Recovered Proceeds Go To Wronged Investors
The U.S. Securities and Exchange Commission (SEC) brought a civil enforcement action against developers of a proposed proton therapy cancer treatment center alleging that developers funneled investor money received through an immigrant investor program, nearly $27 million, to themselves, marketing expenses and salaries that exceeded a small administrative fee disclosed in a private offering memorandum, and to a company under one developer's control. Despite arguments that Congress never gave the SEC authority to seek disgorgement and that it is a form of punishment that courts cannot impose for the SEC, the high court reaffirmed the agency's authority to seek disgorgement, a part of its civil enforcement arsenal aimed at returning funds acquired in fraudulent schemes to the original investors. In its 8-1 ruling the Court held the disgorgement cannot exceed the net profits of the conduct at issue. The proceeds must go to the “wronged investors.” In the most recent full fiscal year the SEC reports it has collected $1.5 billion in disgorgements and penalties and paid $1.2 billion to harmed investors.