991 WL 218115, at

*4 (E.D. Pa. Oct. 17, 1991), the district court

held that the defendants has been “unjustly

enriched” by certain amounts and ordered that

those amounts be disgorged “for distribution to

investors.”

• In SEC v. Lund, 570 F. Supp. 1397, 1404 (C.D.

Cal. 1983), the district court directed that a

disgorgement award be paid into an escrow account for distribution to “those members of the

public who were harmed by [defendant’s] conduct.”

These awards fall well within the equitable tradition of

requiring restitution of ill-gotten gains to the victim of

wrongdoing.

2. More recently, Congress expressly granted

district courts the authority to order restitutionary

disgorgement in the Sarbanes-Oxley Act of 2002. See

15 U.S.C. 78u(d)(5). Accordingly, separate civil penalties assessed against securities wrongdoers may “be

added to and become part of a disgorgement fund or

other fund established for the benefit of the victims of

such violation.” 15 U.S.C. 7246(a).

7

“Against the backdrop of a settled understanding

in the courts of appeals that courts had equitable

authority to order disgorgement in actions brought by

the [SEC]” (BIO 6), Congress must be understood as

having authorized courts to order traditional equitable

restitution as a remedy for violations of the securities

laws. See SEC v. DiBella, 409 F. Supp. 2d 122, 132 (D.

Conn. 2006) (noting “Congress’[s] acknowledgment and

encouragement of the SEC’s long held authority to

seek disgorgement in civil actions”).

To be sure, as this Court noted in Kokesh, disgorgement awards in securities cases sometimes do more

than merely require the return of ill-gotten gains to

victims. A disgorgement award may “exceed[] the

profits gained as a result of the violation.” Kokesh, 137

S. Ct. at 1644. And it may be paid to the government,

rather than to victims (ibid.)—a practice most common

in cases where “there are a large number of investors

with relatively small claims,” such that distribution to

investors is infeasible. SEC v. Bhagat, 2008 WL

4890890, at *1 (N.D. Cal. Nov. 12, 2008) (quoting

Thomas Lee Hazen, 5 Treatise on the Law of Securities

Regulation 26 (2005)).

But not every “disgorgement” award has these

penalty-like attributes. As we have just shown, many

disgorgement awards in fact take the form of equitable

restitution, requiring the defendant to return ill-gotten

gains to the victims who are rightly entitled to the

funds. See, e.g., Bhagat, 2008 WL 4890890, at *1 (“[A]

general practice of awarding disgorged funds to the

victims of the illegal conduct appears to have emerged.”); SEC v. Andes, 1986 WL 1212, at *3 (E.D. Pa.

Jan. 23, 1986) (“[M]ost courts do order that disgorged

proceeds be distributed among injured investors.”).

8

B. Oak’s case is a quintessential example of

traditional restitutionary relief granted

under the banner of “disgorgement”

1. The “disgorgement” award entered by the court

in Oak’s case typifies the sort of restitutionary disgorgement that courts frequently order. The Court

should be careful to distinguish this traditional, equitable form of relief from the disgorgement-as-penalty

imposed on petitioners.

Iftikar Ahmed formerly worked for Oak as an

investment adviser. He was responsible for identifying

investment prospects for Oak’s various funds. But over

a period of nearly a decade, he used a variety of mechanisms to divert money from Oak into personal bank

accounts for his own use. In some instances, he

falsified deal documents, leading Oak to pay an

inflated price and transferring the difference between

the inflated price and the actual purchase price to his

personal account. SEC v. Ahmed, 308 F. Supp. 3d 628,

637-638 (D. Conn. 2018) (Ahmed I). In other instances,

he caused money being paid by or to Oak for various

services to be diverted to his own account. Id. at 643.

In yet another instance, he represented to Oak that it

was purchasing shares in a target company at a higher

exchange rate than the actual prevailing rate, causing

Oak to pay $1.36 million more than the agreed-upon

purchase price. He transferred this difference to his

personal accounts. Id. at 645. In total, Ahmed stole an

astonishing sum of money—many tens of millions of

dollars—from Oak’s investors over the course of many

years. SEC v. Ahmed, 343 F. Supp. 3d 16, 27 (D. Conn.

2018) (Ahmed II).

The district court granted summary judgment for

the SEC, holding that Ahmed’s conduct violated the

Investment Advisers Act, the Securities Act of 1933,

and the Securities Exchange Act of 1934. Ahmed I, 308

9

F. Supp. 3d at 673. The SEC subsequently obtained

$21 million in penalties. It separately asked for “disgorgement” of $43.9 million, representing the proceeds

of Ahmed’s fraudulent conduct within the limitations

period. The SEC stated clearly that the purpose of the

disgorgement award was to make the victims whole,

asking the court to “endeavor to return $77 million”—

including all of the disgorged funds—to the investors

bilked by Ahmed’s fraud. Remedies Mot. 1-2, D. Conn.

No. 3:15-cv-675, ECF No. 886 (May 29, 2018).

2. The contrast between the “disgorgement” award

in Oak’s case and the “disgorgement” ordered against

petitioners in this case could not be starker.

