Class Action Lawsuit Claims SEC ‘Disgorgement’ Falls Outside Agency’s Authority

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The United States Securities and Exchange Commission (SEC) is the defendant in a proposed class action filed in Massachusetts by the trustee of the F-Squared Liquidating Trust. The plaintiff charges that the trust’s owning entity, F-Squared Investment Management, LLC, is one of the numerous entities from which the SEC has collected money as “disgorgement” – a means of collecting profits obtained through allegedly illegal or unethical acts – without or in excess of proper authority to do so. The 25-page complaint says the SEC has obtained at least $14.5 billion over the last six years through purported “disgorgement,” with these proceeds going to the U.S. Treasury. These “disgorgement” payments to the SEC, the lawsuit charges, were often well in excess of monetary penalties the agency gained under explicit statutory fines levied under federal securities laws, which the case notes all have maximum monetary penalty limits.

From the lawsuit (emphasis ours):

The plaintiff trust outright alleges the “disgorgement” it handed over to the SEC was nothing more than an unauthorized fine. The case mentions that the plaintiff trust paid the SEC $30 million in “disgorgement” as the result of a cease-and-a-desist proceeding the agency commenced in 2014.