Liu v. SEC

(Slip Opinion) OCTOBER TERM, 2019 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
LIU ET AL. v. SECURITIES AND EXCHANGE
COMMISSION
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
No. 18–1501. Argued March 3, 2020—Decided June 22, 2020
To punish securities fraud, the Securities and Exchange Commission is
authorized to seek “equitable relief” in civil proceedings, 15 U. S. C.
§78u(d)(5). In Kokesh v. SEC, 581 U. S. ___, this Court held that a
disgorgement order in a Securities and Exchange Commission (SEC)
enforcement action constitutes a “penalty” for purposes of the applica-
ble statute of limitations. The Court did not, however, address
whether disgorgement can qualify as “equitable relief” under
§78u(d)(5), given that equity historically excludes punitive sanctions.
Petitioners Charles Liu and Xin Wang solicited foreign nationals to
invest in the construction of a cancer-treatment center, but, an SEC
investigation revealed, misappropriated much of the funds in violation
of the terms of a private offering memorandum. The SEC brought a
civil action against petitioners, seeking, as relevant here, disgorge-
ment equal to the full amount petitioners had raised from investors.
Petitioners argued that the disgorgement remedy failed to account for
their legitimate business expenses, but the District Court disagreed
and ordered petitioners jointly and severally liable for the full amount.
The Ninth Circuit affirmed.
Held: A disgorgement award that does not exceed a wrongdoer’s net prof-
its and is awarded for victims is equitable relief permissible under
§78u(d)(5). Pp. 5–20.
(a) In interpreting statutes that provide for “equitable relief,” this
Court analyzes whether a particular remedy falls into “those catego-
ries of relief that were typically available in equity.” Mertens v. Hewitt
Associates, 508 U. S. 248, 256. Relevant here are two principles of eq-
uity jurisprudence. Equity practice has long authorized courts to strip
wrongdoers of their ill-gotten gains. And to avoid transforming that
2 LIU v. SEC
Syllabus
remedy into a punitive sanction, courts restricted it to an individual
wrongdoer’s net profits to be awarded for victims. Pp. 5–14.
(1) Whether it is called restitution, an accounting, or disgorge-
ment, the equitable remedy that deprives wrongdoers of their net prof-
its from unlawful activity reflects both the foundational principle that
“it would be inequitable that [a wrongdoer] should make a profit out of
his own wrong,” Root v. Railway Co., 105 U. S. 189, 207, and the coun-
tervailing equitable principle that the wrongdoer should not be pun-
ished by “pay[ing] more than a fair compensation to the person
wronged,” Tilghman v. Proctor, 125 U. S. 136, 145–146. The remedy
has been a mainstay of equity courts, and is not limited to cases in-
volving a breach of trust or fiduciary duty, see Root, 105 U. S., at 214.
Pp. 6–9.
(2) To avoid transforming a profits award into a penalty, equity
courts restricted the remedy in various ways. A constructive trust was
often imposed on wrongful gains for wronged victims. See, e.g., Bur-
dell v. Denig, 92 U. S. 716, 720. Courts also generally awarded profits-
based remedies against individuals or partners engaged in concerted
wrongdoing, not against multiple wrongdoers under a joint-and-sev-
eral liability theory. See, e.g., Ambler v. Whipple, 20 Wall. 546, 559.
Finally, courts limited awards to the net profits from wrongdoing after
deducting legitimate expenses. See, e.g., Rubber Co. v. Goodyear, 9
Wall. 788, 804. Pp. 9–12.
(3) Congress incorporated these longstanding equitable principles
into §78u(d)(5), but courts have occasionally awarded disgorgement in
ways that test the bounds of equity practice. Petitioners claim that
disgorgement is necessarily a penalty under Kokesh, and thus not
available at equity. But Kokesh expressly declined to reach that ques-
tion. The Government contends that the SEC’s interpretation has
Congress’ tacit support. But Congress does not enlarge the breadth of
an equitable, profit-based remedy simply by using the term “disgorge-
ment” in various statutes. Pp. 12–14.
(b) Petitioners briefly claim that their disgorgement award crosses
the bounds of traditional equity practice by failing to return funds to
victims, imposing joint-and-several liability, and declining to deduct
business expenses from the award. Because the parties did not fully
brief these narrower questions, the Court does not decide them here.
But certain principles may guide the lower courts’ assessment of these
arguments on remand. Pp. 14–20.
(1) Section 78u(d)(5) provides limited guidance as to whether the
practice of depositing a defendant’s gains with the Treasury satisfies
its command that any remedy be “appropriate or necessary for the ben-
efit of investors,” and the equitable nature of the profits remedy gen-
Cite as: 591 U. S. ____ (2020) 3
Syllabus
erally requires the SEC to return a defendant’s gains to wronged in-
vestors. The parties, however, do not identify a specific order in this
case directing any proceeds to the Treasury. If one is entered on re-
mand, the lower courts may evaluate in the first instance whether that
order would be for the benefit of investors and consistent with equita-
ble principles. Pp. 14–17.
(2) Imposing disgorgement liability on a wrongdoer for benefits
that accrue to his affiliates through joint-and-several liability runs
against the rule in favor of holding defendants individually liable. See
Belknap v. Schild, 161 U. S. 10, 25–26. The common law did, however,
permit liability for partners engaged in concerted wrongdoing. See,
e.g., Ambler, 20 Wall., at 559. On remand, the Ninth Circuit may de-
termine whether the facts are such that petitioners can, consistent
with equitable principles, be found liable for profits as partners in
wrongdoing or whether individual liability is required. Pp. 17–18.
(3) Courts may not enter disgorgement awards that exceed the
gains “made upon any business or investment, when both the receipts
and payments are taken into the account.” Goodyear, 9 Wall., at 804.
When the “entire profit of a business or undertaking” results from the
wrongdoing, a defendant may be denied “inequitable deductions.”
Root, 105 U. S., at 203. Accordingly, courts must deduct legitimate
expenses before awarding disgorgement under §78u(d)(5). The Dis-
trict Court below did not ascertain whether any of petitioners’ ex-
penses were legitimate. On remand, the lower courts should examine
whether including such expenses in a profits-based remedy is con-
sistent with the equitable principles underlying §78u(d)(5). Pp. 18–20.
754 Fed. Appx. 505, vacated and remanded.
SOTOMAYOR, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and GINSBURG, BREYER, ALITO, KAGAN, GORSUCH, and KAVANAUGH,
JJ., joined. THOMAS, J., filed a dissenting opinion.
Cite as: 591 U. S. ____ (2020) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order that
corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 18–1501
_________________
CHARLES C. LIU, ET AL., PETITIONERS v.
SECURITIES AND EXCHANGE COMMISSION
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[June 22, 2020]
JUSTICE SOTOMAYOR delivered the opinion of the Court.
In Kokesh v. SEC, 581 U. S. ___ (2017), this Court held
that a disgorgement order in a Securities and Exchange
Commission (SEC) enforcement action imposes a “penalty”
for the purposes of 28 U. S. C. §2462, the applicable statute
of limitations. In so deciding, the Court reserved an ante-
cedent question: whether, and to what extent, the SEC may
seek “disgorgement” in the first instance through its power
to award “equitable relief ” under 15 U. S. C. §78u(d)(5), a
power that historically excludes punitive sanctions. The
Court holds today that a disgorgement award that does not
exceed a wrongdoer’s net profits and is awarded for victims
is equitable relief permissible under §78u(d)(5). The judg-
ment is vacated, and the case is remanded for the courts
below to ensure the award was so limited.
