What's Happening?
The United States Court of Appeals for the Ninth Circuit has affirmed a $2.25 million disgorgement award obtained by the SEC in a case involving fraudulent microcap schemes. The court ruled that the SEC does not need to prove pecuniary harm to investors to impose disgorgement, aligning with the First and Fifth Circuits but disagreeing with the Second Circuit. This decision highlights a significant split among the circuits regarding SEC enforcement standards, potentially prompting review by the Supreme Court.
Why It's Important?
The Ninth Circuit's decision is crucial as it impacts how disgorgement is applied in SEC enforcement actions. By not requiring proof of investor harm, the ruling supports a broader interpretation of disgorgement, focusing on stripping wrongdoers of illicit gains rather than compensating victims. This approach could lead to more aggressive SEC actions against securities fraud, affecting companies and investors involved in such cases. The circuit split may also influence future legal standards if the Supreme Court decides to intervene.
What's Next?
The circuit split may prompt the Supreme Court to review the differing interpretations of disgorgement requirements. If the Supreme Court addresses this issue, it could lead to a unified standard across all circuits, impacting future SEC enforcement actions. Stakeholders, including legal experts and companies involved in securities, will closely monitor developments for potential changes in enforcement practices.
