The SEC’s Greed Is Coming Back to Bite It

Sometimes people do bad securities stuff and they get in trouble with the Securities and Exchange Commission. The SEC can do things to punish the people who do the bad stuff: It can't put them in prison, but it can ban them from the securities industry, or it can fine them money. It can also demand "disgorgement," which means, roughly speaking, that they have to pay back the money they made (or the money their victims lost) by doing the bad stuff. I mean, they have to pay it back to the SEC. The SEC doesn't have to give it back to the victims.

A weird thing about disgorgement is that the SEC sort of made it up. There was never a law saying that the SEC could get disgorgement, but it seems sort of obvious that it should be able to, and so it managed to talk courts into it. "In the absence of statutory authorization for monetary remedies, the Commission urged courts to order disgorgement as an exercise of their 'inherent equity power to grant relief ancillary to an injunction,'" the Supreme Court said last year, describing the history of SEC disgorgement. (The SEC was only authorized to seek fines in 1990; now it often pursues both fines and disgorgement. In 2002, Congress specifically authorized the SEC to seek "any equitable relief that may be appropriate or necessary for the benefit of investors," which perhaps covers disgorgement, at least when the money goes back to victims.)