Liu v. SEC

140 S.Ct. 1936 (2020)

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Nature of the Case

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Facts

Liu and Wang (Ds) solicited foreign nationals to invest in the construction of a cancer-treatment center. An SEC investigation revealed Ds misappropriated much of the funds in violation of the terms of a private offering memorandum. Ds solicited nearly $27 million from foreign investors under the EB-5 Immigrant Investor Program (EB-5 Program). The EB-5 Program 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.” D 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 center. The memorandum specified that only amounts collected from a small administrative fee would fund “‘legal, accounting and administration expenses.’” D spent nearly $20 million of investor money on marketing expenses and salaries, an amount far more than what the offering memorandum permitted and far in excess of the administrative fees collected. D diverted a sizable portion of those funds to personal accounts and a company under Wang’s control. The SEC brought a civil action against Ds. The District Court ordered disgorgement equal to the full amount Ds had raised from investors. Ds objected that the disgorgement award failed to account for their business expenses. The District Court concluded that the sum was a “reasonable approximation of the profits causally connected to their violation.” The Ninth Circuit affirmed. The Supreme Court granted certiorari to determine whether §78u(d)(5) authorizes the SEC to seek disgorgement beyond a defendant’s net profits from wrongdoing.