In a decision 8-1, the Supreme Court today undermines the ability of the Security and Exchange Commission to take profits from those who commit securities fraud. And the failure could have an effect on hundreds of new ICO-funded crypto companies.
Writing the court opinionJudge Sonia Sotomayor argued that the refund (the waiver of illegally obtained earnings) applies to net, not gross, earnings. In addition, the court found that the agency must do more to return that money to injured investors.
The SEC has used the return to search for profits made through initial coin offerings (ICOsICO) since its DAO report discovered that DAO tokens were securities. The 2017 report was a warning to crypto companies that future token sales could be considered unregistered securities sales if their organizers were not in compliance with the law.
For a blatant example, in April 2020, the SEC sought the return of all $ 1.8 million Dropil raised through an ICO after the founders of the company allegedly deposited investor funds directly into their personal bank accounts. For one more example of ponytail from the 1990s, actor Steven Seagal agreed to pay all the $ 157,000 they paid him after promoting the Bitcoiin2Gen coin without revealing that he was being compensated.
Today’s case, Liu v. Securities and Exchange Commission, had nothing specifically to do with cryptocurrency. It involved a couple the SEC ordered to pay $ 27 million in returns after they allegedly defrauded investors. But Charles Liu and Xin Wang argued that they had only won $ 8 million from the racket.
The ruling could redirect how the SEC takes action against suspected scammers and / or token sale promoters alike. Disgorgement is designed as a “fair” measure aimed at settling things up with investors. It’s not a punishment, that’s what penalties should be for.
Thomas Gorman, a former attorney with the SEC’s Compliance Division, said Liu’s decision will have a big impact:
“Since Congress gave the SEC specific authority to impose a sanction, this meant that in many cases the Commission imposed double sanctions: restitution and a legal sanction. That was more than unfair. Liu removes that injustice by returning the much-needed balance and justice to the remedy process in SEC enforcement cases, “it said in a statement.
However, Jake Chervinsky, general counsel for compound finance, said Decipher, which does not bode too much for new crypto companies. “This is a largely procedural decision that shouldn’t have much of an impact on crypto,” he said. “The SEC already had a habit of seeking a return in civil actions and here the Supreme Court confirmed its authority to do so. This should not change their behavior at all. ”
The SEC, at least officially, agrees that it remains business as usual. According to Bloomberg, SEC spokeswoman Chandler Costello Today’s ruling, he said, “allows us to continue stripping malefactors of their illicit profits and return the money to their rightful owners, following court instructions to ensure that our efforts incorporate principles of fairness and equity.”