To begin with, the district court in petitioners’ case

ordered disgorgement of over $26 million that petitioners had raised from their investors—even though

that amount exceeded the amount of petitioners’ actual

gains from their conduct and even though they no

longer possess those ill-gotten gains. Pet. App. 40a. In

Oak’s case, however, Ahmed still owns the assets

needed to undo his fraud, and the disgorgement award

will be satisfied using those assets.2 In addition, the

2

The assets that Ahmed has been ordered to repay are surely

traceable to his fraud, given that the fraud was the source of most

of Ahmed’s income during the relevant period. See Remedies Mot.

at 25. But that does not make a difference in securities-fraud

cases like this one, despite petitioners’ contrary suggestion (Pet.

Br. 31). After all, “money is the quintessential fungible.” Towers

Charter & Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 523 (2d

Cir. 1990). It should not (and does not) matter for equitable

purposes whether a particular dollar is directly traceable to a

tainted transaction. Otherwise, it would be a simple matter for

wrongdoers to remove from their balance sheets funds from

tainted transactions, retaining only “clean” cash that is protected

from the reach of an equity court. Such a rule would serve neither

justice nor common sense.

10

SEC did not represent in petitioners’ case that the

disgorgement award would be paid to petitioners’

victims. By contrast, the SEC asked for disgorgement

in Oak’s case exclusively for the purpose of returning

the proceeds of Ahmed’s fraud to his victims.

Simply put, not all “disgorgement” awards are

created equal. Some, like the one before the Court in

this case, work much like civil penalties—both because

they target property that the defendants do not

presently possess, and because the government would

retain the funds recovered. But other disgorgement

awards, like the one in Oak’s case, are better described

as traditionally equitable because they recover property that (1) represents the ill-gotten gains resulting

from the defendant’s fraud and (2) will be returned to

the defendant’s victims. The second, restitutionary

form of “disgorgement” has deep roots in the common

law, and should be analyzed separately.

C. Restitution is an ancient equitable remedy

that should be preserved in securities cases

Petitioner argues that disgorgement is incompatible with the historic purposes of equity. Pet. Br. 26.

Although that may be true of the kind of “disgorgement-as-penalty” that the courts below ordered, it is

not true of the restitutionary “disgorgement” that

courts regularly order in cases like Oak’s for the benefit of victims. Indeed, the power to order the return of

ill-gotten gains to a victim and restore the status quo is

a quintessential power of equity courts.

1.

Ordering the return of wrongfullyobtained property is at the very core of a

court’s equitable powers

Restitution has been an equitable remedy as long

as equity has existed. Indeed, the principles underlying

restitution have ancient roots, dating back at least to

11

Roman law. In addition to contracts and what would

now be called torts, Roman law recognized a third kind

of “quasi-contract” obligations (quasi ex contractu),

which arose in circumstances where, although no

affirmative agreement of the parties or wrongful act

had occurred, fairness and equity counseled in favor of

requiring a party that had reaped a benefit to compensate or repay another party. For example, one who was

paid money that was not, in fact, owed to him was

“under an obligation to return it.” Max Radin, The

Roman Law of Quasi-Contract, 23 Va. L. Rev. 241, 245

(1937). This doctrine of restitution reflected the principle that—in the words of the second-century jurist

Pomponius—“[f]or this by nature is equitable, that no

one be made richer through another’s loss.” William W.

Goodrich, Restitution—Modern Application of an

Ancient Remedy, 9 Food, Drug, & Cosmetic L.J. 565,

566 (1954).

Centuries later, English courts developed a variety

of restitutionary remedies. Although each went by its

own name and had its own characteristics, each had

the same fundamental objective: to require the defendant to forfeit an improperly acquired gain and, to the

extent possible, restore the status quo ante between

the parties.

Some of these remedies arose in law courts. The

most notable was assumpsit, which originated as an

action to enforce certain express contracts. Over time,

assumpsit permitted quasi-contractual claims—i.e.,

claims that the defendant received an unjust benefit in

the absence of any contract between the parties. The

function of such a claim was “to give the plaintiff a

money judgment that [would] recover the defendant’s

unjust benefits.” Dobbs, supra, § 4.2(3), at 580.

Equity developed numerous restitutionary devices

of its own. These remedies looked to property in the

12

defendant’s possession that rightly belonged to the

plaintiff, and required that the defendant give up the

property so that it could be returned to its equitable

owner. Dobbs, supra, § 4.3(1). The paradigmatic forms

of restitution in equity, as this Court noted in GreatWest Life & Annuity Insurance Co. v. Knudson, 534

U.S. 204 (2002), were the constructive trust and

equitable lien. An equity court “order[ed] 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.” Id. at 213 (citing Dobbs, supra, § 4.3(1), at

587-588; Restatement of Restitution § 160 (1936); and

George E. Palmer, 1 Law of Restitution § 1.4, at 17;

§ 3.7, at 262 (1978)).

A relative of these remedies, the accounting for

profits, applied in cases where the property in the

defendant’s possession had produced profits or income,

and required the defendant to restore not only “the

property itself, but * * * the net income it produced

while defendant held title.” Dobbs, supra, § 4.3(1), at

588. In each case, a plaintiff who prevailed was

entitled to an in personam order directing the

defendant to return the “funds or property in the

defendant’s possession.” Great-West, 534 U.S. at 214.

