penalty must be authorized by statute so must any action by the misread of agency there is no statutory authority for the r c c to seek discordant orders from a federal court and therefore cannot i have three main points to make this morning st the text structure and context of the securities laws offer a straightforward route reversal congress is treated for f c c court actions to rid system of so many penalties that does not include discouragement congress has also given the f c c authority for an order requiring accounting and discordant using those very words in administered proceedings but no similar authority for court actions and congress has penalty under the old f p rule its purpose is to punish disobedience of a public law and the return of money or property to those injured by the violation is discretionary at best and often never happens and that it but talk it was in a specific context it's said the statute of limitations purposes it is a penalty for a different and that's something different but the notion that because we categorize it in one time  fraud to assume that characterization one time tax carries over to another is the notion that all this will last for the original sin and must constantly be guarded against so all caucus did with it for a statute of limitations purposes this is a penalty did not fact it was specific footnote in that it was that thing that in every argument that discouragement is never possible or that discouragement has been interpreted too broadly by the courts suppose it were limited to net profits and suppose every effort was made to return money to the victims of fraud would that not fall within a few traditional form of equitable relief i think it still would not your honor and the reason is that the traditional form of a relief to which the government has drawn an analogy and flayed jurisdiction meaning that once a court had some other independent ground equitable dressed action over the case and this is true of the old patent and copyright cases it might then to go on go on toward an accounting in order to afford complete relief how about the i'm not sure why this doesn't provide and sillier jurisdiction in the matter that you spoken about assuming as justice alito has just stated that the accounting is only for net profits that are given to the actual people injured we have other i recognize the multitude of questions joint and several liability recovery the profits of people to please and things like that putting all of that aside just the simple straightforward case of that profits from investors who are actually so i have two answers that just assert my if i may and what the st answer is that precisely because of the complexities that your question recognizes the better course would be to say this remedy that the f c c has sought here as you see discouragement which does not have a historical parallel does not fined in some way outside the common law not at all your honor i'm saying that in those can't when congress is discouragement then it is the court's task to figure out what does this court me and perhaps in doing so look that history and say well it would you know if the money has to go back to the individuals and it can be no more than the amount of the gains and so forth but in a case where congress has not said discordant and they did not say so here i think the courts would hesitate to read into a general provision for equitable rel point what do you then say to the justice alito as to conditions net profits return to victims if you were not to agree with me on that point then those are the primary inconsistency is that we've identified w established regard to historical ram i do think that the remedy that was applied here that the f c c sought here was it was clearly a penalty and clearly inconsistent with coke ash and that the there are there is an important background principle than that and that's because it was not limited to net profits and was not returned to the victims at least not necessarily yes and i would also say because it doesn't have the historical parallel because there was no fiduciary duty it approved but that's that your honor has question that point and you may be right or wrong on that point i just want to isolate your answer so just so just to be clear analytically or are the point is the point is separate i do think that there are substantive accounting remedy and explain that it is so it is in some respect equity forcing the fiduciary to do what the fiduciary should have been doing in the st place which is to keep keep track of the property that person is holding for someone else to make no profit on it and to remit to that person any any profits they have gained those are substantive duties that do not apply to everyone who is subject to the securities laws how how realistic do you think it is to assume that when congress use this term equitable relief six months before congress passed the statute so if congress had wanted to know exactly what a little relief meant in the most recent president of this court in a statute that i think has some similar structural structural issues to this one and i like to get to those they would have gone to great western they would have said ok this that when they will look to history if we use these words if we don't want them to look at history we should use other words we shouldn't use words for example such as they later used for the for the c c s t c where they said ecuador remedies and discordant and restitution  on however i do not think that that supports the government's position here for two reasons the st is that those cases that the cases that form that backdrop were not interpreting the text entrepreneurial words and so the park instruction can and by its that the money going back to the investors and so to the extent that what the government has sought to assert here is the authority to send the money to the treasury well would congress have looked at the decision in black and said well no actually the money looks like it would go back to the investors and not to the treasury well that may raise the qualifications that justice alito was talking about on what the discouragement remedy would entail but the basic understanding that there was something that counted as as that that was in line with equitable powers isn't that a reasonable way to read the statute i don't think it is your honor because i think it would leave too many would essentially leave this court in the position of deciding how the traditional remedy which would not by its terms apply here the government agrees in its brief this is that as you see discordant is a substantial departure from historical norms how do you craft that historical remedy in light of all this policies under the securities acts to to make sense you and apply here and i think that should be done by the legislature in the st instance i'm sorry but they don't do it when they gave the f c c administrative authority for discord and if we have and it mistreated ford or by the c we have to do exactly what you're telling us not to do we would have to define what they meant by that and so what's the difference between doing it in that context where congress has used the word discourse discouragement and this country house where we can presume what would presume that there was something called discouragement that could have been restitution o receiving so that question is not going to go to the courts in the st instance it's going to the agency in the st instance and then the agency will ball but balance all the policy considerations that i'm talking about but at least congress has clearly said you agency may do this and you agency may do this even if it's a punishment i would i would submit and there are important background principles this court should not and that and the courts in general should not say an agency may do this work congress has not said so and equally to the court that th e court should not say this person may be punished where congress has not said so and i would refer back in that context to this court's decision and was versus cutting one of the early administrative law decisions the court's opinion through justice brandeis  where the the agency that has had the authority to bar people from creating a green future the language of the statute permitted