I
A
Congress authorized the SEC to enforce the Securities
Act of 1933, 48 Stat. 74, as amended, 15 U. S. C. §77a et
seq., and the Securities Exchange Act of 1934, 48 Stat. 881,
2 LIU v. SEC
Opinion of the Court
as amended, 15 U. S. C. §78a et seq., and to punish securi-
ties fraud through administrative and civil proceedings. In
administrative proceedings, the SEC can seek limited civil
penalties and “disgorgement.” See §77h–1(e) (“In any
cease-and-desist proceeding under subsection (a), the Com-
mission may enter an order requiring accounting and dis-
gorgement”); see also §77h–1(g) (“Authority to impose
money penalties”). In civil actions, the SEC can seek civil
penalties and “equitable relief.” See, e.g., §78u(d)(5) (“In
any action or proceeding brought or instituted by the Com-
mission 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”);
see also §78u(d)(3) (“Money penalties in civil actions” (quo-
tation modified)).
Congress did not define what falls under the umbrella of
“equitable relief.” Thus, courts have had to consider which
remedies the SEC may impose as part of its §78u(d)(5) pow-
ers.
Starting with SEC v. Texas Gulf Sulphur Co., 446 F. 2d
1301 (CA2 1971), courts determined that the SEC had au-
thority to obtain what it called “restitution,” and what in
substance amounted to “profits” that “merely depriv[e ]” a
defendant of “the gains of . . . wrongful conduct.” Id., at
1307–1308. Over the years, the SEC has continued to re-
quest this remedy, later referred to as “disgorgement,”1 and
——————
1 Courts have noted the relatively recent vintage of the term “disgorge-
ment.” See, e.g., SEC v. Cavanaugh, 445 F. 3d 105, 116, n. 24 (CA2
2006). The dissent contends that this recency in terminology alone re-
moves disgorgement from the class of traditional equitable remedies,
post, at 4 (opinion of THOMAS, J.), despite seeming to recognize disgorge-
ment’s parallels to restitution-based awards well within that class, post,
at 4–5. It is no surprise that the dissent notes such parallels, given this
Court’s acknowledgment that “disgorgement of improper profits” is “a
remedy only for restitution” that is “traditionally considered . . . equita-
ble.” Tull v. United States, 481 U. S. 412, 424 (1987); see also infra, at 7.
Cite as: 591 U. S. ____ (2020) 3
Opinion of the Court
courts have continued to award it. See SEC v. Common-
wealth Chemical Securities, Inc., 574 F. 2d 90, 95 (CA2
1978) (explaining that, when a court awards “[d]isgorge-
ment of profits in an action brought by the SEC,” it is “ex-
ercising the chancellor’s discretion to prevent unjust en-
richment”); see also SEC v. Blatt, 583 F. 2d 1325, 1335 (CA5
1978); SEC v. Washington Cty. Util. Dist., 676 F. 2d 218,
227 (CA6 1982).
In Kokesh, this Court determined that disgorgement con-
stituted a “penalty” for the purposes of 28 U. S. C. §2462,
which establishes a 5-year statute of limitations for “an ac-
tion, suit or proceeding for the enforcement of any civil fine,
penalty, or forfeiture.” The Court reached this conclusion
based on several considerations, namely, that disgorgement
is imposed as a consequence of violating public laws, it is
assessed in part for punitive purposes, and in many cases,
the award is not compensatory. 581 U. S., at ___–___ (slip
op., at 7–9). But the Court did not address whether a §2462
penalty can nevertheless qualify as “equitable relief ” under
§78u(d)(5), given that equity never “lends its aid to enforce
a forfeiture or penalty.” Marshall v. Vicksburg, 15 Wall.
146, 149 (1873). The Court cautioned, moreover, that its
decision should not be interpreted “as an opinion on
whether courts possess authority to order disgorgement in
SEC enforcement proceedings.” Kokesh, 581 U. S., at ___,
n. 3 (slip op., at 5, n. 3). This question is now squarely be-
fore the Court.
——————
The dissent also observes the solid equitable roots of an accounting for
profits, post, at 3; accord, infra, at 6 (discussing the equitable origins of
the accounting remedy), a remedy closely resembling disgorgement, see
infra, at 8–9. In any event, casting aside a form of relief solely “based on
the particular label affixed to [it] would ‘elevate form over substance,’ ”
Aetna Health Inc. v. Davila, 542 U. S. 200, 214 (2004), leaving unresolved
the question before us: whether the underlying profits-based award con-
forms to equity practice.
4 LIU v. SEC
Opinion of the Court
B
The SEC action and disgorgement award at issue here
arise from a scheme to defraud foreign nationals. Petition-
ers Charles Liu and his wife, Xin (Lisa) Wang, solicited
nearly $27 million from foreign investors under the EB–5
Immigrant Investor Program (EB–5 Program). 754 Fed.
Appx. 505, 506 (CA9 2018) (case below). The EB–5 Pro-
gram, administered by the U. S. Citizenship and Immigra-
tion Services, permits noncitizens to apply for permanent
residence in the United States by investing in approved
commercial enterprises that are based on “proposals for
promoting economic growth.” See USCIS, EB–5 Immigrant
Investor Program, https://www.uscis.gov/eb-5. Invest-
ments in EB–5 projects are subject to the federal securities
laws.
Liu sent a private offering memorandum to prospective
investors, pledging that the bulk of any contributions would
go toward the construction costs of a cancer-treatment cen-
ter. The memorandum specified that only amounts col-
lected from a small administrative fee would fund “ ‘legal,
accounting and administration expenses.’ ” 754 Fed. Appx.,
at 507. An SEC investigation revealed, however, that Liu
spent nearly $20 million of investor money on ostensible
marketing expenses and salaries, an amount far more than
what the offering memorandum permitted and far in excess
of the administrative fees collected. 262 F. Supp. 3d 957,
960–964 (CD Cal. 2017). The investigation also revealed
that Liu diverted a sizable portion of those funds to per-
sonal accounts and to a company under Wang’s control. Id.,
at 961, 964. Only a fraction of the funds were put toward a
lease, property improvements, and a proton-therapy ma-
chine for cancer treatment. Id., at 964–965.
The SEC brought a civil action against petitioners, alleg-
ing that they violated the terms of the offering documents
by misappropriating millions of dollars. The District Court
Cite as: 591 U. S. ____ (2020) 5
Opinion of the Court
found for the SEC, granting an injunction barring petition-
ers from participating in the EB–5 Program and imposing
a civil penalty at the highest tier authorized. Id., at 975,
976. It also ordered disgorgement equal to the full amount
petitioners had raised from investors, less the $234,899
that remained in the corporate accounts for the project. Id.,
at 975–976.
Petitioners objected that the disgorgement award failed
to account for their business expenses. The District Court
disagreed, concluding that the sum was a “reasonable ap-
proximation of the profits causally connected to [their] vio-
lation.” Ibid. The court ordered petitioners jointly and sev-
erally liable for the full amount that the SEC sought. App.
to Pet. for Cert. 62a.
The Ninth Circuit affirmed. It acknowledged that Kokesh
“expressly refused to reach” the issue whether the District
Court had the authority to order disgorgement. 754 Fed.
Appx., at 509. The court relied on Circuit precedent to con-
clude that the “proper amount of disgorgement in a scheme
such as this one is the entire amount raised less the money
paid back to the investors.” Ibid.; see also SEC v. JT Wal-
lenbrock & Assocs., 440 F. 3d 1109, 1113, 1114 (CA9 2006)
(reasoning that it would be “unjust to permit the defendants
to offset . . . the expenses of running the very business they
created to defraud . . . investors”).
We granted certiorari to determine whether §78u(d)(5)
authorizes the SEC to seek disgorgement beyond a defend-
ant’s net profits from wrongdoing. 589 U. S. ___ (2019).
II
Our task is a familiar one. In interpreting statutes like
§78u(d)(5) that provide for “equitable relief,” this Court an-
alyzes whether a particular remedy falls into “those catego-
ries of relief that were typically available in equity.”
