Supreme Court Decision Means Smaller Whistleblower Awards

The Supreme Court’s decision in Liu v. Securities and Exchange Commission rejected the argument that the SEC could never obtain disgorgement of profits from unlawful activity in securities litigation. But according to Ronald Mann, writing in scotusblog, it sharply cut back that remedy as the SEC has envisioned it in recent years. One result will be a smaller pot for whistleblower awards. The question was whether the SEC can obtain an equitable remedy of disgorgement in addition to other remedies available for penalties and injunctive relief. Justice Sotomayor wrote the opinion for a 8-1 decision, with Clarence Thomas dissenting. According to the decision, the reference in federal law to “equitable relief” was sufficient to allow disgorgement with appropriate limits, but the majority agreed that courts should place significant limits on what kinds of disgorgements are permissible. Justice Sotomayor wrote that courts have long had the power to strip wrongdoers of their ill-gotten gains, but there are important limits on that power. “To avoid transforming an equitable remedy into a punitive sanction,” she wrote, “courts restricted the remedy to an individual wrongdoer’s net profits to be awarded for victims.”