SEC's Powers Curbed by Supreme Court

illegal profits from wrongdoers each year. The majority opinion by Justice Sonya so to mayor preserve the SEC's power to seek discorchement in federal court as long as the money doesn't exceed the wrongdoer's net profits and is used to reimburse to frauded investors, something so to major question during the oral arguments. If the SEC got the money, it could then spend it on protecting investors. But if the Treasury is getting it and I know you're gonna save

money is fungiable. But if the Treasury is getting it, we don't really know if it's being used to help investor. And in this case, a California couple was ordered to pay twenty seven million dollars, well beyond the eight million the trial judge found they'd from their scheme to defraud investors in a cancer treatment center. Joining me is Jill Fish, a professor of business law at the University of Pennsylvania Law School, Jill. Both the SEC and the couple appealing

said they were pleased with the decision. So who really won here? I could say neither one or I could say both one, and either answer would be right, because what the Supreme Court did actually is something a little bit different from what either party was looking for. And I think the Supreme Court's goal was to rein in the scope of the SEC's power to seek disgorgement. But

it's certainly preserved disgorgement as an equitable remedy. So explain what equitable remedy means and how that term and the concept played in here. So basically, the SEC can seek a variety of different kinds of relief. One classic kind of relief is imposing a fine on a party that's violated the sex charity's laws. Disgorgement is different. Disgorgement is usually understood as giving up or giving back your ill gotten gains or your unfair profits, whatever profits the parties

in this case got. The petitioners in this case, we're seeking to get foreign nationals to invest in a so called cancer treatment center. So they raised a lot of money, a lot of money that was not invested in the cancer treatment center. And so what the SEC sought in this case, in addition to a fine, was to recover those unjust profits. And it's the disgorgement of those unjust profits that's the remedy that was contested that the Supreme

Court was evaluating in this case. Justice Sonya Sotomayor wrote the majority opinion. Did she give a sort of formula that the SEC has to follow in disgorgement cases? Yeah? So. Justice Sotomayor's opinion sets out three guide law mines for the SEC when it's seeking disgorgement. So the first guideline is disgorgement has to be limited to a party's net profits.

If a party raises a lot of money but has legitimate business expenses, is actually sending that money to build a cancer treatment center, to purchase equipment and things like that, those aren't net profits. That money doesn't have to be disgorged, So it's a limitation on the total amount of disgorgement. The second limit that the opinion imposes is disgorgement is supposed to be like restitution. It's supposed to provide money that's going to benefit the defrauded investors. Now, the opinion

doesn't explain exactly how that money benefits the investors. It doesn't actually say the SEC has to give back the money or identify everyone who's been defrauded, track them down, figure out a way to put the money in their bank account, because that issue wasn't before the court. But the benefit for defrauded investors is a key limitation. The third limitation is disgorgement is limited to an actual party's profit.

You can't recover disgorgement from one defendant based on the wrongdoing or the profits that were obtained by a second defendant. Last year, the SEC obtained three point two billion dollars in disgorgement. Is this decision going to limit the amount that the SEC can get next year? It's definitely going to impose some limits for the reasons that I said. So one limit is net profits obviously is going to

be less than growth profits. If somebody raises a billion dollars but has some legitimate business expenses, disgorgement will be for something less than a billion. So that's one limit. Second limit being able to obtain disgorgement only from the

individual party that has the wrongful profits. The SEC won't be able to get disgorgement from defended X based on the profits obtained by defendant Y. So if defendant Y is bankrupt, if defendant Y is out of the country or unavailable, that again is going to limit the scope of what the SEC can recover and will it make it more complicated for the SEC to prosecute these cases at the district court? Well, I wouldn't say more complicated to prosecute the cases. The SEC can always seek disgorgement.

The SEC also can seek civil finds. Interestingly enough, the SEC can also seek disgorgement in an administrative proceeding, and we can talk about that separately. So what the opinion will do is make it more difficult for the SEC to recover all of the money that it's recovered in the past. So it's going to be a limitation on the amount of the SEC's recovery, but not one that the SEC is able to recover it all or whether

the SEC is able to prove its case. So why did Justice Thomas dissent and say he would have barred the SEC from seeking disgorgement at all in federal court? In a nutshell, Justice Thomas's view was that disgorgement is a made up concept, a recent innovation in terms of a type of remedy, that it was not part of a court traditional equitable powers, and therefore the disgorgement remedy doesn't fall within the scope of the SEC's statutory authority.