Mertens v. Hewitt Associates, 508 U. S. 248, 256 (1993); see
also CIGNA Corp. v. Amara, 563 U. S. 421, 439 (2011);
6 LIU v. SEC
Opinion of the Court
Montanile v. Board of Trustees of Nat. Elevator Industry
Health Benefit Plan, 577 U. S. 136, 142 (2016). The “basic
contours of the term are well known” and can be discerned
by consulting works on equity jurisprudence. Great-West
Life & Annuity Ins. Co. v. Knudson, 534 U. S. 204, 217
(2002).
These works on equity jurisprudence reveal two princi-
ples. First, equity practice long authorized courts to strip
wrongdoers of their ill-gotten gains, with scholars and
courts using various labels for the remedy. Second, to avoid
transforming an equitable remedy into a punitive sanction,
courts restricted the remedy to an individual wrongdoer’s
net profits to be awarded for victims.
A
Equity courts have routinely deprived wrongdoers of
their net profits from unlawful activity, even though that
remedy may have gone by different names. Compare, e.g.,
1 D. Dobbs, Law of Remedies §4.3(5), p. 611 (1993) (“Ac-
counting holds the defendant liable for his profits”), with
id., §4.1(1), at 555 (referring to “restitution” as the relief
that “measures the remedy by the defendant’s gain and
seeks to force disgorgement of that gain”); see also Restate-
ment (Third) of Restitution and Unjust Enrichment §51,
Comment a, p. 204 (2010) (Restatement (Third)) (“Restitu-
tion measured by the defendant’s wrongful gain is fre-
quently called ‘disgorgement.’ Other cases refer to an ‘ac-
counting’ or an ‘accounting for profits’ ”); 1 J. Pomeroy,
Equity Jurisprudence §101, p. 112 (4th ed. 1918) (describ-
ing an accounting as an equitable remedy for the violation
of strictly legal primary rights).
No matter the label, this “profit-based measure of unjust
enrichment,” Restatement (Third) §51, Comment a, at 204,
reflected a foundational principle: “[I]t would be inequitable
that [a wrongdoer] should make a profit out of his own
wrong,” Root v. Railway Co., 105 U. S. 189, 207 (1882). At
Cite as: 591 U. S. ____ (2020) 7
Opinion of the Court
the same time courts recognized that the wrongdoer should
not profit “by his own wrong,” they also recognized the coun-
tervailing equitable principle that the wrongdoer should
not be punished by “pay[ing] more than a fair compensation
to the person wronged.” Tilghman v. Proctor, 125 U. S. 136,
145–146 (1888).
Decisions from this Court confirm that a remedy tethered
to a wrongdoer’s net unlawful profits, whatever the name,
has been a mainstay of equity courts. In Porter v. Warner
Holding Co., 328 U. S. 395 (1946), the Court interpreted a
section of the Emergency Price Control Act of 1942 that en-
compassed a “comprehensiv[e]” grant of “equitable jurisdic-
tion.” Id., at 398. “[O]nce [a District Court’s] equity juris-
diction has been invoked” under that provision, the Court
concluded, “a decree compelling one to disgorge profits . . .
may properly be entered.” Id., at 398–399.
Subsequent cases confirm the “ ‘protean character’ of the
profits-recovery remedy.” Petrella v. Metro-Goldwyn-
Mayer, Inc., 572 U. S. 663, 668, n. 1 (2014). In Tull v.
United States, 481 U. S. 412 (1987), the Court described
“disgorgement of improper profits” as “traditionally consid-
ered an equitable remedy.” Id., at 424. While the Court
acknowledged that disgorgement was a “limited form of
penalty” insofar as it takes money out of the wrongdoer’s
hands, it nevertheless compared disgorgement to restitu-
tion that simply “ ‘restor[es] the status quo,’ ” thus situating
the remedy squarely within the heartland of equity. Ibid.2
——————
2 The dissent acknowledges that this Court has “referred to disgorge-
ment as an equitable remedy in some of its prior decisions.” Post, at 6
(citing Feltner v. Columbia Pictures Television, Inc., 523 U. S. 340, 352
(1998)). While the dissent attempts to discount those cases for having
“merely referred to the term” only “in passing,” post, at 6, those cases
expressly “characterized as equitable . . . actions for disgorgement of im-
proper profits” in analyzing whether certain remedies were traditionally
available in equity, Feltner, 523 U. S., at 352 (citing Teamsters v. Terry,
494 U. S. 558, 570 (1990) (“characteriz[ing] damages as equitable where
they are restitutionary, such as in ‘action[s] for disgorgement of improper
8 LIU v. SEC
Opinion of the Court
In Great-West, the Court noted that an “accounting for prof-
its” was historically a “form of equitable restitution.” 534
U. S., at 214, n. 2. And in Kansas v. Nebraska, 574 U. S.
445 (2015), a “ ‘basically equitable’ ” original jurisdiction
proceeding, the Court ordered disgorgement of Nebraska’s
gains from exceeding its allocation under an interstate wa-
ter compact. Id., at 453, 475.
Most recently, in SCA Hygiene Products Aktiebolag v.
First Quality Baby Products, LLC, 580 U. S. ___ (2017), the
Court canvassed pre-1938 patent cases invoking equity ju-
risdiction. It noted that many cases sought an “accounting,”
which it described as an equitable remedy requiring dis-
gorgement of ill-gotten profits. Id., at ___ (slip op., at 11).
This Court’s “transsubstantive guidance on broad and fun-
damental” equitable principles, Romag Fasteners, Inc. v.
Fossil Group, Inc., 590 U. S. ___, ___ (2020) (slip op., at 5),
thus reflects the teachings of equity treatises that identify
a defendant’s net profits as a remedy for wrongdoing.
Contrary to petitioners’ argument, equity courts did not
limit this remedy to cases involving a breach of trust or of
fiduciary duty. Brief for Petitioners 28–29. As petitioners
acknowledge, courts authorized profits-based relief in pa-
tent-infringement actions where no such trust or special re-
lationship existed. Id., at 29; see also Root, 105 U. S., at
214 (“[I]t is nowhere said that the patentee’s right to an ac-
count is based upon the idea that there is a fiduciary rela-
tion created between him and the wrong-doer by the fact of
infringement”).
Petitioners attempt to distinguish these patent cases by
suggesting that an “accounting” was appropriate only be-
cause Congress explicitly conferred that remedy by statute
in 1870. Brief for Petitioners 29 (citing the Act of July 8,
1870, §55, 16 Stat. 206). But patent law had not previously
deviated from the general principles outlined above: This
——————
profits’ ”); Tull, 481 U. S., at 424).
Cite as: 591 U. S. ____ (2020) 9
Opinion of the Court
Court had developed the rule that a plaintiff may “recover
the amount of . . . profits that the defendants have made by
the use of his invention” through “a series of decisions un-
der the patent act of 1836, which simply conferred upon the
courts of the United States general equity jurisdiction . . .
in cases arising under the patent laws.” Tilghman, 125
U. S., at 144. The 1836 statute, in turn, incorporated the
substance of an earlier statute from 1819 which granted
courts the ability to “proceed according to the course and
principles of courts of equity” to “prevent the violation of
patent-rights.” Root, 105 U. S., at 193. Thus, as these cases
demonstrate, equity courts habitually awarded profits-
based remedies in patent cases well before Congress explic-
itly authorized that form of relief.
B
While equity courts did not limit profits remedies to par-
ticular types of cases, they did circumscribe the award in
multiple ways to avoid transforming it into a penalty out-
side their equitable powers. See Marshall, 15 Wall., at 149.
For one, the profits remedy often imposed a constructive
trust on wrongful gains for wronged victims. The remedy
itself thus converted the wrongdoer, who in many cases was
an infringer, “into a trustee, as to those profits, for the
owner of the patent which he infringes.” Burdell v. Denig,
92 U. S. 716, 720 (1876). In “converting the infringer into a
trustee for the patentee as regards the profits thus made,”
the chancellor “estimat[es] the compensation due from the
infringer to the patentee.” Packet Co. v. Sickles, 19 Wall.
