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  • Supreme Court In Liu Upholds SEC Ability To Seek Equitable Disgorgement Of Net Profits For Return To Victims, But Indicates Limits On Broader Disgorgement Theories

    On June 22, 2020, in an 8-1 decision authored by Justice Sotomayor, the United States Supreme Court upheld the ability of the Securities and Exchange Commission to seek disgorgement in civil actions brought in district court as a form of “equitable relief ” under 15 U. S. C. §78u(d), at least to the extent the disgorgement is of a defendant’s “net profits” and the disgorged funds are returned to defendant’s victims.  Liu v. SEC, No. 18–1501, __ S.Ct. __ (June 22, 2020).  Though it was generally expected that the Supreme Court would uphold the SEC’s ability to seek disgorgement in some form, the precise contours of any such decision have been much anticipated since the Supreme Court held in Kokesh v. SEC, 581 U. S. ___ (2017), that at least certain forms of disgorgement sought by the SEC enforcement action impose a “penalty” for purposes of calculating the appropriate statute of limitations under 28 U. S. C. §2462, calling into question whether it could be considered “equitable relief.”  The Liu decision is ostensibly a win for the SEC, in that it upheld the SEC’s ability to obtain disgorgement.  But by focusing on ensuring that a given disgorgement order constitutes “equitable relief,” the Supreme Court has placed important limits on the manner in which the SEC may obtain disgorgement that could have significant impacts on the way the SEC pursues enforcement actions.
    CATEGORIES: Supreme CourtDisgorgement
  • Supreme Court Overturns Third Circuit, Throws Out Bridgegate Convictions

    On May 7, 2020, the U.S. Supreme Court unanimously overturned a ruling from the United States Court of Appeals for the Third Circuit that upheld the convictions of two former New Jersey officials who were part of the 2013 “Bridgegate” scandal to realign lanes to the George Washington Bridge (“GWB”).  Kelly v. United States, No. 18-1059, 588 U.S. __, 2020 WL 2200833 (2020).  Writing for a unanimous court, Justice Kagan wrote that while the conduct at issue may have constituted an abuse of power, it did not amount to a violation of either the federal wire fraud statute or a violation of the federal program fraud statute because the object of the scheme was the implementation of a regulatory object, rather than to obtain money or property.
  • United States Supreme Court Hears Oral Arguments In Liu v. SEC to Determine Whether the SEC Can Seek Disgorgement in Judicial Proceedings

    On March 3, 2020, the Supreme Court heard oral arguments in Liu v. SEC, No. 18-1501, once again taking up the question of whether the Securities and Exchange Commission (“SEC”) may seek disgorgement as equitable relief in a civil enforcement action for violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.  While it is always difficult to predict the outcome of a given case from oral argument, the questioning suggested that the Justices are likely to preserve some form of the SEC’s ability to seek disgorgement, albeit in perhaps a narrowed form more closely aligned to its underpinnings as an equitable remedy.
  • Supreme Court Requires Law Enforcement To Obtain Search Warrants Before Accessing Certain Cell Phone Location Data

    On June 22, 2018, in a 5-4 ruling, the United States Supreme Court held that the government’s acquisition of certain cell-site location information (“CSLI”) kept by third parties constitutes a search under the Fourth Amendment that is generally subject to the search warrant requirement. Carpenter v. United States, No. 16-402, 585 U.S. __ (2018). Chief Justice Roberts authored the majority opinion, while Justices Kennedy, Alito, Thomas, and Gorsuch filed separate dissents.
  • United States Supreme Court Reverses And Remands SEC Administrative Proceeding - Finding That SEC Administrative Law Judges Are Subject To The Appointments Clause Of The Constitution And Were Not Properly Appointed By The SEC

    On June 21, 2018, the Supreme Court held that Securities and Exchange Commission (“SEC”) administrative law judges (“ALJs”) are “inferior officers” of the United States, subject to the Appointments Clause of the Constitution. Lucia v. SEC, 585 U.S. ____ (2018).
  • The Supreme Court Dismisses As Moot Microsoft Case That Had Challenged The Government’s Ability To Obtain Search Warrant For Electronic Data Stored Abroad

