November 4, 2019

Kokesh Redux: SCOTUS to Hear Challenge to SEC Disgorgement Authority

The SCOTUS’s 2017 Kokesh decision limited the SEC’s ability to use one of its favorite enforcement remedies when the Court unanimously held that SEC disgorgement claims were subject to a 5-year statute of limitations. Now, this Reuters article says that the SCOTUS has agreed to hear a new case that could remove disgorgement entirely from the SEC’s arsenal. Here’s an excerpt:

The U.S. Supreme Court on Friday agreed to hear a challenge to the ability of the Securities and Exchange Commission to recover ill-gotten profits obtained through misconduct in a case from California that could weaken the agency’s enforcement power.

The nine justices agreed to hear an appeal by California couple Charles Liu and Xin Wang contesting a 2016 civil action brought against them by the SEC. The SEC won a court ruling in 2017 requiring Liu and Wang to disgorge almost $27 million, the same amount they raised from foreign investors to build a never-completed cancer treatment center.

Part of the SEC’s civil enforcement arsenal, disgorgement requires defendants to hand over to the U.S. government money obtained from a fraudulent scheme. The SEC has said it generally passes on disgorged funds to the original investors although it was not required to do so in this particular instance. In fiscal year 2018, the agency returned $794 million to harmed investors.

Whether the SEC actually has the ability to seek disgorgement is an issue that the Kokesh Court specifically raised in footnote 3 of Justice Sotomayor’s opinion:

Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context. The sole question presented in this case is whether disgorgement, as applied in SEC enforcement actions, is subject to § 2462’s limitations period.

It looks like the SCOTUS’s invitation to litigate this issue has been accepted. Here’s the cert petition & the Court’s order granting it.  A decision in the case is expected by June 2020.

Boardroom Diversity: Where Do African-Americans Stand?

Efforts to enhance board diversity in recent years have focused primarily on increasing the number of women who serve as directors. Those efforts have slowly paid off and women now are represented on every S&P 500 board. But this Black Enterprise article says that African-Americans still have a long way to go when it comes to boardroom representation:

There are 322 black corporate directors at 307 companies versus 308 at 316 corporations last year. Our editorial research team also discovered that 187 S&P 500 companies or 37%, did not have a single black board member in 2019—a 2 percentage point improvement from 2018.

The article is accompanied by Black Enterprise’s “2019 Registry of Corporate Directors,” which identifies each African-American who serves on the board of an S&P 500 company, the companies that have at least one African-American director, and the companies that don’t.

Boardroom Diversity: Progress on Racial Diversity Impeded by Slow Turnover

The news isn’t all bad when it comes to the inclusion of African-American & other minority board members. Spencer-Stuart’s 2019 Board Index says that progress on racial & ethnic diversity is being made – but that slow turnover is impeding that progress. Here’s an excerpt:

Boards are also focused on racial/ethnic diversity. Just under one in four new S&P 500 directors (23%) are minorities (defined as African-American/Black, Asian or Hispanic/Latino). Minority women represent 10% of the incoming class, up slightly from 9% last year. Minority men represent 13% of the new directors, an increase from 10% last year but still down from 14% two years ago.

While women and minority men constitute more than half of the new directors, continued low boardroom turnover remains a persistent impediment to meaningful year-over-year change in the overall composition of S&P 500 boards. As a result, in spite of the record number of female directors, representation of women increased incrementally to 26% of all directors, up from 24% in 2018 and 16% in 2009.

The report says that “slight” progress is being made in minority representation at the top 200 S&P 500 companies. Today, 19% of all directors of the top 200 companies are male or female minorities, up from 17% last year and 15% in 2009.

John Jenkins