Nearing the end of its spring term, the US Supreme Court handed down a vital securities enforcement ruling yesterday, holding that the SEC can continue to collect 'disgorgement' as a form of equitable relief. However, the justices limited disgorgement to the net profits at issue. In this article we interview Nicholas Morgan, a partner at the US law firm of Paul Hastings (pictured) on the subject.

Q: Will there be a follow-on case from this?

A: I'm sure there will be. The next one is at the Appellate court in the Fifth Circuit, which is in Texas. Just as Kokesh led to the Liu case, Lucia v SEC (2018) led to this one. In Lucia the Supreme Court said that SEC administrative law judges or ALJs (the men in the SEC's private court) had the right to make judgments but the way in which they were appointed was improper, i.e. unconstitutional. The SEC lost that case. It then changed the way in which it appointed the judges and said "problem fixed!" But Lucia said that there were too many layers of protection between ALJs and the president. He can't fire them. This was a removal problem. Raymond Lucia himself, the man charged with breaking the securities laws, raised the removal problem, but a week later he settled. So another defendant, Michelle Cochran, will open a related case against the SEC. She got traction with the court of appeals in Texas, which said that the SEC could not go forward with its administrative proceeding until this is resolved.

So 'round 2' of Lucia is likely and it will probably happen in the Supreme Court. It'll have to be the right sort of case and it will probably be her case, if she wins at the Fifth Circuit, but the SEC might not appeal to the Supreme Court, so we'll have to see.

* Nicolas Morgan can be reached on 001-213-683-6181 or at nicolasmorgan@paulhastings.com