    On April 17, 2018, the Supreme Court dismissed United States v. Microsoft, No. 17-12, 548 U.S. ___ (2018) (per curiam), deciding that recently enacted federal legislation had mooted the legal dispute in the case.  The appeal raised the question whether a U.S. based e-mail service provider had to comply with a search warrant issued under Section 2703 of the Stored Communications Act, and disclose to the Government electronic communications that were stored abroad.  As we previously reported, see Shearman & Sterling LLP, The Supreme Court Hears Oral Arguments in United States v. Microsoft, Need-to-Know Litigation Weekly, March, 6, 2018,, the Justices had appeared divided during oral argument and questioned whether they should issue a decision while Congress was considering pending legislation to clarify the issue.  On March 23, 2018, Congress passed the Clarifying Lawful Overseas Use of Data Act (CLOUD Act) as part of the Consolidated Appropriations Act, 2018, Pub. L. 115–141.  As expected, the Supreme Court thus dismissed the Microsoft appeal.

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    CATEGORY: Supreme Court
  • The Supreme Court Hears Oral Arguments In United States v. Microsoft 

    On February 27, 2018, the U.S. Supreme Court heard oral arguments in United States v. Microsoft, No. 17-2.  The case presents the question whether a U.S.-based entity (Microsoft) must comply with a judicially-authorized search warrant that was issued under Section 2703 of the Stored Communications Act by providing overseas data to the U.S. Department of Justice (“DOJ”).

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  • Supreme Court Finds Dodd-Frank Does Not Protect Internal Whistleblowers

    On February 21, 2018, the Supreme Court unanimously held that the anti-retaliation provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) do not cover individuals who do not report violations of the securities laws to the Securities and Exchange Commission (“SEC”).  Digital Realty Trust, Inc. v. Somers, No. 16-1276 (Feb. 21, 2018).  Writing for the Court, Justice Ginsburg explained that Dodd-Frank explicitly defined the term “whistleblower” to include only individuals who report to the SEC and that, when a statute explicitly defines a term, courts must follow that definition.  See 15 U.S.C. § 78u–6(a)(6).  Respondent Paul Somers, who had only reported within his company, was therefore ineligible for Dodd-Frank’s whistleblower protections.  We previously covered the Court’s skepticism of Somers’ position at oral argument.  See Shearman & Sterling LLP:  Government/Regulatory Enforcement, Supreme Court Oral Argument Suggests Skepticism Over SEC Rule Protecting Internal Whistleblowers from Retaliation under Dodd-Frank (Dec. 5, 2017).

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  • U.S. Supreme Court To Review Ex-CEO’s Appeal Regarding Restitution Of Legal Fees Associated With An Internal Investigation

    On January 12, 2018, the Supreme Court granted certiorari to hear an appeal from a two-judge, Fifth Circuit panel decision regarding whether federal law permits restitution orders in criminal cases to cover the costs of internal investigations that are “neither required nor requested” by the government.  Lagos v. United States, Petition for Writ of Certiorari, p. 8, filed June 15, 2017. Joining six other circuits, the Fifth Circuit held that the Mandatory Victims Restitution Act (“MVRA”) authorizes recovery of the fees incurred during an internal investigation, if such fees were “directly caused by the defendants’” criminal offense.  United States v. Lagos, 864 F.3d 320, 323 (5th Cir. Mar. 17, 2017). This holding conflicts with a 2011 decision issued by the D.C. Circuit, holding that such costs were not recoverable, if the investigation was “neither required nor requested by criminal investigators or prosecutors.”  United States v. Papagno, 639 F.3d 1093, 1095 (D.C. Cir. 2011).  The Fifth Circuit affirmed the district court’s order requiring former CEO Sergio Lagos of USA Dry Van Logistics to cover $5 million in fees GE Capital incurred during its internal investigation related to USA Dry Van’s bankruptcy petition.

