Speaker 1: This is Bloomberg Law, with June Grasso from Bloomberg Radio.
Speaker 1: In an eight to one decision this week, the Supreme
Speaker 1: Court has blunted one of the Security and Exchange Commission's
Speaker 1: most powerful legal tools for recouping billions of dollars and
Speaker 1: illegal profits from wrongdoers each year. The majority opinion by
Speaker 1: Justice Sonya so to mayor preserve the SEC's power to
Speaker 1: seek discorchement in federal court as long as the money
Speaker 1: doesn't exceed the wrongdoer's net profits and is used to
Speaker 1: reimburse to frauded investors, something so to major question during
Speaker 1: the oral arguments. If the SEC got the money, it
Speaker 1: could then spend it on protecting investors. But if the
Speaker 1: Treasury is getting it and I know you're gonna save
Speaker 1: money is fungiable. But if the Treasury is getting it,
Speaker 1: we don't really know if it's being used to help investor.
Speaker 1: And in this case, a California couple was ordered to
Speaker 1: pay twenty seven million dollars, well beyond the eight million
Speaker 1: the trial judge found they'd from their scheme to defraud
Speaker 1: investors in a cancer treatment center. Joining me is Jill Fish,
Speaker 1: a professor of business law at the University of Pennsylvania
Speaker 1: Law School, Jill. Both the SEC and the couple appealing
Speaker 1: said they were pleased with the decision. So who really
Speaker 1: won here? I could say neither one or I could
Speaker 1: say both one, and either answer would be right, because
Speaker 1: what the Supreme Court did actually is something a little
Speaker 1: bit different from what either party was looking for. And
Speaker 1: I think the Supreme Court's goal was to rein in
Speaker 1: the scope of the SEC's power to seek disgorgement. But
Speaker 1: it's certainly preserved disgorgement as an equitable remedy. So explain
Speaker 1: what equitable remedy means and how that term and the
Speaker 1: concept played in here. So basically, the SEC can seek
Speaker 1: a variety of different kinds of relief. One classic kind
Speaker 1: of relief is imposing a fine on a party that's
Speaker 1: violated the sex charity's laws. Disgorgement is different. Disgorgement is
Speaker 1: usually understood as giving up or giving back your ill
Speaker 1: gotten gains or your unfair profits, whatever profits the parties
Speaker 1: in this case got. The petitioners in this case, we're
Speaker 1: seeking to get foreign nationals to invest in a so
Speaker 1: called cancer treatment center. So they raised a lot of money,
Speaker 1: a lot of money that was not invested in the
Speaker 1: cancer treatment center. And so what the SEC sought in
Speaker 1: this case, in addition to a fine, was to recover
Speaker 1: those unjust profits. And it's the disgorgement of those unjust
Speaker 1: profits that's the remedy that was contested that the Supreme
Speaker 1: Court was evaluating in this case. Justice Sonya Sotomayor wrote
Speaker 1: the majority opinion. Did she give a sort of formula
Speaker 1: that the SEC has to follow in disgorgement cases? Yeah? So.
Speaker 1: Justice Sotomayor's opinion sets out three guide law mines for
Speaker 1: the SEC when it's seeking disgorgement. So the first guideline
Speaker 1: is disgorgement has to be limited to a party's net profits.
Speaker 1: If a party raises a lot of money but has
Speaker 1: legitimate business expenses, is actually sending that money to build
Speaker 1: a cancer treatment center, to purchase equipment and things like that,
Speaker 1: those aren't net profits. That money doesn't have to be disgorged,
Speaker 1: So it's a limitation on the total amount of disgorgement.
Speaker 1: The second limit that the opinion imposes is disgorgement is
Speaker 1: supposed to be like restitution. It's supposed to provide money
Speaker 1: that's going to benefit the defrauded investors. Now, the opinion
Speaker 1: doesn't explain exactly how that money benefits the investors. It
Speaker 1: doesn't actually say the SEC has to give back the
Speaker 1: money or identify everyone who's been defrauded, track them down,
Speaker 1: figure out a way to put the money in their
Speaker 1: bank account, because that issue wasn't before the court. But
Speaker 1: the benefit for defrauded investors is a key limitation. The
Speaker 1: third limitation is disgorgement is limited to an actual party's profit.
Speaker 1: You can't recover disgorgement from one defendant based on the
Speaker 1: wrongdoing or the profits that were obtained by a second defendant.
Speaker 1: Last year, the SEC obtained three point two billion dollars
Speaker 1: in disgorgement. Is this decision going to limit the amount
Speaker 1: that the SEC can get next year? It's definitely going
Speaker 1: to impose some limits for the reasons that I said.