In short, there can be no doubt that the traditional

powers of equity courts include the power to direct a

defendant to return property in his possession to the

victims of his wrongdoing. Such restitutionary relief is

at the core of the federal courts’ equitable authority.

2.

A federal court’s inherent power to order

equity exists independent of its power to

order statutorily-authorized remedies

Petitioners argue that disgorgement is unavailable

in this case because Congress did not authorize it in

13

the text of the securities laws. Pet. Br. 15-19. Whatever

the merits of that argument with respect to the facts of

this case, it fails with respect to disgorgement orders

that provide traditional restitution. Such relief is

undoubtedly part of the “appropriate or necessary”

equitable relief “for the benefit of investors” that

Congress expressly authorized in 15 U.S.C. 78u(d)(5).

But it also rests on a false premise—that the only

remedies that a court may grant in securities cases are

those that Congress has expressly created. In fact, the

remedies that Congress expressly creates supplement,

rather than displace, the traditional equitable powers

of federal courts.

When Congress established the federal courts in

1789, it gave them jurisdiction over “all suits * * * in

equity.” Judiciary Act, § 11, 1 Stat. 73, 78 (1789). That

grant of jurisdiction, as this Court has explained, gave

federal courts the “authority to administer in equity

suits the principles of the system of judicial remedies

which had been devised and was being administered by

the English Court of Chancery at the time.” Grupo

Mexicano de Desarrollo S.A. v. Alliance Bond Fund,

Inc., 527 U.S. 308, 318 (1999) (quoting Atlas Life Ins.

Co. v. W.I. Southern, Inc., 306 U.S. 563, 568 (1939)).

The equitable jurisdiction thus conferred permits

federal courts to grant traditional equitable relief, no

matter whether that relief is also set forth in the text

of an applicable statute. For example, when a statute

or rule is silent about whether a time period for acting

may be suspended, courts retain the power to toll the

deadline on equitable grounds. This authority, as the

Court has explained, is based on “the judicial power to

promote equity, rather than to interpret and enforce

statutory provisions.” Cal. Pub. Emps.’ Ret. Sys. v.

ANZ Sec., Inc., 137 S. Ct. 2042, 2051 (2017).

14

In the same way, courts have inherent equitable

authority to award traditional restitution, whether or

not it is also provided for in an applicable statute.

Indeed, this Court itself has held on several occasions

that courts have the inherent power to order restitution. In Porter v. Warner Holding Co., 328 U.S. 395,

400 (1946), the Court held that a district court had

“inherent equitable jurisdiction” to order a landlord to

refund rents that it had collected in violation of the

Emergency Price Control Act of 1942. More recently,

the Court awarded partial restitution of one state’s

gains from breaching a water-rights compact with

another state, pursuant to its inherent equitable

authority. Kansas v. Nebraska, 135 S. Ct. 1042, 1057

(2015). Thus, a court can order restitution of a defendant’s ill-gotten gains in a securities case pursuant to

its inherent authority.

3.

The Court should limit its holding to the

facts of this case and not prejudge courts’

authority to order truly equitable relief in

securities cases

Although it is clear that courts have both the

statutory and inherent authority to order traditional

equitable disgorgement in securities cases, the Court

need not reach that issue in this case. As we have

shown, this case is representative of some—but not

all—securities cases involving an order of “disgorgement.” The order here, which exceeds the amount of

petitioners’ ill-gotten gains and would not be paid to

harmed investors, is similar in substance to a civil

penalty. But many cases, like the SEC’s ongoing case

against Ahmed, involve awards that are substantively

restitutionary.

Despite these differences, Liu asks this Court to

hold that any remedy labelled “disgorgement” is impermissible in SEC enforcement actions. In petitioners’

15

view (Br. 19-20), “the scope of equitable authority, as

understood over centuries, does not include disgorgement as sought by the SEC.” But as Oak’s experience

shows, that is not always correct.

The Court should limit its holding to the facts of

this case. This case is not about truly equitable relief;

rather, it is about the district court’s authority to order

extra-statutory civil penalties under the banner of

“disgorgement.” In addressing the permissibility of the

penalties ordered in this case, the Court should be

aware of the SEC’s case against Ahmed and others like

it, and cautious not to prejudge the merits of true

equitable relief in such cases, regardless whether that

relief is labelled by the SEC or the court as “disgorgement.”

CONCLUSION

The court should decide this case narrowly in light

of the limited facts presented.

Respectfully submitted.

DAVID K. MOMBORQUETTE

McDermott

Will & Emery LLP

340 Madison Ave

New York, NY 10173

MICHAEL B. KIMBERLY

Counsel of Record

PAUL W. HUGHES

MATTHEW A. WARING

SARAH P. HOGARTH

McDermott

Will & Emery LLP

500 North Capitol St. NW

Washington, DC 20001

(202) 756-8000

mkimberly@mwe.com

Counsel for Amicus Curiae

DECEMBER 2019