So Justice Thomas's opinion is based on the text of the statute, which is consistent with his standard approach to stutory interpretation, and basically Justice Thomas says the SEC went beyond what the statute empowered it to do. You mentioned that the SEC can also seek disgorgement to administrative proceedings. How does it decide whether to go to court or whether to go through administrative proceedings. Well, that's actually been

an ongoing policy debate. So an administrative proceeding is a proceeding before an administrative law judge from actually an SEC employee, not an Article three judge, not a separate branch of the federal government. And so the SEC has been criticized for bringing some cases as administrative proceedings rather than going

to court. And so this case has the potentially anomalous effects of encouraging the SEC, at least in some cases to use administrative proceedings instead of civil enforcement actions instead of actions in federal court. And of course the sec is authority to seek disgorgement in administrative proceedings is clear, It's in the statute. So a question that a subsequent court is going to have to deal with is whether the limitations and lou the limitations of Justice Stamer's opinion

are going to apply in administrative proceedings or not. It would be kind of ironic if there were two different types or two different analyzes of disgorgements depending on the forum. Why would the SEC ever choose to go to court when they can go to an administrative law judge in their own bailuwith So that depends on a variety of different factors. The SEC had been, as I said, criticized

for bringing some cases in administrative proceedings. People said that the SEC was sort of taking advantage of home court advantage and that the proceedings were not subject to the same level of protection for dependants. You don't have the same discovery process in an administrative proceedings. They occur much more quickly and so forth. But there are a lot of factors that way into the SEC's choice of which avenue to pursue and the type of relief that's available

probably isn't the best factor to drive that decision. Will this affect any other agencies? I read that this decision might affect the ftc uh. That's what I read as well. I'm not an expert on the SEC, but my understanding is that this decision does have consequences in other areas. Antitrust is one of those areas. So I think it's important beyond this federal securities laws, How has the Court in recent years been policing the SEC or not policing

the SEC. The Court has been policing the SEC pretty carefully. There have been a number of areas in which the Court has suggested that the SEC is too aggressive, that the SEC is acting beyond the scope of its statutory authority, and the Court has cautioned the SEC to sort of pull things back a little bit. Can the SEC put disgorged profits into the treasuries coffers after this decision? The

answer to that is, we don't know. That's a question the Supreme Court expressly declined to answer because that issue wasn't really presented to it. The SEC hadn't presented to the court a plan of distribution, so the court said, we're going to leave that issue for the lower court. So it's not clear. There are certainly some cases in which distributing the funds to defrauded investors is going to

be expensive or difficult. It may be the case to the lower court finds it acceptable if the money goes into some general pool that's available to make investors hole in fraud cases overall, But we don't know the answer to that question. So now they've sent this case Act to the District Court, and the district Court will apply what the Supreme Court has said here. Yes, the district Court did not calculate the disgorgement remedy based on net profits.

So at a minimum, the district Court is going to have to look at the expenses that the defendants claim as legitimate expenses and subtract any legitimate expenses from the amount of us disgorgement. So that's one change that we know is going to happen. Beyond that, the sec is going to have to come up with a plan what it intends to do with the money. If it's possible to distribute the money in this case, to foreign nationals.

I guess the SEC will put forth some sort of plan, or the SEC will propose something else like a segregated fund and investor compensation fund, which may or may not pass scrutiny. The one thing I did want to say is the analysis in justice Sodomoyer's opinion draws very heavily on an aniquest brief that was filed by a law professor, Professor Doug Lacock uh Laycock, Professor Doug Laycock of the

University of Virginia. And if you look at the reasoning in this opinion, the analysis of disgorgement as an equitable remedy and what that means, and the precise limitations that just a sutor puts on the disgorgement remedy, it's very influenced by the reasoning and that and make it's brief.

So I just wanted to uh flag that UM showing both I think the importance of understanding uh HIT the historical basis of remedial relief and how influential and amicus brief could be in this case because the arguments that are in this opinion, we're not arguments that were raised by either of the parties. Finally, Joe, what was the

general reaction to this decision? I do think that everybody looked at this opinion with a sigh of relief, because even though the opinion imposes some tactical requirements on disgorgements, it does and eliminate discouragement. It doesn't say discouragement is not an equitable remedy, and it doesn't really limit the SEC's power to seek equitable relief. And from an enforcement perspective, the SEC's power to do that is tremendously important. Thanks Jill.