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  • The Supreme Court Agrees To Review Appointment Requirements For SEC’s In-House Judges  

    ​On January 12, 2018, the U.S. Supreme Court granted certiorari in Lucia v. Securities and Exchange Commission, No. 17-130, agreeing to resolve a circuit split regarding the appointment process for Securities and Exchange Commission (“SEC”) administrative law judges (“ALJs”).  The case raises significant questions as to whether ALJs constitute inferior officers who must be selected and appointed by the SEC Commissioners themselves (who are politically accountable), or whether they constitute mere employees who can be hired like any other agency employee.  See Shearman & Sterling LLP, D.C. Circuit Court Of Appeals Rejects Constitutional Challenge to SEC’s Use of Administrative Proceedings, Need-to-Know Litigation Weekly, Aug. 15, 2016,;  Shearman & Sterling LLP, Tenth Circuit Splits With D.C. Circuit On Constitutionality Of SEC ALJs, Need-to-Know Litigation Weekly, Jan. 2, 2017,; Shearman & Sterling LLP, In Reversal, SEC Agrees That Its Administrative Law Judges Are Inferior Officers That Require Commission Appointment, But Still Seeks Supreme Court Review To Resolve Circuit Split, Need-to-Know Litigation Weekly, Dec. 12, 2017,

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  • In Reversal, SEC Agrees That Its Administrative Law Judges Are Inferior Officers That Require Commission Appointment, But Still Seeks Supreme Court Review To Resolve Circuit Split

    ​On November 29, 2017, the U.S. Solicitor General submitted a brief to the United States Supreme Court in Lucia v. Securities and Exchange Commission, No. 17-130, urging the Court to grant certiorari and resolve a circuit split regarding the appointment process for the Securities and Exchange Commission’s (“SEC”) administrative law judges (“ALJs”).  In a notable shift, the Solicitor General agreed with Raymond J. Lucia and his namesake investment firm that the SEC’s hiring of ALJs, who preside over the initial stages of SEC enforcement hearings, was unconstitutional because ALJs serve as “inferior officers” who must be appointed in accordance with the Appointments Clause of Article II of the Constitution.  The following day, the SEC, in its capacity as a “head of department,” ratified the appointment of its five ALJs in an effort to make their prior hiring compliant with Article II’s Appointments Clause.  Although the SEC’s decision to ratify the hiring of its ALJs in some sense rendered the issue in Lucia moot, the Solicitor General is still seeking certiorari in order to resolve the existing circuit split.

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  • Supreme Court Oral Argument Suggests Skepticism Over SEC Rule Protecting Internal Whistleblowers From Retaliation Under Dodd-Frank

    On November 28, 2017, the Supreme Court heard oral arguments in Digital Realty Trust, Inc. v. Somers, No. 16-1276, a case that raises the question whether an employee who reported alleged misconduct internally, but did not make a report to the Securities and Exchange Commission (“SEC” or the “Commission”), is eligible for protections against retaliation afforded to whistleblowers by the Dodd-Frank Act of 2010 (“Dodd-Frank”).  In 2011, the SEC issued a rule stating that internal whistleblowers were subject to protections under Dodd-Frank, even though the text of the statute defines “whistleblowers” as only those who reported information to the SEC.  16 C.F.R. 240.21F-2(b)(1).  While a decision may remain months away, the questions from the Justices suggested considerable skepticism as to the SEC’s statutory interpretation and rulemaking process.  

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  • United States Supreme Court Holds SEC Disgorgement Orders Subject To Five-Year Statute Of Limitations


    On June 5, 2017, a unanimous Supreme Court held that the ability of the Securities and Exchange Commission (“SEC”) to seek disgorgement in connection with a violation of federal securities law is subject to a five-year statute of limitations, reversing a decision from the United States Court of Appeals for the Tenth Circuit, and rejecting the SEC’s argument that disgorgement is an equitable remedy not subject to any statute of limitations.  Kokesh v. SEC, No. 16-529 (June 5, 2017).  Writing for the Court, Justice Sotomayor analyzed the function of SEC disgorgement, concluding that it “bears all the hallmarks of a penalty” and was therefore subject to the five-year statute of limitations under 28 U.S.C. § 2462 (“Section 2462”).  In so doing, the Supreme Court resolved an outstanding circuit split as to whether the statute of limitations applies to disgorgement, answering that question with a definitive "yes."