611, 617–618 (1874); see also Clews v. Jamieson, 182 U. S.
461, 480 (1901) (describing an accounting as involving a
“ ‘distribution of the trust moneys among all the beneficiar-
ies who are entitled to share therein’ ” in an action against
the governing committee of a stock exchange).
Equity courts also generally awarded profits-based rem-
edies against individuals or partners engaged in concerted
10 LIU v. SEC
Opinion of the Court
wrongdoing, not against multiple wrongdoers under a joint-
and-several liability theory. See Ambler v. Whipple, 20
Wall. 546, 559 (1874) (ordering an accounting against a
partner who had “knowingly connected himself with and
aided in . . . fraud”). In Elizabeth v. Pavement Co., 97 U. S.
126 (1878), for example, a city engaged contractors to in-
stall pavement in a manner that infringed a third party’s
patent. The patent holder brought a suit in equity to re-
cover profits from both the city and its contractors. The
Court held that only the contractors (the only parties to
make a profit) were responsible, even though the parties
answered jointly. Id., at 140; see also ibid. (rejecting liabil-
ity for an individual officer who merely acted as an agent of
the defendant and received a salary for his work). The rule
against joint-and-several liability for profits that have ac-
crued to another appears throughout equity cases awarding
profits. See, e.g., Belknap v. Schild, 161 U. S. 10, 25–26
(1896) (“The defendants, in any such suit, are therefore lia-
ble to account for such profits only as have accrued to them-
selves from the use of the invention, and not for those which
have accrued to another, and in which they have no partic-
ipation”); Keystone Mfg. Co. v. Adams, 151 U. S. 139, 148
(1894) (reversing profits award that was based not on what
defendant had made from infringement but on what third
persons had made from the use of the invention); Jennings
v. Carson, 4 Cranch 2, 21 (1807) (holding that an order re-
quiring restitution could not apply to “those who were not
in possession of the thing to be restored” and “had no power
over it”) (citing Penhallow v. Doane’s Administrators, 3
Dall. 54 (1795) (reversing a restitution award in admiralty
that ordered joint damages in excess of what each defend-
ant received)).
Finally, courts limited awards to the net profits from
wrongdoing, that is, “the gain made upon any business or
investment, when both the receipts and payments are
taken into the account.” Rubber Co. v. Goodyear, 9 Wall.
Cite as: 591 U. S. ____ (2020) 11
Opinion of the Court
788, 804 (1870); see also Livingston v. Woodworth, 15 How.
546, 559–560 (1854) (restricting an accounting remedy “to
the actual gains and profits . . . during the time” the infring-
ing machine “was in operation and during no other period”
to avoid “convert[ing] a court of equity into an instrument
for the punishment of simple torts”); Seymour v. McCor-
mick, 16 How. 480, 490 (1854) (rejecting a blanket rule that
infringing one component of a machine warranted a remedy
measured by the full amounts of the profits earned from the
machine); Mowry v. Whitney, 14 Wall. 620, 649 (1872) (va-
cating an accounting that exceeded the profits from in-
fringement alone); Wooden-Ware Co. v. United States, 106
U. S. 432, 434–435 (1882) (explaining that an innocent tres-
passer is entitled to deduct labor costs from the gains ob-
tained by wrongfully harvesting lumber).
The Court has carved out an exception when the “entire
profit of a business or undertaking” results from the wrong-
ful activity. Root, 105 U. S., at 203. In such cases, the
Court has explained, the defendant “will not be allowed to
diminish the show of profits by putting in unconscionable
claims for personal services or other inequitable deduc-
tions.” Ibid. In Goodyear, for example, the Court affirmed
an accounting order that refused to deduct expenses under
this rule. The Court there found that materials for which
expenses were claimed were bought for the purposes of the
infringement and “extraordinary salaries” appeared merely
to be “dividends of profit under another name.” 9 Wall., at
803; see also Callaghan v. Myers, 128 U. S. 617, 663–664
(1888) (declining to deduct a defendant’s personal and liv-
ing expenses from his profits from copyright violations, but
distinguishing the expenses from salaries of officers in a
corporation).
Setting aside that circumstance, however, courts consist-
ently restricted awards to net profits from wrongdoing after
deducting legitimate expenses. Such remedies, when as-
sessed against only culpable actors and for victims, fall
12 LIU v. SEC
Opinion of the Court
comfortably within “those categories of relief that were typ-
ically available in equity.” Mertens, 508 U. S., at 256.
C
By incorporating these longstanding equitable principles
into §78u(d)(5), Congress prohibited the SEC from seeking
an equitable remedy in excess of a defendant’s net profits
from wrongdoing. To be sure, the SEC originally endeav-
ored to conform its disgorgement remedy to the common-
law limitations in §78u(d)(5). Over the years, however,
courts have occasionally awarded disgorgement in three
main ways that test the bounds of equity practice: by order-
ing the proceeds of fraud to be deposited in Treasury funds
instead of disbursing them to victims, imposing joint-and-
several disgorgement liability, and declining to deduct even
legitimate expenses from the receipts of fraud.3 The SEC’s
disgorgement remedy in such incarnations is in considera-
ble tension with equity practices.
Petitioners go further. They claim that this Court effec-
tively decided in Kokesh that disgorgement is necessarily a
penalty, and thus not the kind of relief available at equity.
Brief for Petitioners 19–20, 22–26. Not so. Kokesh ex-
pressly declined to pass on the question. 581 U. S., at ___,
n. 3 (slip op., at 5, n. 3). To be sure, the Kokesh Court eval-
uated a version of the SEC’s disgorgement remedy that
seemed to exceed the bounds of traditional equitable prin-
ciples. But that decision has no bearing on the SEC’s ability
——————
3 See, e.g., SEC v. Clark, 915 F. 2d 439, 441, 454 (CA9 1990) (requiring
defendant to disgorge the profits that his stockbroker made from unlaw-
ful trades); SEC v. Brown, 658 F. 3d 858, 860–861 (CA8 2011) (per cu-
riam) (ordering joint-and-several disgorgement of funds collected from
investors and concluding that “ ‘the overwhelming weight of authority
hold[s] that securities law violators may not offset their disgorgement
liability with business expenses’ ”); SEC v. Contorinis, 743 F. 3d 296,
304–306 (CA2 2014) (requiring defendant to disgorge benefits conferred
on close associates).
Cite as: 591 U. S. ____ (2020) 13
Opinion of the Court
to conform future requests for a defendant’s profits to the
limits outlined in common-law cases awarding a wrong-
doer’s net gains.
The Government, for its part, contends that the SEC’s in-
terpretation of the equitable disgorgement remedy has Con-
gress’ tacit support, even if it exceeds the bounds of equity
practice. Brief for Respondent 13–21. It points to the fact
that Congress has enacted a number of other statutes refer-
ring to “disgorgement.”
That argument attaches undue significance to Congress’
use of the term. It is true that Congress has authorized the
SEC to seek “disgorgement” in administrative actions. 15
U. S. C. §77h–1(e) (“In any cease-and-desist proceeding un-
der subsection (a), the Commission may enter an order re-
quiring accounting and disgorgement”). But it makes sense
that Congress would expressly name the equitable powers
it grants to an agency for use in administrative proceedings.
After all, agencies are unlike federal courts where, “[u]nless
otherwise provided by statute, all . . . inherent equitable
powers . . . are available for the proper and complete exer-
cise of that jurisdiction.” Porter, 328 U. S., at 398.
Congress does not enlarge the breadth of an equitable,
profit-based remedy simply by using the term “disgorge-
ment” in various statutes. The Government argues that un-
der the prior-construction principle, Congress should be
presumed to have been aware of the scope of “disgorgement”
as interpreted by lower courts and as having incorporated
the (purportedly) prevailing meaning of the term into its
subsequent enactments. Brief for Respondent 24. But
“that canon has no application” where, among other things,
the scope of disgorgement was “far from ‘settled.’ ” Arm-
strong v. Exceptional Child Center, Inc., 575 U. S. 320, 330
(2015).
