SEC Disgorgement Order Faces High Court Scrutiny

WASHINGTON (CN) – The Supreme Court agreed Friday to hear the case of two people ordered to repay $26 million they bilked out of Chinese investors through a program that gives U.S. visas in exchange for foreign investment in the United States.

In 2016, the Securities and Exchange Commission accused Charles Liu and Xin Wang of pocketing millions of dollars paid by a group of Chinese investors who were seeking to take advantage of the EB-5 visa program, which offers U.S. visas and a chance at citizenship to people who invest a certain amount in qualifying U.S. business ventures.

Most people who are looking for this type of visa invest through programs like the ones run by Liu and Wang that pool together money from multiple foreign investors. Liu and Wang’s program was purportedly going to fund the construction of a cancer treatment center, but the SEC says the two mismanaged the money they collected and that the center has not opened.

In 2017 a California federal judge found Liu and Wang had violated federal securities law through the scheme and ordered them to pay back the full $26.4 million they brought in through their operation, a remedy known as disgorgement.

Before the two could appeal the order, the Supreme Court ruled in the case Kokesh v. SEC that disgorgement qualifies as a penalty. Liu and Wang cited Kokesh on appeal to the Ninth Circuit, saying that disgorgement is not among the punishments SEC is authorized to seek under federal securities laws, and that the District Court had been wrong to order it.

With the federal appeals court relying on pre-Kokesh, however, it ruled against them, setting the stage for Liu and Wang’s petition for certiorari.

The justices agreed to take up the case this afternoon, without comment, as is their custom. Liu and Wang are represented by Michael Kellogg, an attorney with Kellogg, Hansen, Todd, Figel & Frederick in Washington. Kellogg declined to comment on today’s development. 

The Justice Department did not immediately return a request for comment.

 

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