Liu v. SEC: Foreshadowing a Challenge to the FTC’s Disgorgement Authority

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In Liu v. Securities & Exchange Commission,1 the Supreme Court upheld, but circumscribed, the Securities and Exchange Commission's (SEC's) disgorgement authority by holding 8-1 that the SEC may seek disgorgement through its equitable relief power only if the award does not exceed a wrongdoer's net profits and is awarded to victims. Although this decision is important in its own right, the Court's underlying reasoning also has significant ramifications on a similar question regarding the Federal Trade Commission's (FTC's) power to obtain equitable monetary relief under 15 U.S.C. § 53(b) (Section 13(b) of the FTC Act).

Liu comes in the wake of the Court's recent decision in Kokesh v. Securities & Exchange Commission,2 which held that disgorgement is a penalty for the purposes of assessing whether a statute of limitations bars a claim3 but left open the question of whether courts possess the authority to order disgorgement in SEC enforcement proceedings.4 Liu resolved that question by holding that disgorgement is an available equitable remedy, but only where disgorgement is based on net profits and where disgorged funds are distributed to victims.5

In reaching its holding, the Liu Court began by examining the text of the statute.6 The provision in question states that "In any action or proceeding brought or instituted by the Commission under any provision of the securities laws, … any Federal court may grant … any equitable relief that may be appropriate or necessary for the benefit of investors."7 The Court noted that Congress did not define what remedies fell under the term "equitable relief," and thus an examination of past precedent was warranted.8 Based on its analysis of prior case law, the Court held that disgorgement is clearly an equitable remedy.9 To avoid transforming a disgorgement award into something other than an equitable remedy, however, the award must not exceed a wrongdoer's net profits and must be awarded to victims.10

The decision in Liu is instructive in assessing the strength of legal challenges to the scope of similar statutory authority granted to the FTC. Section 13(b) of the FTC Act provides that "in proper cases the Commission may seek, and after proper proof, the court may issue, a permanent injunction."11 The FTC and courts have historically interpreted this provision to authorize the award of all available equitable remedies, including disgorgement and restitution.

In FTC v. AMG Capital Management, LLC the Ninth Circuit noted that they have "repeatedly held that §13(b) empowers district courts to grant any ancillary relief necessary to accomplish complete justice, including restitution."12 The court noted that, as a three-judge panel, they were unable to overturn their existing precedent unless it was "clearly irreconcilable with the reasoning or theory of intervening higher authority," ultimately holding that such threshold was not met.13 Notably, two judges wrote a concurring opinion asserting that the Ninth Circuit's precedent "wrongly authorizes a power that the statute does not permit" and recommended rehearing the issue en banc to overrule it.14

More recently, however, in FTC v. Credit Bureau Center, LLC, the Seventh Circuit struck a $5.2 million restitution award, finding that the FTC's 13(b) powers do not provide for restitution.15 The court noted that 13(b), which authorizes injunctive relief, does not explicitly or implicitly authorize a restitution remedy.16 It also noted that the precedent the FTC relied on to overcome the plain language of 13(b) was founded on cases that took a "capacious view of implied remedies."17 The court stated that that view has been abandoned in light of recent Supreme Court precedent that now grounds interpretive questions about statutory scope in statutory language.18 Moreover, the court found that the Supreme Court's decision in Meghrig v. KFC W., Inc., where the Court relied on the plain meaning of a statue to find there were no equitable remedies, "foreclosed" any adherence to precedent that authorized the FTC to seek restitutionary relief under 13(b).19

On July 9, 2020, the Supreme Court granted the petitions for certiorari in Credit Bureau and AMG Capital Management. The Court will soon consider the scope of relief available under 13(b) of the FTC Act, and its decision in Liu suggests that the outcome may not be favorable for the FTC. The Supreme Court is likely to interpret the statutory issue by first examining the text itself, only turning to stare decisis if the text is not clear.20 As the Seventh Circuit noted, 13(b) makes no explicit or implicit mention of disgorgement or equitable remedies in general, and focuses only on injunctions.21 Based on the Court's treatment of the statute in Liu, this may be the end of the inquiry—the plain reading of the text suggests that the FTC is limited to injunctive relief. Indeed, in a supplemental brief to the Petition for Writ of Certiorari, the Credit Bureau respondents argue that the Seventh Circuit correctly recognized that the plain meaning of the term "injunction" does not extend to other forms of equitable relief like restitution, and the FTC's petition for review should be denied.22 The brief also forecasts that "other courts, reading the Seventh Circuit's persuasive opinion and Liu in tandem, are likely to agree, allowing any current split among the courts of appeals to work itself out."23

Whether the Credit Bureau respondents' prediction comes to fruition remains to be seen, but the 8-1 decision in Liu and the concerns expressed by the Ninth Circuit in AMG Capital Management do not bode well for the FTC.


[1] No. 18-1501, 2020 WL 3405845 (U.S. June 22, 2020).

[2] 137 S. Ct. 1635 (2017).

[3] Any action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture is subject to a five-year statute of limitations. 28 U.S.C. § 2462 (2020). Disgorgement, however, is not subject to this statute of limitations if it is not deemed a penalty. See Kokesh v. SEC, 137 S. Ct. 1635, 1642 (2017) (holding that § 2462’s statute of limitations applies to disgorgement if it qualifies as a fine, penalty, or forfeiture).

[4] Id. at 1642 n.3 (“Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.”).

[5] See Liu v. Sec., No. 18-1501, 2020 U.S. Lexis 3374, at *23-29 (U.S. June 22, 2020).

[6] Id. at *6-7.

[7] Id. at *7 (citing 15 U.S.C. § 78u(d)(5)).

[8] Id. at *7.

[9] Id. at *13 (“[Disgorgement is] squarely within the heartland of equity.”).

[10] See id. at *23-29.

[11] 15 U.S.C. § 53(b)(2) (2020).

[1] FTC v. AMG Capital Mgmt., LLC, 910 F.3d 417, 426 (9th Cir. 2018).

[12] Id. at 427.

[13] Id. at 429 (O’Scannlain, J., concurring).

[14] FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764, 771 (7th Cir. 2019).

[15] Id. at 772-73.

[16] Id. at 776 (first citing Porter, 328 U.S. 395; and then Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288 (1960)).

[17] Id. at 782. ("[W]here 'the statutory language is clear,' the Court has disclaimed the need even 'to reach arguments based on statutory purpose[] [or] legislative history.'") (quoting Boyle v. United States, 556 U.S. 938, 950 (2009))

[18] Id. at 780 (citing Meghrig v. KFC W., Inc., 516 U.S. 479, 484 (1996) (refusing to find an implied restitutionary remedy because the statute’s plain language only permitted an injunction)).

[19] See Liu v. Sec., No. 18-1501, 2020 U.S. Lexis 3374, at *7 (U.S. June 22, 2020).

[20] FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764, 772-73 (7th Cir. 2019).

[21] Supplemental Brief for Respondents to the Petition for a Writ of Certiorari at 2, FTC v. Credit Bureau Ctr., LLC, 937 F.3d 764 (7th Cir. 2019), available at https://www.supremecourt.gov/DocketPDF/19/19-825/146127/20200622190837464_19-825%20Post-Liu%20Supplemental%20Brief%20-%20Final.pdf.

[22] Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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