At bottom, even if Congress employed “disgorgement” as
a shorthand to cross-reference the relief permitted by
§78u(d)(5), it did not silently rewrite the scope of what the
14 LIU v. SEC
Opinion of the Court
SEC could recover in a way that would contravene limita-
tions embedded in the statute. After all, such “statutory
reference[s]” to a remedy grounded in equity “must, absent
other indication, be deemed to contain the limitations upon
its availability that equity typically imposes.” Great-West,
534 U. S., at 211, n. 1. Accordingly, Congress’ own use of
the term “disgorgement” in assorted statutes did not ex-
pand the contours of that term beyond a defendant’s net
profits—a limit established by longstanding principles of
equity.
III
Applying the principles discussed above to the facts of
this case, petitioners briefly argue that their disgorgement
award is unlawful because it crosses the bounds of tradi-
tional equity practice in three ways: It fails to return funds
to victims, it imposes joint-and-several liability, and it de-
clines to deduct business expenses from the award. Be-
cause the parties focused on the broad question whether
any form of disgorgement may be ordered and did not fully
brief these narrower questions, we do not decide them here.
We nevertheless discuss principles that may guide the
lower courts’ assessment of these arguments on remand.
A
Section 78u(d)(5) restricts equitable relief to that which
“may be appropriate or necessary for the benefit of inves-
tors.” The SEC, however, does not always return the en-
tirety of disgorgement proceeds to investors, instead depos-
iting a portion of its collections in a fund in the Treasury.
See SEC, Division of Enforcement, 2019 Ann. Rep. 16–17,
https://www.sec.gov/files/enforcement-annual-report-
2019.pdf. Congress established that fund in the Dodd-
Frank Wall Street Reform and Consumer Protection Act for
disgorgement awards that are not deposited in “disgorge-
ment fund[s]” or otherwise “distributed to victims.” 124
Cite as: 591 U. S. ____ (2020) 15
Opinion of the Court
Stat. 1844. The statute provides that these sums may be
used to pay whistleblowers reporting securities fraud and
to fund the activities of the Inspector General. Ibid. Here,
the SEC has not returned the bulk of funds to victims,
largely, it contends, because the Government has been un-
able to collect them.4
The statute provides limited guidance as to whether the
practice of depositing a defendant’s gains with the Treasury
satisfies the statute’s command that any remedy be “appro-
priate or necessary for the benefit of investors.” The equi-
table nature of the profits remedy generally requires the
SEC to return a defendant’s gains to wronged investors for
their benefit. After all, the Government has pointed to no
analogous common-law remedy permitting a wrongdoer’s
profits to be withheld from a victim indefinitely without be-
ing disbursed to known victims. Cf. Root, 105 U. S., at 214–
215 (comparing the accounting remedy to a breach-of-trust
action, where a court would require the defendant to “re-
fund the amount of profit which they have actually real-
ized”).
The Government maintains, however, that the primary
function of depriving wrongdoers of profits is to deny them
the fruits of their ill-gotten gains, not to return the funds to
victims as a kind of restitution. See, e.g., SEC, Report Pur-
suant to Section 308(C) of the Sarbanes Oxley Act of 2002,
p. 3, n. 2 (2003) (taking the position that disgorgement is
not intended to make investors whole, but rather to deprive
wrongdoers of ill-gotten gains); see also 6 T. Hazen, Law of
Securities Regulation §16.18, p. 8 (rev. 7th ed. 2016) (con-
cluding that the remedial nature of the disgorgement rem-
edy does not mean that it is essentially compensatory and
——————
4 According to the Government, petitioners “transferred the bulk of
their misappropriated funds to China, defied the district court’s order to
repatriate those funds, and fled the United States.” Brief for Respondent
36.
16 LIU v. SEC
Opinion of the Court
concluding that the “primary function of the remedy is to
deny the wrongdoer the fruits of ill-gotten gains”). Under
the Government’s theory, the very fact that it conducted an
enforcement action satisfies the requirement that it is “ap-
propriate or necessary for the benefit of investors.”
But the SEC’s equitable, profits-based remedy must do
more than simply benefit the public at large by virtue of
depriving a wrongdoer of ill-gotten gains. To hold otherwise
would render meaningless the latter part of §78u(d)(5). In-
deed, this Court concluded similarly in Mertens when ana-
lyzing statutory language accompanying the term “equita-
ble remedy.” 508 U. S., at 253 (interpreting the term
“appropriate equitable relief ”). There, the Court found that
the additional statutory language must be given effect since
the section “does not, after all, authorize . . . ‘equitable re-
lief ’ at large.” Ibid. As in Mertens, the phrase “appropriate
or necessary for the benefit of investors” must mean some-
thing more than depriving a wrongdoer of his net profits
alone, else the Court would violate the “cardinal principle
of interpretation that courts must give effect, if possible, to
every clause and word of a statute.” Parker Drilling Man-
agement Services, Ltd. v. Newton, 587 U. S. ___, ___ (2019)
(slip op., at 9) (internal quotation marks omitted).
The Government additionally suggests that the SEC’s
practice of depositing disgorgement funds with the Treas-
ury may be justified where it is infeasible to distribute the
collected funds to investors.5 Brief for Respondent 37. It is
an open question whether, and to what extent, that practice
nevertheless satisfies the SEC’s obligation to award relief
——————
5 We express no view as to whether the SEC has offered adequate proof
of failed attempts to return funds to investors here. To the extent that
feasibility is relevant at all to equitable principles, we observe that lower
courts are well equipped to evaluate the feasibility of returning funds to
victims of fraud. See, e.g., SEC v. Lund, 570 F. Supp. 1397, 1404–1405
(CD Cal. 1983) (appointing a magistrate judge to determine whether it
was feasible to locate victims of financial wrongdoing).
Cite as: 591 U. S. ____ (2020) 17
Opinion of the Court
“for the benefit of investors” and is consistent with the lim-
itations of §78u(d)(5). The parties have not identified au-
thorities revealing what traditional equitable principles
govern when, for instance, the wrongdoer’s profits cannot
practically be disbursed to the victims. But we need not
address the issue here. The parties do not identify a specific
order in this case directing any proceeds to the Treasury. If
one is entered on remand, the lower courts may evaluate in
the first instance whether that order would indeed be for
the benefit of investors as required by §78u(d)(5) and con-
sistent with equitable principles.
B
The SEC additionally has sought to impose disgorgement
liability on a wrongdoer for benefits that accrue to his affil-
iates, sometimes through joint-and-several liability, in a
manner sometimes seemingly at odds with the common-law
rule requiring individual liability for wrongful profits. See,
e.g., SEC v. Contorinis, 743 F. 3d 296, 302 (CA2 2014) (hold-
ing that a defendant could be forced to disgorge not only
what he “personally enjoyed from his exploitation of inside
information, but also the profits of such exploitation that he
channeled to friends, family, or clients”); SEC v. Clark, 915
F. 2d 439, 454 (CA9 1990) (“It is well settled that a tipper
can be required to disgorge his tippee’s profits”); SEC v.
Whittemore, 659 F. 3d 1, 10 (CADC 2011) (approving joint-
and-several disgorgement liability where there is a close re-
lationship between the defendants and collaboration in ex-
ecuting the wrongdoing).
That practice could transform any equitable profits-fo-
cused remedy into a penalty. Cf. Marshall, 15 Wall., at 149.
And it runs against the rule to not impose joint liability in
favor of holding defendants “liable to account for such prof-
its only as have accrued to themselves . . . and not for those
which have accrued to another, and in which they have no
18 LIU v. SEC
Opinion of the Court
participation.” Belknap, 161 U. S., at 25–26; see also Eliz-
abeth v. Pavement Co., 97 U. S. 126 (1878).
