1 00:00:00,080 --> 00:00:02,000 Speaker 1: It was a busy day today at the Supreme Court, 2 00:00:02,040 --> 00:00:04,120 Speaker 1: which agreed to take up a major new test of 3 00:00:04,160 --> 00:00:07,680 Speaker 1: digital privacy rights. The Court will consider whether prosecutors need 4 00:00:07,720 --> 00:00:10,840 Speaker 1: a warrant to obtain mobile phone tower records that show 5 00:00:10,920 --> 00:00:14,560 Speaker 1: someone's location over the course of months. And the Court 6 00:00:14,640 --> 00:00:18,239 Speaker 1: curbed a favorite tool used by the Security, Securities and 7 00:00:18,320 --> 00:00:22,479 Speaker 1: Exchange Commission. The justices unanimously ruled that the SEC is 8 00:00:22,520 --> 00:00:25,639 Speaker 1: bound by a five year statute of limitations when it 9 00:00:25,640 --> 00:00:29,280 Speaker 1: seeks what is known as disgorgement of ill gotten game gains. 10 00:00:30,480 --> 00:00:33,360 Speaker 1: With us to talk about that ruling today, we have 11 00:00:33,760 --> 00:00:37,560 Speaker 1: Peter Henning, a professor at Wayne State University's School of Law, 12 00:00:37,960 --> 00:00:40,280 Speaker 1: and in a moment we will have John Coffee, a 13 00:00:40,280 --> 00:00:44,400 Speaker 1: professor at Columbia Law School. Uh. Peter, thanks for joining us. 14 00:00:44,760 --> 00:00:47,320 Speaker 1: Probably the first question people have is what the heck 15 00:00:47,440 --> 00:00:50,280 Speaker 1: is disgorgement. Tell us what it is and how it 16 00:00:50,360 --> 00:00:54,600 Speaker 1: fits into the broader array of tools that the SEC 17 00:00:54,840 --> 00:01:01,120 Speaker 1: has before it. Disgorgement is the SEC's favorite weapon in 18 00:01:01,160 --> 00:01:05,319 Speaker 1: a case in order to try to get the profits 19 00:01:05,360 --> 00:01:10,520 Speaker 1: that a defendant gains from UM securities law violations. The 20 00:01:10,760 --> 00:01:13,760 Speaker 1: interesting thing, though, is that it's nowhere in any of 21 00:01:13,800 --> 00:01:17,600 Speaker 1: the statutes. Um, it's not that the SEC is specifically 22 00:01:17,720 --> 00:01:22,679 Speaker 1: authorized to seek disgorgement. This is what's called an equitable remedy. 23 00:01:22,840 --> 00:01:27,360 Speaker 1: Back in the late nineteen sixties, the SEC started asking 24 00:01:27,560 --> 00:01:31,280 Speaker 1: cords to order the defendant to give up the ill 25 00:01:31,319 --> 00:01:34,240 Speaker 1: gotten gains, and the courts went along with it. So 26 00:01:34,640 --> 00:01:38,440 Speaker 1: it was really the first weapon that the SEC had, 27 00:01:38,959 --> 00:01:41,520 Speaker 1: and it has grown from there and really become a 28 00:01:41,600 --> 00:01:45,560 Speaker 1: cornerstone of their enforcement program. Peter. In a prior case 29 00:01:45,600 --> 00:01:51,200 Speaker 1: in Gibelly, the SEC the Justice is unanimously rule that 30 00:01:51,360 --> 00:01:55,200 Speaker 1: civil monetary penalties are also subject to a five year 31 00:01:55,280 --> 00:01:59,160 Speaker 1: time bar. So is this ruling surprising or does it 32 00:01:59,200 --> 00:02:03,800 Speaker 1: just follow that well, Um, yes and no. Um, no 33 00:02:03,880 --> 00:02:07,280 Speaker 1: great surprise that I give a conflicted answer. Um, it 34 00:02:07,440 --> 00:02:11,000 Speaker 1: is not surprising in that really this just applies Gibelly 35 00:02:11,600 --> 00:02:16,760 Speaker 1: and Gibelly's analysis for civil penalties to disgorgement. But disgorgement 36 00:02:16,960 --> 00:02:19,440 Speaker 1: is at least a little bit different. It focuses on 37 00:02:19,639 --> 00:02:24,760 Speaker 1: what the defendant obtained through the securities frauds. So in 38 00:02:24,800 --> 00:02:26,960 Speaker 1: a sense, it's a little bit like saying that you 39 00:02:26,960 --> 00:02:29,600 Speaker 1: know that the bank robbers shouldn't be allowed to keep 40 00:02:30,040 --> 00:02:34,000 Speaker 1: the money that was stolen from the bank. Um well, now, 41 00:02:34,040 --> 00:02:35,760 Speaker 1: in a sense, as long as you can keep it 42 00:02:35,880 --> 00:02:39,799 Speaker 1: secret for more than five years, then maybe you get 43 00:02:39,840 --> 00:02:42,040 Speaker 1: to keep it, although that's going to be fought out. 44 