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  • Supreme Court Of The United States Finds Criminal Forfeiture Statute Does Not Provide For Joint And Several Liability

    On June 5, 2017, the Supreme Court of the United States unanimously reversed a forfeiture judgment under Section 303 of the Comprehensive Forfeiture Act of 1984, 21 U.S.C. § 853(a)(1) (“Section 853(a)”), holding that forfeiture under Section 853(a) is limited to specific property that has been derived from, or used in, criminal activity by a given defendant.  Honeycutt v. United States, No. 16-142 (June 5, 2017).  This holding resolved a circuit split on the issue and rejected the prevailing majority approach, which had applied joint and several liability to forfeiture under Section 853(a), regardless of whether a party had personally benefited from the subject of the forfeiture.

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  • Supreme Court Grants Certiorari To Resolve Circuit Split Relating To Timing Of SEC Disgorgement Actions

    On January 13, 2017, the United States Supreme Court granted certiorari in the case Kokesh v. SEC, 834 F.3d 1158 (10th Cir. 2016), cert. granted sub nom. Kokesh v. SEC (U.S. Jan. 13, 2017) (Kokesh II), to resolve a circuit split relating to the time in which the SEC must file disgorgement actions. Kokesh, No. 16-529, 2017 WL 125673 (U.S. Jan. 13, 2017).

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  • The Supreme Court Affirms Expansive Reading Of The Bank Fraud Act

    On December 12, 2016, the Supreme Court of the United States unanimously affirmed the conviction of Lawrence Shaw under Section 1 of the Bank Fraud Act of 1984, 18 U.S.C. § 1344(1), holding that a defendant can be guilty of bank fraud even where the defendant intends only to defraud a bank’s customer, and not the bank itself.  Shaw v. United States, No. 15-5991, 580 U.S. __ (Dec. 12, 2016).  While the holding was an entirely unsurprising result, it reaffirmed that the bank fraud statute (like the mail and wire fraud statutes) is interpreted broadly — a position also supported by the Ninth Circuit’s previous decision in Shaw’s case.  United States v. Shaw, 781 F.3d 1130 (9th Cir. 2015), cert. granted, 136 S. Ct. 1711, 194 L. Ed. 2d 809 (2016), and vacated, No. 15-5991, 2016 WL 7182235 (U.S. Dec. 12, 2016).

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  • Supreme Court Affirms Pecuniary Benefit Not Required For Family Member Tips, Declines To Address What Constitutes A Benefit In Other Contexts

    On December 6, 2016, the United States Supreme Court issued a unanimous, but narrow, ruling in Salman v. United States, No. 15-628, 578 U.S. ___ (Dec. 6, 2016), regarding criminal tipper/tippee liability for insider trading, which the Supreme Court had not significantly addressed since its decision in Dirks v. S.E.C., 463 U.S. 646 (1983), in 1983. Following Dirks’ holding that a tippee cannot be held liable for insider trading unless the tipper receives a “personal benefit,” the Supreme Court ruled in Salman that a jury can infer that an insider receives an inherent personal benefit when making a gift of confidential information to a relative who trades on that information. The Court declined to adopt the Government’s argument that “a gift of confidential information to anyone, not just a ‘trading relative or friend,’ is enough” to establish liability, Salman, slip op. at 7, and noted that ultimately the question of whether a benefit was received will be a factual one for the jury. The Court also expressly left intact the Second Circuit’s crucial ruling in United States v. Newman, 773 F.3d 438 (2d. Cir. 2014), that a remote tippee who receives information second or third hand must know of the personal benefit received by the insider in order to be liable.

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  • Significant Judicial Opinions - Robert McDonnell

    On April 27, the Supreme Court held oral argument on former Virginia Governor Robert McDonnell’s appeal of his bribery conviction under the federal bribery statute, Hobbs Act, and honest-services fraud statute, 18 U.S.C. §§ 201, 1346, 1951.  McDonnell contends that the statutes are unconstitutionally vague to the extent they criminalize agreeing to take an “official act” in exchange for a thing of value, without further defining what an “official act” is.  The questioning from certain justices suggested they were sympathetic to McDonnell’s arguments.  While it is always difficult to predict an outcome based on an oral argument, the judges’ expressed concerns about the danger of unclear laws could result in a significant opinion clarifying the definition of honest services fraud.  Indeed, depending on how any such opinion is written, it is conceivable that it could also impact how courts interpret a far broader range of statutes, including the FCPA and other statutes that defendants have long argued require clear limiting principles.

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    CATEGORY: Supreme Court