The common law did, however, permit liability for part-
ners engaged in concerted wrongdoing. See, e.g., Ambler,
20 Wall., at 559. The historic profits remedy thus allows
some flexibility to impose collective liability. Given the
wide spectrum of relationships between participants and
beneficiaries of unlawful schemes—from equally culpable
codefendants to more remote, unrelated tipper-tippee ar-
rangements—the Court need not wade into all the circum-
stances where an equitable profits remedy might be puni-
tive when applied to multiple individuals.
Here, petitioners were married. 754 Fed. Appx. 505; 262
F. Supp. 3d, at 960–961. The Government introduced evi-
dence that Liu formed business entities and solicited in-
vestments, which he misappropriated. Id., at 961. It also
presented evidence that Wang held herself out as the pres-
ident, and a member of the management team, of an entity
to which Liu directed misappropriated funds. Id., at 964.
Petitioners did not introduce evidence to suggest that one
spouse was a mere passive recipient of profits. Nor did they
suggest that their finances were not commingled, or that
one spouse did not enjoy the fruits of the scheme, or that
other circumstances would render a joint-and-several dis-
gorgement order unjust. Cf. SEC v. Hughes Capital Corp.,
124 F. 3d 449, 456 (CA3 1997) (finding that codefendant
spouse was liable for unlawful proceeds where they funded
her “lavish lifestyle”). We leave it to the Ninth Circuit on
remand to determine whether the facts are such that peti-
tioners can, consistent with equitable principles, be found
liable for profits as partners in wrongdoing or whether in-
dividual liability is required.
C
Courts may not enter disgorgement awards that exceed
the gains “made upon any business or investment, when
Cite as: 591 U. S. ____ (2020) 19
Opinion of the Court
both the receipts and payments are taken into the account.”
Goodyear, 9 Wall., at 804; see also Restatement (Third) §51,
Comment h, at 216 (reciting the general rule that a defend-
ant is entitled to a deduction for all marginal costs incurred
in producing the revenues that are subject to disgorge-
ment). Accordingly, courts must deduct legitimate ex-
penses before ordering disgorgement under §78u(d)(5). A
rule to the contrary that “make[s] no allowance for the cost
and expense of conducting [a] business” would be “incon-
sistent with the ordinary principles and practice of courts
of chancery.” Tilghman, 125 U. S., at 145–146; cf. SEC v.
Brown, 658 F. 3d 858, 861 (CA8 2011) (declining to deduct
even legitimate expenses like payments to innocent third-
party employees and vendors).
The District Court below declined to deduct expenses on
the theory that they were incurred for the purposes of fur-
thering an entirely fraudulent scheme. It is true that when
the “entire profit of a business or undertaking” results from
the wrongdoing, a defendant may be denied “inequitable de-
ductions” such as for personal services. Root, 105 U. S., at
203. But that exception requires ascertaining whether ex-
penses are legitimate or whether they are merely wrongful
gains “under another name.” Goodyear, 9 Wall., at 803. Do-
ing so will ensure that any disgorgement award falls within
the limits of equity practice while preventing defendants
from profiting from their own wrong. Root, 105 U. S., at
207.
Although it is not necessary to set forth more guidance
addressing the various circumstances where a defendant’s
expenses might be considered wholly fraudulent, it suffices
to note that some expenses from petitioners’ scheme went
toward lease payments and cancer-treatment equipment.
Such items arguably have value independent of fueling a
fraudulent scheme. We leave it to the lower court to exam-
ine whether including those expenses in a profits-based
20 LIU v. SEC
Opinion of the Court
remedy is consistent with the equitable principles underly-
ing §78u(d)(5).
* * *
For the foregoing reasons, we vacate the judgment below
and remand the case to the Ninth Circuit for further pro-
ceedings consistent with this opinion.
It is so ordered.
Cite as: 591 U. S. ____ (2020) 1
THOMAS, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 18–1501
_________________
CHARLES C. LIU, ET AL., PETITIONERS v.
SECURITIES AND EXCHANGE COMMISSION
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[June 22, 2020]
JUSTICE THOMAS, dissenting.
The Court correctly declines to affirm the Ninth Circuit’s
decision upholding the District Court’s disgorgement order,
but I disagree with the Court’s decision to vacate and re-
mand for the lower courts to “limi[t]” the disgorgement
award. Ante, at 1. Disgorgement can never be awarded un-
der 15 U. S. C. §78u(d)(5). That statute authorizes the Se-
curities and Exchange Commission (SEC) to seek only “eq-
uitable relief that may be appropriate or necessary for the
benefit of investors,” and disgorgement is not a traditional
equitable remedy. Thus, I would reverse the judgment of
the Court of Appeals.
I
The Securities Exchange Act of 1934, as amended in
2005, allows the SEC to request “equitable relief ” in federal
district court against those who violate federal securities
laws. §78u(d)(5). According to our usual interpretive con-
vention, “equitable relief ” refers to forms of equitable relief
available in the English Court of Chancery at the time of
the founding. Because disgorgement is a creation of the
20th century, it is not properly characterized as “equitable
relief,” and, hence, the District Court was not authorized to
award it under §78u(d)(5).
2 LIU v. SEC
THOMAS, J., dissenting
A
“This Court has never treated general statutory grants of
equitable authority as giving federal courts a freewheeling
power to fashion new forms of equitable remedies.” Trump
v. Hawaii, 585 U. S. ___, ___ (2018) (THOMAS, J., concur-
ring) (slip op., at 3). “Rather, it has read such statutes as
constrained by ‘the body of law which had been trans-
planted to this country from the English Court of Chancery’
in 1789.” Ibid. (quoting Guaranty Trust Co. v. York, 326
U. S. 99, 105 (1945)). As Justice Story put it, “the settled
doctrine of this court is, that the remedies in equity are to
be administered . . . according to the practice of courts of
equity in [England], as contradistinguished from that of
courts of law; subject, of course to the provisions of the acts
of congress.” Boyle v. Zacharie & Turner, 6 Pet. 648, 654
(1832).
We have interpreted other statutes according to this “set-
tled doctrine.” For example, we have read the term “equi-
table relief ” in the Employee Retirement Income Security
Act of 1974 to refer to “those categories of relief that were
typically available in equity.” Mertens v. Hewitt Associates,
508 U. S. 248, 256 (1993) (emphasis deleted). We have done
the same for the Judiciary Act of 1789, see, e.g., Grupo Mex-
icano de Desarrollo, S. A. v. Alliance Bond Fund, Inc., 527
U. S. 308, 318–319 (1999), and for provisions in the Bank-
ruptcy Code, see Taggart v. Lorenzen, 587 U. S. ___, ___
(2019) (slip op., at 5). There is nothing about §78u(d)(5)
that counsels departing from this approach.
B
Disgorgement is not a traditional form of equitable relief.
Rather, cases, legal dictionaries, and treatises establish
that it is a 20th-century invention.
As an initial matter, it is not even clear what “disgorge-
ment” means. The majority frankly acknowledges its
“ ‘ “protean character.” ’ ” Ante, at 7 (quoting Petrella v.
Cite as: 591 U. S. ____ (2020) 3
THOMAS, J., dissenting
Metro-Goldwyn-Mayer, Inc., 572 U. S. 663, 688, n. 1 (2014)).
The difficulty of defining this supposedly traditional rem-
edy is the first sign that it is not a historically recognized
equitable remedy. In contrast, an accounting for profits, or
accounting—a distinct form of relief that the majority
groups with disgorgement—has a well-accepted definition:
It compels a defendant to account for, and repay to a plain-
tiff, those profits that belong to the plaintiff in equity. Bray,
Fiduciary Remedies, in The Oxford Handbook of Fiduciary
Law 449 (E. Criddle, P. Miller, & R. Sitkoff eds. 2019). The
definition of disgorgement, after today’s decision, is a rem-
edy that compels each defendant to pay his profits (and
sometimes, though it is not clear when, all of his codefend-
ants’ profits) to a third-party Government agency (which
sometimes, though it is not clear when, passes the money
on to victims). This remedy has no basis in historical prac-
tice.