00:02:42,639 --> 00:02:45,960 Speaker 1: So it's a little bit surprising. But really the court 45 00:02:46,040 --> 00:02:49,960 Speaker 1: has been cutting back on these types of remedies that 46 00:02:50,080 --> 00:02:54,840 Speaker 1: the federal agencies use. John Coffee, How big of a 47 00:02:54,880 --> 00:03:02,240 Speaker 1: blow to the SEC's enforcement regime? Is this ruling radically 48 00:03:02,400 --> 00:03:06,400 Speaker 1: change any enforcement system that we have. H This came 49 00:03:06,440 --> 00:03:09,960 Speaker 1: out of sort of common law practice. The SEC or 50 00:03:10,000 --> 00:03:13,640 Speaker 1: the other enforcer sued for an injunction. The injunction said 51 00:03:14,200 --> 00:03:16,240 Speaker 1: never do this again, or you could go to jail 52 00:03:16,280 --> 00:03:19,320 Speaker 1: for contempt, and as part of that injunction they would 53 00:03:19,320 --> 00:03:22,720 Speaker 1: get this so called equable remedy, saying, and you necessarily 54 00:03:22,760 --> 00:03:24,919 Speaker 1: have to give back any of the wrongful gain that 55 00:03:25,000 --> 00:03:28,880 Speaker 1: you made. The problem with all that was that there 56 00:03:28,960 --> 00:03:31,280 Speaker 1: was no statue of limitations, and in theory, you could 57 00:03:31,320 --> 00:03:34,320 Speaker 1: sue fifty years later. That's what troubled the court, the 58 00:03:34,400 --> 00:03:37,840 Speaker 1: idea that there's no period of repose after which the 59 00:03:37,920 --> 00:03:41,000 Speaker 1: government can no longer sue and then come after you forever. 60 00:03:41,440 --> 00:03:44,800 Speaker 1: The government's still going to seek uh these kind of 61 00:03:44,800 --> 00:03:48,320 Speaker 1: injunctions with disgorgement. But they'll have to bring the suit 62 00:03:48,440 --> 00:03:52,600 Speaker 1: within five years after the misconduct. That's probably not going 63 00:03:52,640 --> 00:03:56,040 Speaker 1: to cripple them that much, although certainly the government isn't 64 00:03:56,040 --> 00:03:59,040 Speaker 1: gonna like this lass did Do you agree about the 65 00:03:59,080 --> 00:04:03,800 Speaker 1: impact of the case? Um? I do that. It's what 66 00:04:04,080 --> 00:04:06,640 Speaker 1: it's going to force the SEC to do is to, 67 00:04:06,960 --> 00:04:10,160 Speaker 1: in a sense, pick up the pace on its investigations. 68 00:04:10,320 --> 00:04:13,840 Speaker 1: It can't sit back and say, well, you know, we're 69 00:04:13,880 --> 00:04:15,920 Speaker 1: just going to take our time, or we're gonna figure 70 00:04:15,960 --> 00:04:19,680 Speaker 1: out our priorities. Um So, at least in that regard, 71 00:04:19,760 --> 00:04:22,920 Speaker 1: it's going to push the SEC harder. I guess where 72 00:04:22,960 --> 00:04:25,440 Speaker 1: the problem may come in is that a ruling like 73 00:04:25,480 --> 00:04:29,040 Speaker 1: this could affect earlier cases. So you may well see 74 00:04:29,080 --> 00:04:33,159 Speaker 1: defendants going back and trying to reopen cases, and of 75 00:04:33,200 --> 00:04:35,720 Speaker 1: course that's going to be a real headache for the SEC. 76 00:04:36,520 --> 00:04:38,800 Speaker 1: Jack only about thirty seconds. But does this mean that 77 00:04:39,000 --> 00:04:45,360 Speaker 1: victims of fraud will receive less money in compensation? Well, 78 00:04:45,400 --> 00:04:48,400 Speaker 1: I don't think that this will have any long term 79 00:04:48,480 --> 00:04:51,760 Speaker 1: significance other than the caseload and the time pressure on 80 00:04:51,800 --> 00:04:54,599 Speaker 1: the SEC. It would be a problem if the SEC's 81 00:04:54,640 --> 00:04:57,920 Speaker 1: budget were decreased. It also might be a problem if 82 00:04:57,920 --> 00:05:01,599 Speaker 1: the SEC loses the ability to bring cases in house. 83 00:05:02,160 --> 00:05:04,680 Speaker 1: Uh but I, which is what they do today in 84 00:05:04,720 --> 00:05:06,920 Speaker 1: the majority of their cases by bringing them before an 85 00:05:06,920 --> 00:05:10,839 Speaker 1: administrative law judge, effectively an in house employee. But I 86 00:05:10,880 --> 00:05:13,560 Speaker 1: don't think that this is going to have a dramatic 87 00:05:13,680 --> 00:05:15,960 Speaker 1: impact on enforcement across the board.