Securities Law

Liu v. Securities and Exchange Commission — Study Notes

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

Study notes for Liu v. Securities and Exchange Commission: professor notes, cold call prep, exam angles, and memory aids.

Disgorgement can be awarded as equitable relief under § 78u(d)(5) but is limited to the net profits of the wrongdoer for the benefit of investors.
Professor Notes

This case addresses the scope of remedies available to the SEC under 15 U.S.C. § 78u(d)(5), particularly focusing on the concept of disgorgement as a form of equitable relief. Professor might emphasize that the Supreme Court clarified that disgorgement is permissible but limited to the wrongdoer's net profits that can be allocated for the benefit of affected investors. This limitation is significant because it aims to ensure that the SEC's actions result in actual benefits to investors rather than merely punishing wrongdoers without regard for investor interests.

Cold Call Prep
  1. 1Explain the significance of disgorgement in securities law as outlined in Liu v. SEC.
  2. 2What are the limitations imposed by the Court on disgorgement awards?
  3. 3Discuss how net profits are determined in the context of this case.
  4. 4What implications does this case have for future SEC enforcement actions?
  5. 5Describe the role of the EB-5 immigrant investor program in this case.
  6. 6How does the Court's decision reflect on the balance of investor protection and equitable relief?
  7. 7What criteria must be met for expenses to be deducted from disgorgement amounts?
Mnemonic Device

Disgorge Net Profit Equitably (DNPE)

Distinguish From
CaseDistinction
SEC v. CavanaghIn Cavanagh, disgorgement was also allowed, but the focus was solely on investor losses, whereas Liu emphasizes net profits.
Klein v. SECKlein involved the issue of whether penalties could be imposed in addition to disgorgement, while Liu strictly constrains disgorgement to net profits for investor benefit.
SEC v.WhittemoreWhittemore discussed the roles of officer liability and misrepresentation, which are apart from the equitable limits on disgorgement specifically articulated in Liu.
Policy Arguments

For the Rule

Allowing disgorgement as equitable relief underlines the importance of deterring securities fraud and promotes the integrity of the financial system.

Against the Rule

Imposing limits on disgorgement could restrict the SEC's ability to effectively penalize wrongdoers, potentially undermining enforcement efforts.

Class Discussion Points
  • How does the decision in Liu v. SEC reflect broader trends in the judiciary's approach to equitable relief in securities law?
  • In what ways does this case illustrate the balance between investor protection and penalizing wrongdoers?
  • What practical effects will this decision have on future SEC enforcement actions and the EB-5 program?
  • Discussion on how the concept of 'net profits' may complicate SEC attempts to recover funds for investors.
Exam Angle

Liu v. SEC often appears on exams as a key case regarding SEC remedies and the principles of equitable relief. Be prepared to analyze the implications of disgorgement and its limits in the context of investor protection.

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