No published case appears to have used the term “dis-
gorgement” to refer to equitable relief until the 20th cen-
tury. Even then, the earliest cases use the word in a “non-
technical” sense, Brief for Law Professors as Amici Curiae
22, to describe the action a defendant must take when a
party is awarded a traditional equitable remedy such as an
accounting for profits or an equitable lien.1 For example, in
Byrd v. Mullinix, 159 Ark. 310, 251 S. W. 871 (1923), the
Supreme Court of Arkansas affirmed the imposition of an
equitable lien to prevent a debtor from “put[ting] the money
in property which was itself beyond the reach of creditors,
and to compel its disgorgement,” id., at 316–317, 251 S. W.,
at 872. Likewise, in Armstrong v. Richards, 128 Fla. 561,
175 So. 340 (1937), the Supreme Court of Florida referred
to “the right of the taxpayer to require an accounting from
——————
1 An equitable lien is imposed on a defendant’s property “as security
for a claim on the ground that otherwise the former would be unjustly
enriched.” Restatement of Restitution §161, p. 650 (1936).
4 LIU v. SEC
THOMAS, J., dissenting
and disgorgement by public officers and those in collusion
with them,” id., at 564, 175 So., at 341. In these cases, the
term “disgorgement” colloquially described what a defend-
ant was ordered to do, not the remedy itself.
By the 1960s, published opinions began to use “disgorge-
ment” to refer to a remedy in the administrative context. In
NLRB v. Local 176, 276 F. 2d 583 (CA1 1960), the agency
had “applied its . . . remedy of disgorgement of dues, requir-
ing the union to refund to every member who had obtained
employment on the Company project the dues which he had
paid,” id., at 586 (footnote omitted). The court declined to
enforce this part of the agency’s order, but not because dis-
gorgement was an impermissible form of relief. Instead, it
found that, in the circumstances of the case, disgorgement
“seem[ed] . . . to be an ex post facto penalty.” Ibid.; see also
NLRB v. Local 111, 278 F. 2d 823, 825 (CA1 1960) (enforc-
ing a disgorgement order from the agency).
By the 1970s, courts started using the term “disgorge-
ment” to describe a judicial remedy in its own right. When
the SEC initially sought this kind of relief under the Secu-
rities Exchange Act in SEC v. Texas Gulf Sulphur Co., 312
F. Supp. 77 (SDNY 1970), the District Court called it “res-
titution,” id., at 93, and the Court of Appeals called it “[r]es-
titution of [p]rofits,” SEC v. Texas Gulf Sulphur Co., 446
F. 2d 1301, 1307 (CA2 1971) (emphasis deleted). Courts
soon substituted the label “disgorgement.” SEC v. Manor
Nursing Centers, Inc., 458 F. 2d 1082, 1105 (CA2 1972);
SEC v. Shapiro, 349 F. Supp. 46, 55 (SDNY 1972).
The late date of these cases is sufficient reason to reject
the argument that disgorgement is a traditional equitable
remedy. But it is also telling that, when the SEC began
seeking this relief, it did so without any statutory authority.
Prior to 2005, the SEC lacked the power even to seek “equi-
table relief ” in cases like this one. See §305(b), 116 Stat.
779 (amending the Securities Exchange Act). The District
Court in Texas Gulf Sulphur purported to “imply [a] new
Cite as: 591 U. S. ____ (2020) 5
THOMAS, J., dissenting
remed[y],” based on its “inherent equity power” and a belief
that “the congressional purpose is effectuated by so doing.”
312 F. Supp., at 91. But the sources it cited are dubious.
The court relied on J. I. Case Co. v. Borak, 377 U. S. 426(1964), a case about implied causes of action that we have
since abrogated. See Alexander v. Sandoval, 532 U. S. 275,
287 (2001). It also relied on a securities law treatise that
advocated for what it called “restitution” but admitted that
district courts had no express authority to grant the remedy
and that the SEC had never sought this remedy in the past.
3 L. Loss, Securities Regulation 1827–1828 (1961). It is
functionally this same unauthorized remedy that the SEC
and courts now call “disgorgement.” The details have var-
ied over time, but the lineage is clear: Disgorgement is “a
relic of the heady days” of courts inserting judicially created
relief into statutes. Correctional Services Corp. v. Malesko,
534 U. S. 61, 75 (2001) (Scalia, J., concurring).
Disgorgement as a remedy in its own right is also absent
from legal publications until the 20th century. Leading le-
gal dictionaries did not define the term until the turn of the
20th century. See, e.g., Merriam-Webster’s Dictionary of
Law 143 (1996); Black’s Law Dictionary 480 (7th ed. 1999).
Nor was disgorgement included in the first Restatement of
Restitution, adopted in 1936. The remedy does not appear
until the Third Restatement, adopted in 2010, which states
that “[r]estitution remedies” that seek “to eliminate profit
from wrongdoing . . . are often called ‘disgorgement’ or ‘ac-
counting.’ ” 2 Restatement (Third) of Restitution and Un-
just Enrichment §51(4), p. 203. But “Restatement” is an
inapt title for this edition of the treatise. Like many of the
modern Restatements, its “authors have abandoned the
mission of describing the law, and have chosen instead to
set forth their aspirations for what the law ought to be.”
Kansas v. Nebraska, 574 U. S. 445, 475 (2015) (Scalia, J.,
concurring in part and dissenting in part). The inclusion of
6 LIU v. SEC
THOMAS, J., dissenting
“disgorgement” in the Third Restatement, which the major-
ity cites in support of its holding, ante, at 6, represents a
“ ‘novel extension’ ” of equity. Kansas, supra, at 483
(THOMAS, J., concurring in part and dissenting in part)
(quoting Roberts, Restitutionary Disgorgement for Oppor-
tunistic Breach of Contract and Mitigation of Damages, 42
Loyola (LA) L. Rev. 131, 134 (2008)).
I acknowledge that this Court has referred to disgorge-
ment as an equitable remedy in some of its prior decisions.
See, e.g., Feltner v. Columbia Pictures Television, Inc., 523
U. S. 340, 352 (1998). But these opinions merely referred
to the term in passing without considering the question in
depth. The history is clear: Disgorgement is not a form of
relief that was available in the English Court of Chancery
at the time of the founding.
C
The majority’s treatment of disgorgement as an equitable
remedy threatens great mischief. The term disgorgement
itself invites abuse because it is a word with no fixed mean-
ing. The majority sees “parallels” between accounting and
disgorgement, ante, at 2, n. 1, but parallels are by definition
not the same. Even if they were, the traditional remedy of
an accounting—which compels a party to repay profits that
belong to a plaintiff—has important conceptual limitations
that disgorgement does not. An accounting connotes the re-
lationship between a plaintiff and a defendant. In the
words of one scholar, “it is an accounting by A to B.” Bray,
Fiduciary Remedies, at 454. But disgorgement connotes no
relationship and so is not naturally limited to net profits
and compensation of victims. It simply “is A disgorging.”
Ibid. Further, the traditional remedy of a constructive
trust2 or an equitable lien requires that the “money or prop-
——————
2 A constructive trust compels a defendant “holding title to property . . .
to convey it to another on the ground that he would be unjustly enriched
Cite as: 591 U. S. ____ (2020) 7
THOMAS, J., dissenting
erty identified as belonging in good conscience to the plain-
tiff . . . clearly be traced to particular funds or property in
the defendant’s possession.” Great-West Life & Annuity Ins.
