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U.S. Supreme Court says limits apply when SEC seeks profit disgorgement in fraud cases

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The U.S. Securities and Exchange Commission must adhere to certain restrictions on its ability to seek disgorgement of profits from those involved in fraudulent schemes.

As noted by reports from Bloomberg and CNBC, Monday's 8-1 ruling, written by Justice Sonia Sotomayor, stated 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). Pp. 5–20." The decision centered around an appeal of a 2016 court case in which a couple accused of fraud were originally ordered to disgorge nearly $27 million in the wake of an SEC civil lawsuit. 

Profit disgorgement is a frequent tool by which the SEC can recoup funds in its civil fraud cases, including those centered around initial coin offerings, or ICOs. The SEC first outlined its stance toward ICOs in 2017 following the issuance of its so-called DAO report. 

The Supreme Court placed other limits on the SEC's profit-seeking powers back in 2017, when it unanimously said that the agency must adhere to a five-year statute of limitations on profit disgorgement. 

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