U.S. Supreme Court in Washington. (Photo: J. Scott Applewhite/AP) U.S. Supreme Court (Photo: J. Scott Applewhite/AP)

On Tuesday, the U.S. House of Representatives passed The Investor Protection and Capital Markets Fairness Act, H.R. 4344, intended to "substantially strengthen" the Securities and Exchange Commission's (SEC's) authority to recover the wrongful gains of securities law violators.

The bill, introduced by Rep. Ben McAdams, D-Utah and passed by a 314-95 vote, would codify the SEC's authority to seek the return, or disgorgement, of ill-gotten gains and would set a 14-year statute of limitations for the agency to do so.

The Investor Protection and Capital Markets Fairness Act is said to effectively overturn the U.S. Supreme Court decision in Kokesh v. SEC, which allows for a five-year statute of limitations on disgorgement and would prevent such remedies from being defined as "a civil fine, penalty, or forfeiture."

House passage of the bill comes as the Supreme Court agreed on November 1 to hear another case involving the SEC's clawback powers. That case argues the agency does not have the authority to seek disgorgement.

Nicolas Morgan, a partner at Paul Hastings in Los Angeles, told Treasury & Risk sister publication ThinkAdvisor that House passage of the bill will likely have bearing on the Supreme Court's upcoming decision in the appeal of Charles Liu and Xin Wang, which he discussed in a recent ThinkAdvisor blog post.

The SEC ordered Liu and Wang to disgorge $35 million for defrauding Chinese investors out of money that was supposed to be used for an EB-5 immigrant investor program. Under current law, Morgan wrote, "Liu and Wang argue that the SEC has no authority to seek disgorgement of that $35 million, and there is a decent chance the Supreme Court will agree."

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Melanie Waddell

Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.  

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