Speaker 1: So one limit is net profits obviously is going to
Speaker 1: be less than growth profits. If somebody raises a billion
Speaker 1: dollars but has some legitimate business expenses, disgorgement will be
Speaker 1: for something less than a billion. So that's one limit.
Speaker 1: Second limit being able to obtain disgorgement only from the
Speaker 1: individual party that has the wrongful profits. The SEC won't
Speaker 1: be able to get disgorgement from defended X based on
Speaker 1: the profits obtained by defendant Y. So if defendant Y
Speaker 1: is bankrupt, if defendant Y is out of the country
Speaker 1: or unavailable, that again is going to limit the scope
Speaker 1: of what the SEC can recover and will it make
Speaker 1: it more complicated for the SEC to prosecute these cases
Speaker 1: at the district court? Well, I wouldn't say more complicated
Speaker 1: to prosecute the cases. The SEC can always seek disgorgement.
Speaker 1: The SEC also can seek civil finds. Interestingly enough, the
Speaker 1: SEC can also seek disgorgement in an administrative proceeding, and
Speaker 1: we can talk about that separately. So what the opinion
Speaker 1: will do is make it more difficult for the SEC
Speaker 1: to recover all of the money that it's recovered in
Speaker 1: the past. So it's going to be a limitation on
Speaker 1: the amount of the SEC's recovery, but not one that
Speaker 1: the SEC is able to recover it all or whether
Speaker 1: the SEC is able to prove its case. So why
Speaker 1: did Justice Thomas dissent and say he would have barred
Speaker 1: the SEC from seeking disgorgement at all in federal court?
Speaker 1: In a nutshell, Justice Thomas's view was that disgorgement is
Speaker 1: a made up concept, a recent innovation in terms of
Speaker 1: a type of remedy, that it was not part of
Speaker 1: a court traditional equitable powers, and therefore the disgorgement remedy
Speaker 1: doesn't fall within the scope of the SEC's statutory authority.
Speaker 1: So Justice Thomas's opinion is based on the text of
Speaker 1: the statute, which is consistent with his standard approach to
Speaker 1: stutory interpretation, and basically Justice Thomas says the SEC went
Speaker 1: beyond what the statute empowered it to do. You mentioned
Speaker 1: that the SEC can also seek disgorgement to administrative proceedings.
Speaker 1: How does it decide whether to go to court or
Speaker 1: whether to go through administrative proceedings. Well, that's actually been
Speaker 1: an ongoing policy debate. So an administrative proceeding is a
Speaker 1: proceeding before an administrative law judge from actually an SEC employee,
Speaker 1: not an Article three judge, not a separate branch of
Speaker 1: the federal government. And so the SEC has been criticized
Speaker 1: for bringing some cases as administrative proceedings rather than going
Speaker 1: to court. And so this case has the potentially anomalous
Speaker 1: effects of encouraging the SEC, at least in some cases
Speaker 1: to use administrative proceedings instead of civil enforcement actions instead
Speaker 1: of actions in federal court. And of course the sec
Speaker 1: is authority to seek disgorgement in administrative proceedings is clear,
Speaker 1: It's in the statute. So a question that a subsequent
Speaker 1: court is going to have to deal with is whether
Speaker 1: the limitations and lou the limitations of Justice Stamer's opinion
Speaker 1: are going to apply in administrative proceedings or not. It
Speaker 1: would be kind of ironic if there were two different
Speaker 1: types or two different analyzes of disgorgements depending on the forum.
Speaker 1: Why would the SEC ever choose to go to court
Speaker 1: when they can go to an administrative law judge in
Speaker 1: their own bailuwith So that depends on a variety of
Speaker 1: different factors. The SEC had been, as I said, criticized
Speaker 1: for bringing some cases in administrative proceedings. People said that
Speaker 1: the SEC was sort of taking advantage of home court
Speaker 1: advantage and that the proceedings were not subject to the
Speaker 1: same level of protection for dependants. You don't have the
Speaker 1: same discovery process in an administrative proceedings. They occur much
Speaker 1: more quickly and so forth. But there are a lot
Speaker 1: of factors that way into the SEC's choice of which
Speaker 1: avenue to pursue and the type of relief that's available
Speaker 1: probably isn't the best factor to drive that decision. Will
Speaker 1: this affect any other agencies? I read that this decision
Speaker 1: might affect the ftc uh. That's what I read as well.
Speaker 1: I'm not an expert on the SEC, but my understanding
Speaker 1: is that this decision does have consequences in other areas.
Speaker 1: Antitrust is one of those areas. So I think it's
Speaker 1: important beyond this federal securities laws, How has the Court
Speaker 1: in recent years been policing the SEC or not policing
Speaker 1: the SEC. The Court has been policing the SEC pretty carefully.
