USA Trends and Developments Contributed by: Daniel J. Fetterman and Brian S. Choi, Kasowitz LLP
true because he had in fact borrowed USD110,000. The Court agreed, reasoning that the literal text of Section 1014 did not contain the word “misleading”, and distinguishing misleading statements from false ones because “basic logic dictates that some mis - leading statements are not false”. Thompson , 604 U.S. at 413. Thus, according to the Court, “the only relevant question according to the text of the statute is whether the statement is ‘false.’” Id. at 415. In the current term, the Court is primed to resolve a cir - cuit split over the issue of whether, to obtain equitable disgorgement, the Securities and Exchange Commis - sion (SEC) must show that investors suffered actual financial harm. In SEC v Sripetch , the SEC obtained an order to disgorge approximately USD3.5 million in supposed profits that the defendant received through a pump-and-dump scheme involving 20 microcap stocks. The defendant challenged the order, argu - ing that the SEC had failed to prove specific investor pecuniary harm. Sripetch represents the third in a series of cases that have gradually blunted the SEC’s enforcement pow - ers. In 2017, the Court unanimously held that dis - gorgement functions as a “penalty: it is imposed as a
consequence of violating a public law and it is intend - ed to deter, not to compensate” and thus is subject to a five-year statute of limitations severely limiting the SEC’s ability to recover older ill-gotten gains. Kokesh v SEC , 581 U.S. 455, 465 (2017). And, in 2020, the Court held that a disgorgement award can be consid - ered “equitable relief” only if it does not exceed the defendant’s illicit net profits and the disgorged funds are returned to victims. Liu v SEC , 591 U.S. 71, 79 (2020). This decision imposed guardrails around what the SEC could pursue as disgorgement. In this term, any decision by the Court requiring the SEC to dem - onstrate that investors suffered actual pecuniary harm will further diminish the SEC’s power and have conse - quences for the types of cases it chooses to pursue. * * * With the exception of DOJ’s recent surge in FCA enforcement, these trends are consistent with the administration’s clear prioritisation of enforcement efforts relating to immigration, drug smuggling, car - tels, criminal gangs, and other transnational criminal organisations and its move away from enforcement efforts focused on traditional white-collar crimes.
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