Co. v. Knudson, 534 U. S. 204, 213 (2002). Disgorgement
reaches further because it has no tracing requirement. By
using a word with no history in equity jurisprudence, the
SEC and courts have made it possible to circumvent the
careful limitations imposed on other equitable remedies.
One need look no further than the SEC’s use of disgorge-
ment to see the pitfalls of the majority’s acquiescence in its
continued use as a remedy. The order in Texas Gulf Sul-
phur did not depart too far from equitable principles. The
award was limited to the defendants’ net profits and the
funds were held in escrow and were at least partly available
to compensate victims, 446 F. 2d, at 1307. It did not take
long, however, for a district court to order a defendant to
turn over both his profits and the investment “income
earned on the proceeds.” Manor Nursing Centers, 458
F. 2d, at 1105. And in the case before us today, just a half
century later, disgorgement has expanded even further.
The award is not limited to net profits or even money pos-
sessed by an individual defendant when it is imposed
jointly and severally. See ante, at 5. And not only is it not
guaranteed to be used to compensate victims, but the impo-
sition of over $26 million in disgorgement and approxi-
mately $8 million in civil monetary penalties in this case
seems to ensure that victims will be unable to recover any-
thing in their own actions. As long as courts continue to
award “disgorgement,” both courts and the SEC will con-
tinue to have license to expand their own power.
The majority’s decision to tame, rather than reject, dis-
gorgement will also cause confusion in administrative prac-
——————
if he were permitted to retain it.” Restatement of Restitution §160, at
640–641.
8 LIU v. SEC
THOMAS, J., dissenting
tice. As the majority explains, the SEC is expressly author-
ized to impose “ ‘disgorgement’ ” in its in-house tribunals.
Ante, at 13 (quoting 15 U. S. C. §77h–1(e)). It is unclear
whether the majority’s new restrictions on disgorgement
will apply to these proceedings as well. If they do not, the
result will be that disgorgement has one meaning when the
SEC goes to district court and another when it proceeds in-
house.
More fundamentally, by failing to recognize that the
problem is disgorgement itself, the majority undermines
our entire system of equity. The majority believes that in-
sistence on the traditional rules of equity is unnecessarily
formalistic, ante, at 3, n. 1, but the Founders accepted fed-
eral equitable powers only because those powers depended
on traditional forms. The Constitution was ratified on the
understanding that equity was “a precise legal system”
with “specific equitable remed[ies].” Missouri v. Jenkins,
515 U. S. 70, 127 (1995) (THOMAS, J., concurring). “Alt-
hough courts of equity exercised remedial ‘discretion,’ that
discretion allowed them to deny or tailor a remedy despite
a demonstrated violation of a right, not to expand a remedy
beyond its traditional scope.” Trump, 585 U. S., at ___
(THOMAS, J., concurring) (slip op., at 5). The majority, while
imposing some limits, ultimately permits courts to continue
expanding equitable remedies. I would simply hold that the
phrase “equitable relief ” in §78u(d)(5) does not authorize
disgorgement.
II
After holding that disgorgement is equitable relief, the
majority remands for the lower courts to reconsider the dis-
gorgement order in this case. If the majority is going to ac-
cept “disgorgement” as an available remedy, it should at
least limit the order to be consistent with the traditional
rules of equity. First, the order should be limited to each
Cite as: 591 U. S. ____ (2020) 9
THOMAS, J., dissenting
petitioner’s profits. Second, the order should not be im-
posed jointly and severally. Third, the money paid by peti-
tioners should be used to compensate petitioners’ victims.
A
First, the disgorgement order should be limited to “the
profits actually made” by each petitioner. Mowry v. Whit-
ney, 14 Wall. 620, 649 (1872); see also ante, at 11, 18–20.
Defendants in equity traditionally may deduct “allowances
. . . for the cost and expense of the business” from the
amount of the award. Root v. Railway Co., 105 U. S. 189,
215 (1882); see also Callaghan v. Myers, 128 U. S. 617, 665
(1888); Elizabeth v. Pavement Co., 97 U. S. 126, 139 (1878);
Rubber Co. v. Goodyear, 9 Wall. 788, 804 (1870). The ra-
tionale behind this rule is that “it is not the function of
courts of equity to administer punishment.” Bangor Punta
Operations, Inc. v. Bangor & Aroostook R. Co., 417 U. S.
703, 717–718, n. 14 (1974) (internal quotation marks omit-
ted); see also 2 J. Story, Commentaries on Equity Jurispru-
dence §1494, p. 819 (13th ed. 1886). Here, however, the
District Court reasoned that “it would be ‘unjust to permit
the defendants to offset against the investor dollars they
received the expenses of running the very business they cre-
ated to defraud those investors into giving the defendants
the money in the first place.’ ” 754 Fed. Appx. 505, 509 (CA9
2018) (quoting SEC v. J. T. Wallenbrock & Assocs., 440
F. 3d 1109, 1114 (CA9 2006)). On remand, the lower courts
should limit the award to each petitioner’s profits.
B
Second, and relatedly, the disgorgement order should not
be imposed jointly and severally. The majority analogizes
disgorgement to accounting, ante, at 6, but this Court has
rejected joint and several liability in actions for an account-
ing. Elizabeth, supra, at 139–140; Keystone Mfg. Co. v. Ad-
ams, 151 U. S. 139, 148 (1894); Belknap v. Schild, 161 U. S.
10 LIU v. SEC
THOMAS, J., dissenting
10, 25–26 (1896). The majority instructs the lower courts
to determine whether petitioners were “partners in wrong-
doing,” apparently based on a case about the liability of
partners. Ante, at 10, 18 (citing Ambler v. Whipple, 20 Wall.
546 (1874)). But the liability in that case was premised on
the law of partnership, and nothing indicates that petition-
ers here were legal partners. The joint and several order in
this case is thus at odds with traditional equitable rules.3
C
Finally, the award should be used to compensate victims,
not to enrich the Government. Plaintiffs in equity may
claim “that which, ex aequo et bono [according to what is
equitable and good], is theirs, and nothing beyond this.”
Livingston v. Woodworth, 15 How. 546, 560 (1854). The
money ordered to be paid as disgorgement in no sense be-
longs to the Government, and the majority cites no author-
ity allowing a Government agency to keep equitable relief
for a wrong done to a third party. Requiring the SEC to
only “generally” compensate victims, ante, at 15, is incon-
sistent with traditional equitable principles.
Worse still from a practical standpoint, the majority pro-
vides almost no guidance to the lower courts about how to
resolve this question on remand. Even assuming that dis-
gorgement is “equitable relief” for purposes of §78u(d)(5)
and that the Government may sometimes keep the money,
——————
3 For its part, respondent cites the joint and several liability in Jackson
v. Smith, 254 U. S. 586, 589 (1921), but the remedy in that case was a
constructive trust, see Smith v. Jackson, 48 App. D. C. 565, 576 (1919).
As explained above, there is no tracing requirement in the District
Court’s order as would be required in a case of constructive trust. Supra,
at 6–7. The Court also allowed joint and several liability in Belford v.
Scribner, 144 U. S. 488 (1892), a copyright case. But it based its holding
on the fact that, under the relevant copyright statute, “both the printer
and the publisher are equally liable to the owner of the copyright for an
infringement.” Id., at 507; see also Washingtonian Publishing Co. v.
Pearson, 140 F. 2d 465, 467 (CADC 1944).
Cite as: 591 U. S. ____ (2020) 11
THOMAS, J., dissenting
the Court should at least do more to identify the circum-
stances in which the Government may keep the money. In-
stead, the Court asks lower courts to improvise a solution.
If past is prologue, this uncertainty is sure to create oppor-
tunities for the SEC to continue exercising unlawful power.
* * *
I would reverse for the straightforward reason that dis-
gorgement is not “equitable relief ” within the meaning of
§78u(d)(5). Because the majority acquiesces in the contin-
ued use of disgorgement under that statute, I respectfully
dissent.