Speaker 1: There have been a number of areas in which the
Speaker 1: Court has suggested that the SEC is too aggressive, that
Speaker 1: the SEC is acting beyond the scope of its statutory authority,
Speaker 1: and the Court has cautioned the SEC to sort of
Speaker 1: pull things back a little bit. Can the SEC put
Speaker 1: disgorged profits into the treasuries coffers after this decision? The
Speaker 1: answer to that is, we don't know. That's a question
Speaker 1: the Supreme Court expressly declined to answer because that issue
Speaker 1: wasn't really presented to it. The SEC hadn't presented to
Speaker 1: the court a plan of distribution, so the court said,
Speaker 1: we're going to leave that issue for the lower court.
Speaker 1: So it's not clear. There are certainly some cases in
Speaker 1: which distributing the funds to defrauded investors is going to
Speaker 1: be expensive or difficult. It may be the case to
Speaker 1: the lower court finds it acceptable if the money goes
Speaker 1: into some general pool that's available to make investors hole
Speaker 1: in fraud cases overall, But we don't know the answer
Speaker 1: to that question. So now they've sent this case Act
Speaker 1: to the District Court, and the district Court will apply
Speaker 1: what the Supreme Court has said here. Yes, the district
Speaker 1: Court did not calculate the disgorgement remedy based on net profits.
Speaker 1: So at a minimum, the district Court is going to
Speaker 1: have to look at the expenses that the defendants claim
Speaker 1: as legitimate expenses and subtract any legitimate expenses from the
Speaker 1: amount of us disgorgement. So that's one change that we
Speaker 1: know is going to happen. Beyond that, the sec is
Speaker 1: going to have to come up with a plan what
Speaker 1: it intends to do with the money. If it's possible
Speaker 1: to distribute the money in this case, to foreign nationals.
Speaker 1: I guess the SEC will put forth some sort of plan,
Speaker 1: or the SEC will propose something else like a segregated
Speaker 1: fund and investor compensation fund, which may or may not
Speaker 1: pass scrutiny. The one thing I did want to say
Speaker 1: is the analysis in justice Sodomoyer's opinion draws very heavily
Speaker 1: on an aniquest brief that was filed by a law professor,
Speaker 1: Professor Doug Lacock uh Laycock, Professor Doug Laycock of the
Speaker 1: University of Virginia. And if you look at the reasoning
Speaker 1: in this opinion, the analysis of disgorgement as an equitable
Speaker 1: remedy and what that means, and the precise limitations that
Speaker 1: just a sutor puts on the disgorgement remedy, it's very
Speaker 1: influenced by the reasoning and that and make it's brief.
Speaker 1: So I just wanted to uh flag that UM showing
Speaker 1: both I think the importance of understanding uh HIT the
Speaker 1: historical basis of remedial relief and how influential and amicus
Speaker 1: brief could be in this case because the arguments that
Speaker 1: are in this opinion, we're not arguments that were raised
Speaker 1: by either of the parties. Finally, Joe, what was the
Speaker 1: general reaction to this decision? I do think that everybody
Speaker 1: looked at this opinion with a sigh of relief, because
Speaker 1: even though the opinion imposes some tactical requirements on disgorgements,
Speaker 1: it does and eliminate discouragement. It doesn't say discouragement is
Speaker 1: not an equitable remedy, and it doesn't really limit the
Speaker 1: SEC's power to seek equitable relief. And from an enforcement perspective,
Speaker 1: the SEC's power to do that is tremendously important. Thanks Jill.
Speaker 1: That's Jill Fish, professor at the University of Pennsylvania School
Speaker 1: of Law. In a seven to two decision on Thursday,
Speaker 1: the Supreme Court reinforced the Trump administration's ability to quickly
Speaker 1: deport people who enter the country without documentation. Joining me
Speaker 1: is Leon Fresco, a partner at Hollandon Night formerly the
Speaker 1: head of the Justice Department's Office of Immigration Litigation. Leon
Speaker 1: explained what the Court did here. So, what the Supreme
Speaker 1: Court has said is that during the process that is
Speaker 1: known as expedited removal, which is a program that Congress
Speaker 1: past that said, if people from outside the country arrived
Speaker 1: in the United States without any paperwork, they could be
Speaker 1: summarily deported back to where they originally arrived from. What
Speaker 1: the Supreme Court said is that in the situations where
Speaker 1: the people who are arriving claim asylum, there isn't review
Speaker 1: that is available in the federal court for those denials
Speaker 1: that the CDP and men the immigration court is doing
Speaker 1: on those asylum claims. So what happens is from now on,
Speaker 1: there will only be a CBP slash U S c
Speaker 1: I S officer who makes some initial screening as to
Speaker 1: whether the asylum claim is credible, and if that's denied,
Speaker 1: there's an immigration judge who makes a final administrative determination
Speaker 1: and that's it. There is no federal court review as
Speaker 1: to whether those decisions were incorrect and whether that person
Speaker 1: should be allowed to apply for asylum. The credible fear interview,
Speaker 1: that first interview isn't that a very low bar for
Speaker 1: most immigrants. It is intended by the statute to be
Speaker 1: a low bar. The way it works is this, in
Speaker 1: order to simply get a asylum to win your case,
Speaker 1: you have to have what's known as a ten percent
Speaker 1: chance that you will be persecuted in your home country
Speaker 1: on the basis of your race, religion, national origin, political opinion,
Speaker 1: or social group. It's called well founded fear, and that's
Speaker 1: ten percent. In order to get credible fear, which is
Speaker 1: the upfront initial screening that allows you to remain in
Speaker 1: the country while you're asylum case despending, you have to
Speaker 1: have a significant possibility of having a ten percent chance.
