A recent decision by a federal judge in Florida to seek disgorgement from Spartan Securities Group may be the first to address disgorgement in cases where it is hard to identify or prove that specific individuals were harmed, including in insider trading.
Litigation & enforcement partner Amy Jane Longo told Bloomberg Law, “this ruling will be viewed as a significant development and certainly it’s one ruling that the SEC can cite now for this proposition.”
Congress, last year, expanded the Securities and Exchange Commission’s authority to pursue disgorgement even when victims of securities fraud will not benefit from the payment—effectively overriding a U.S. Supreme Court ruling that curtailed the SEC’s enforcement remedies.
“I think the Commission will see it as important to have one ruling going in this direction, because the SEC files a lot of market integrity cases, where it may not be feasible to identify specific victims,” Longo said.
A 2020 Supreme Court ruling, Liu v. SEC, held that disgorgement can only be pursued when victims of securities fraud would benefit from the disgorgement, leaving open the question of whether disgorged funds can be deposited into the U.S. Treasury when victims could not be identified.
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