Seizing Illicit Gains

Court says SEC has the power — within limits

Just how much authority does the U.S. Securities and Exchange Commission have to seize profits from those involved in fraudulent investment schemes?

That’s been a question for quite some time. Most recently in a case concerning a California man named Charles Liu, who was sued by the SEC in 2016 alleging he defrauded investors in a chain of cancer treatment centers.

Liu lost and was ordered to come up with $8.2 million that he was said to have personally made on the deal. He appealed, saying congress had never given the SEC the power — commonly called “disgorgment” — to seize such assets.

The case went to the U.S. Supreme Court. The stakes were high for the SEC. Last year the agency collected about $1.5 billion through disgorgement, penalties and the like. About $1.2 billion of that went back to investors who had lost money through the frauds.

On Monday, the nation’s highest court ruled the SEC did indeed have the power to collect the money — but within certain limits.

In an 8-1 vote, the justices ruled the SEC can’t go after more than the net profits of a fraud. And it said most of the money recovered had to be returned to victims.

Associate Justice Clarence Thomas was the sole dissenter. He agreed with Liu that the SEC had no power to go after such funds.

We think the court made the right call here. But Thomas’ dissent should not be ignored. No one wants to see criminals profit off their misdeeds. But just to be sure, Congress should take action to properly authorize the SEC to pursue disgorgement in such cases.