That's Jill Fish, professor at the University of Pennsylvania School of Law. In a seven to two decision on Thursday, the Supreme Court reinforced the Trump administration's ability to quickly deport people who enter the country without documentation. Joining me is Leon Fresco, a partner at Hollandon Night formerly the head of the Justice Department's Office of Immigration Litigation. Leon

explained what the Court did here. So, what the Supreme Court has said is that during the process that is known as expedited removal, which is a program that Congress past that said, if people from outside the country arrived in the United States without any paperwork, they could be

summarily deported back to where they originally arrived from. What the Supreme Court said is that in the situations where the people who are arriving claim asylum, there isn't review that is available in the federal court for those denials that the CDP and men the immigration court is doing

on those asylum claims. So what happens is from now on, there will only be a CBP slash U S c I S officer who makes some initial screening as to whether the asylum claim is credible, and if that's denied, there's an immigration judge who makes a final administrative determination and that's it. There is no federal court review as to whether those decisions were incorrect and whether that person

should be allowed to apply for asylum. The credible fear interview, that first interview isn't that a very low bar for most immigrants. It is intended by the statute to be a low bar. The way it works is this, in order to simply get a asylum to win your case, you have to have what's known as a ten percent chance that you will be persecuted in your home country on the basis of your race, religion, national origin, political opinion, or social group. It's called well founded fear, and that's

ten percent. In order to get credible fear, which is the upfront initial screening that allows you to remain in the country while you're asylum case despending, you have to have a significant possibility of having a ten percent chance. So it's considered a very low threshold, and in the Obama administration there was something like people would clear the

credible fear screening. That's gone down to the mid eighties in the Trump administration, and so there's a belief that maybe those screenings are being done in a way that is more stringent and hence need more federal review. But that argument obviously did not prevail with the Supreme Court. The reasoning of the seven justices in the majority was split.

Explain that split, well, there were two issues that were raised, and what the two concurring justices Brian and Ginsburg, who usually vote with the liberals, said is we don't need to resolve the issue of the level of rights that people who crossed the border illegally have in the country.

What we can simply say is that the kind of review that the people in this case were asking for was review of factual questions, and that kind of review is not available in what's called the Avias court of jurisdiction because habeas corpus jurisdiction is about whether you are legally held in custody without your legal rights. It's about

whether the law was improperly just in your case. So they would have limited it to that, but the five conservative justices went further and they said, not only is that the issue, but the issue more largely is people who want relief from removal are not trying to actually get out of custody. They want something different than getting out of custody. They want release from removal. So those people can never come to court with habeas corpus jurisdiction,

meaning you're asking the government to release you. Because the theory was, even though not being released from physical custody, I still am asking to be released from immigration custody, which is the custody that I has to deport me. And they said, no, no, no, that's not cognizable in habeas corpus jurisdiction, so you can't even make that claim.

And then to add more to this, just as a leado, he decided an issue that didn't need to be decided, and he said that people who cross the border illegally have no due process right. They're just like people who are outside the country. So you don't get any special increased level of right if you cross the border. Two

justices dissented, Justices Sonya Soto Mayor and Elena Kagan. They're the senses that they view that these rights were always allowed in the sense that habeas again needs that your body is in the custody of the government, whether it be for physical custody or removal custody purposes, and that even though this didn't exist at the time of the founding, that doesn't matter because there was no emmigration law at

the time of the founding. If the founders have had some knowledge as to what we'd be doing with the immigration law, they would have allowed this kind of hadea of corpus jurisdiction. Can you see the difference between this case and the data case that the administration lost? Sure, I think this is again the themes we've been talking about in the past. If you're going to really try to make a way to carve your way through these things,

you continue to see two things going on. At the same time, people who are here who have some interest in America seemed to get treated by the courts better than people who are either not here and have been travel band or people who have just barely arrived seconds ago. And that thread continues to seem to work its way through the courts in all of these Thanks. That's Leon Cresco, a partner at Hollan didn't night. I'm John Basso, and this is Jim Burg.