## Facts

- Charles C. Liu and Xin Wang solicited roughly $27 million from foreign investors through the EB-5 Immigrant Investor Program, representing the money would fund construction of a cancer-treatment center tied to immigration benefits.
- The SEC alleged substantial misappropriation: significant transfers to companies controlled by Liu, payments to personal accounts, and excessive marketing and salaries, with comparatively little spent on the project.
- The SEC brought a civil enforcement action alleging violations of § 17(a) of the Securities Act of 1933 based on misstatements and misuse of investor funds.
- The district court found securities-law violations, enjoined Liu and Wang from participating in the EB-5 program, imposed civil penalties, and ordered disgorgement of nearly all funds raised (less amounts remaining in accounts), imposing joint and several liability.
- The Ninth Circuit affirmed, including the gross-receipts disgorgement figure, refusal to deduct most claimed expenses, and joint and several liability.

## Issues

1. Whether 15 U.S.C. § 78u(d)(5) authorizes courts to order SEC disgorgement as “equitable relief.”
2. If authorized, whether equity requires disgorgement to be limited to a wrongdoer’s net profits, awarded for the benefit of victims, and generally not imposed jointly and severally.

## Decision

- The Supreme Court held (8–1) that disgorgement may qualify as equitable relief under § 78u(d)(5) only when it does not exceed a wrongdoer’s net profits and is awarded for victims.
- The Court vacated and remanded because the lower courts ordered disgorgement approximating gross receipts, imposed joint and several liability, and did not adequately ensure the award conformed to equitable limits.
- The Court directed reconsideration of legitimate expense deductions, whether joint and several liability was proper on the facts, and whether distribution would be structured for the benefit of harmed investors.
- Justice Thomas dissented, concluding disgorgement is not authorized under § 78u(d)(5) because it lacks a sufficient historical analogue in equity and is not expressly provided by statute.

## Legal Principles

- Statutory authorization of “equitable relief” permits only remedies typically available in equity, as informed by historical equitable practice.
- SEC disgorgement is permissible equitable relief under § 78u(d)(5) only if it is confined to the wrongdoer’s net profits (generally requiring deduction of legitimate business expenses).
- Disgorgement must be “for the benefit of investors,” which ordinarily requires directing funds to harmed investors rather than treating Treasury deposits as the default endpoint.
- Joint and several disgorgement is generally inconsistent with equity because equity focuses on individual gains; it may be appropriate only in limited circumstances (e.g., partners or a true common enterprise where profits are not reasonably separable).
- Disgorgement that functions punitively (e.g., exceeding net profits or not tied to victim compensation) resembles a penalty; disgorgement aligned with net profits and victim benefit fits equitable restitution/accounting principles.

## Conclusion

The Court permitted SEC disgorgement under § 78u(d)(5) but required it to track traditional equity by limiting awards to net profits, orienting relief toward compensating victims, and restricting joint and several liability absent a narrow equitable basis, necessitating reconsideration of the award on remand.


Liu v. SEC, 140 S. Ct. 1936 (2020)