Speaker 1: So it's considered a very low threshold, and in the
Speaker 1: Obama administration there was something like people would clear the
Speaker 1: credible fear screening. That's gone down to the mid eighties
Speaker 1: in the Trump administration, and so there's a belief that
Speaker 1: maybe those screenings are being done in a way that
Speaker 1: is more stringent and hence need more federal review. But
Speaker 1: that argument obviously did not prevail with the Supreme Court.
Speaker 1: The reasoning of the seven justices in the majority was split.
Speaker 1: Explain that split, well, there were two issues that were raised,
Speaker 1: and what the two concurring justices Brian and Ginsburg, who
Speaker 1: usually vote with the liberals, said is we don't need
Speaker 1: to resolve the issue of the level of rights that
Speaker 1: people who crossed the border illegally have in the country.
Speaker 1: What we can simply say is that the kind of
Speaker 1: review that the people in this case were asking for
Speaker 1: was review of factual questions, and that kind of review
Speaker 1: is not available in what's called the Avias court of
Speaker 1: jurisdiction because habeas corpus jurisdiction is about whether you are
Speaker 1: legally held in custody without your legal rights. It's about
Speaker 1: whether the law was improperly just in your case. So
Speaker 1: they would have limited it to that, but the five
Speaker 1: conservative justices went further and they said, not only is
Speaker 1: that the issue, but the issue more largely is people
Speaker 1: who want relief from removal are not trying to actually
Speaker 1: get out of custody. They want something different than getting
Speaker 1: out of custody. They want release from removal. So those
Speaker 1: people can never come to court with habeas corpus jurisdiction,
Speaker 1: meaning you're asking the government to release you. Because the
Speaker 1: theory was, even though not being released from physical custody,
Speaker 1: I still am asking to be released from immigration custody,
Speaker 1: which is the custody that I has to deport me.
Speaker 1: And they said, no, no, no, that's not cognizable in
Speaker 1: habeas corpus jurisdiction, so you can't even make that claim.
Speaker 1: And then to add more to this, just as a leado,
Speaker 1: he decided an issue that didn't need to be decided,
Speaker 1: and he said that people who cross the border illegally
Speaker 1: have no due process right. They're just like people who
Speaker 1: are outside the country. So you don't get any special
Speaker 1: increased level of right if you cross the border. Two
Speaker 1: justices dissented, Justices Sonya Soto Mayor and Elena Kagan. They're
Speaker 1: the senses that they view that these rights were always
Speaker 1: allowed in the sense that habeas again needs that your
Speaker 1: body is in the custody of the government, whether it
Speaker 1: be for physical custody or removal custody purposes, and that
Speaker 1: even though this didn't exist at the time of the founding,
Speaker 1: that doesn't matter because there was no emmigration law at
Speaker 1: the time of the founding. If the founders have had
Speaker 1: some knowledge as to what we'd be doing with the
Speaker 1: immigration law, they would have allowed this kind of hadea
Speaker 1: of corpus jurisdiction. Can you see the difference between this
Speaker 1: case and the data case that the administration lost? Sure,
Speaker 1: I think this is again the themes we've been talking
Speaker 1: about in the past. If you're going to really try
Speaker 1: to make a way to carve your way through these things,
Speaker 1: you continue to see two things going on. At the
Speaker 1: same time, people who are here who have some interest
Speaker 1: in America seemed to get treated by the courts better
Speaker 1: than people who are either not here and have been
Speaker 1: travel band or people who have just barely arrived seconds ago.
Speaker 1: And that thread continues to seem to work its way
Speaker 1: through the courts in all of these Thanks. That's Leon Cresco,
Speaker 1: a partner at Hollan didn't night. I'm John Basso, and
Speaker 1: this is Jim Burg.