Author: Michael J. Kaupa

SEC Disgorgement Claim Challenged After Supreme Court’s Decision in Liu

The SEC’s disgorgement request in a litigated proceeding in federal district court is being challenged in the wake of the Supreme Court’s 2020 decision in Liu v. SEC, which limited how much the agency can seek in disgorgement.

In April 2015, the SEC filed a complaint in the U.S. District Court for the Northern District of Texas against two California oil-and-gas companies, Team Resources, Inc., and Fossil Energy Corporation, their common principal, and four sales associates (collectively, “Team Resources”) for allegedly operating a fraudulent oil and gas production scheme. The SEC charged that Team Resources lured investors to the oil companies by touting unreasonable oil and gas production figures and distributing misleading information regarding the companies’ operations.

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The SEC’s Renewed Focus on Accounting Misconduct

Two recent enforcement actions by the U.S. Securities and Exchange Commission (SEC), including a recent settled action against Kraft Heinz Co. (“Kraft”), underscore the agency’s renewed and continuing focus on accounting and financial reporting misconduct.

Two weeks ago, the SEC announced its third and latest enforcement settlement through its data-driven EPS (Earnings Per Share) Initiative. The EPS Initiative, run by the SEC’s Enforcement Division, used data analytics to detect potential reporting violations. The EPS Initiative has resulted in two prior actions. On September 28, 2020, the SEC publicly disclosed the EPS Initiative with two settlements, as discussed previously in this blog here.

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