A latest U.S. Supreme Court ruling has limited the amount of fines that the Securities and Exchange Commission (SEC) canimpose on entities, including crypto and blockchain companies. The new ruling would affect the fines sort by the SEC in some of the notable ongoing crypto-related cases.
According to a summary of the U.S. Supreme Court case involving Liu and the SEC, the court has ruled that the SEC cannot impose fines or disgorgements that exceed the profits made by an individual from illegal activities. Furthermore, such fines can only be awarded for the benefit of the victims and not imposed as primitive damages.
According to the ruling, the SEC is not authorized to seek disgorgement beyond a defendant’s net profits from wrongdoing. The court said such authority is not within the scope of the SEC’s enforcement powers. The court also added that, by limiting the amount of disgorgement to an individual wrongdoer’s net profit, the remedy does not become a punitive sanction.
The court also ruled that legitimate business expenses must be deducted before awarding disgorgement. However, the disgorgement can be awarded on the entire profit of the business, if only they were all made from the wrongdoing. The court further clarified that disgorged funds must be for the benefit of the victim and consistent with equitable principles.
The Supreme Court also noted that the SEC does not always return the entirety of disgorged process to investors. It said the agency rather deposits the portion of the amount in a fund in the U.S. treasury. Per the new ruling, if the SEC does not intend to give the entirety of disgorged funds to investors, lower courts must evaluate whether the relief sort is truly for the benefit of investors.
Commenting on the recent court ruling, SEC’s spokeswoman, Chandler Costello said it allows the agency to continue to strip wrongdoers of their ill-gotten gains and return them to their rightful owners. She said the court’s direction will ensure that the agency’s efforts embody equity and fairness.