In SEC v. Westport Capital Markets LLC., 2019 WL 4857337 (D. Conn. Sept. 30, 2019), THE SEC "accused Westport Capital Markets, LLC, and its owner Christopher E. McClure of violating the Investment Advisers Act of 1940. Westport and McClure have moved to dismiss the SEC complaint to the extent that it seeks a disgorgement remedy."
The Court declined to decide the motion at present, explaining that:
Deferring decision on whether the Court may enter a disgorgement remedy is appropriate in view of uncertainty about the ... extent the SEC may seek disgorgement for strictly victim restitutionary purposes and whether disgorgement for victim restitutionary purposes may retain an equitable character that distinguishes it from disgorgement for deterrent penalty purposes.
A further reason to forbear ruling for now on the defendants' motion is the likelihood that precedent on whether the SEC may continue to seek a disgorgement remedy may change or be clarified in the coming months. ...
Now pending before the U.S Supreme Court is a certiorari petition on the issue of “[w]hether the Securities and Exchange Commission may seek and obtain disgorgement from a court as ‘equitable relief’ for a securities law violation even though this Court has determined that such disgorgement is a penalty.” Liu v. SEC, No. 18-1501 (petition for writ of certiorari filed on May 31, 2019); see also Stephen Bainbridge, Kokesh Footnote 3 Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases, 56 WASH. U. J. L. & POL'Y 17 (2018); Daniel B. Listwa & Charles Seidell, Note, Penalties in Equity: Disgorgement After Kokesh v. SEC, 35 Yale J. Reg. 667 (2018).
Granted, it's not much of a cite. But it counts. Now I need to get the Supreme Court to cite the article.
On that score, I was pleased to see that counsel for petitioners in the Liu case cited my article in their brief:
The SEC first successfully obtained disgorgement in SEC v. Texas Gulf Sulphur Co., 312 F. Supp. 77 (S.D.N.Y. 1970), aff’d in part, rev’d and remanded in part on other grounds, 446 F.2d 1301 (2d Cir. 1971). See Stephen M. Bainbridge, Kokesh Footnote Three Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases, 56 Wash. U. J.L. & Pol’y 17, 20- 21 (2018). The Second Circuit affirmed the award, adding that “the SEC may seek other than injunctive relief in order to effectuate the purposes of the Act.” SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971). Even there, however, the court noted that such equitable relief must be “remedial” and thus cannot be “a penalty assessment.” Id.
It'd have been nice if they had cited the arguments I made on the merits, but so be it.