them to do it only for in cases of ongoing violations and they want to do it in cases of past violations effectively to serve as a punishment for those pa violations and the court said we will not justice brandeis for the court said we will not enlarge the eight the statute we want to put something in the congress has has not put there to make punishable what the stat what it but by the terms of the statute i'm not decision in livingston which talks specifically about what counts as punishment in terms of the equitable rule and in that case it's one of the older patent cases the special master had imposed a remedy  a that effectively was what we probably would call damages remedy now he allowed the the patent owner to recover from the infringer not what the infringer actually did gain by what the infringer might have gained and he said the measure is going to be because this person  practices of equity we are aware of no rule that converts a court of equity into an insert the punishment of simple torts and i think with all with the greatest respect when you take the principle that no one can punish  by their own but no one can can benefit from their own wrong excuse me and you decouple that from the historical context in the struggle remedies in which those goals reply and you turn it into something as was done here where it exceeds what the district court found to be  it didn't we where the money you paid into the treasury if the f e c in love gave the investors and get the money back to do they do that in some cases your honor they do not do it in all cases it is difficult from the public materials charmin how often they do it and how much money they do give back to investors i suppose we were to reject your broader argument and focus the question on and on this issue and also on the net profits issue what constraints do you think the f c c is under i'm sorry ron of constraints on the question of giving money  back to the investors i think justice ginsburg raised the issue about maybe you can't find them they're not identifiable there are too many of them how what do you think that if if we if if we said you know that's an equitable principle that the money should go back to the investors of possible what does that mean exactly that the f c c has to do i would say that if you were to take that position in this with my primary argument it would be then the rule should be if you're giving the money back to the investors then you can take it and not otherwise because if you're not giving it back to the investors then it's just a punishment so not otherwise even if like you you try to find the investors and you can't i mean i don't know that there's any way in which the court would want money and i suppose these things could be done you know secretly over but if the f c c is engaged in a proceeding like this with respect to investment i would soon vest as should be pretty easy to find if there's money available i guess what i would say your honor is that the in many cases that they currently use the power they don't even believe that it's appropriate to return the money to investors and i would point to the foreign corrupt practices act cases is the biggest example of that in theory you know could they find them they apparently do find it difficult in many cases because in many cases the money goes to the treasury but there are many cases in which this probe the applied under which none of this rationale would apply at all including nine in ten figure recoveries against private companies that are basically just money taken from the investors and put to the treasury because they because that's how they vote because they said they wanted to use it as a term they want to use it as it turned into punishment and to make an example out of the violators of the securities laws counsel in an equity and kind of paralleled in our class action practice today we do police  the efforts of the defendant to find and return money to the investors that he or she is to fraud it sometimes there are some left over and and because people can't be found and we've had cases about what to do with that money as well but why doesn't that supply at least a ready guide and maybe maybe make it in permissible for the government to not make any effort at all but why can't we police assuming reach reject your primary  i guess that would go i would i'm not saying you couldn't draw an analogy to the class action is just a sport it's clearly you could i think and that comes from equity and traditional principles of equity i mean they're drawn from that and under traditional principles actually they couldn't recover because there's no fiduciary here but i understand by doing what but in a class action context as a workable matter you could but i really think that it's getting to the point where the court is creating a new regulatory scheme where one doesn't currently exist to save a remedy that was originally created on the basis of circuit court decisions that the government doesn't really defend anymore and that the best course would be to say this remedy the agency sought here does not exist and if  they think that they need this remedy they should go to congress for and they ask you about your net profits rule similar kind of question and it what does the s c c in your view have to deduct so at a minimum they have to start from the right place which is if they start from the gains to the individual defendant rather than what they did in this case which is starting from the losses to investors and then i believe the standard to this court if you're if you're going to go by the accounting standard that's applied in the old patent cases you would of the profits as a manufacturer calculates the profits of his their own business so it would be certainly legitimate expense here we had lease payments that weren't disputed there were actual these payments and equipment payments that was actual quitman payment in the district court said i'm not going to count any of that essentially for punitive reasons i think you're bad guys you had fraudulent intent from the start and so none of it counts the leases in the machinery was just to print up only used for more fraudulent stuff would you ducted then i mean what they did is they had fliers going around say invest in my fraudulent gold company the equivalent thereof well i suppose and you deduct that legitimate i think there may be a certain point at which you could say i mean there's you could imagine a ponzi scheme wandering in the case of the ponzi scheme ok it's all tainted but i think that the decision below did not give the kind of consideration you would need to get before thank you mr chief justice and may it please the court i'd like to begin by discussing the significance of cold cash and as some of the questions of illuminated the court in coke has said that as he discouragement in s c c cases was a penalty for purposes of a statute of limitations provision there is no reason to read the decision board broadly and in particular the three reasons that the court gave for concluding that it was a penalty for these purposes don't do that they can't map on to the criteria for determining whether something is equitable relief the three characteristics that the court identified were it's imposed as a consequence of violating a public law it serves a deterrent purpose and it's not compensatory and i'd say st that all three of those characteristics were present in kansas versus nebraska in which this court sitting is a court of a regional jurisdiction to order discord in an interstate compact case and in that case the court emphasized that when the interstate compact was ratified by congress it took on the character of a public law and the court said the equitable power of a court of equity is all the greater when the public interest is concerned the nd the discouragement remedy in that case was intended only to s deter purposes that was the whole justification for the remedy because due to the fairly idiosyncratic economic circumstances of the parties the special master concluded in the court agreed that a compensatory damages remedy would not be sufficient  to deter future violations and so compensatory damages world ward but the court ordered discord partial discouragement on top of that in order to ensure that there would be an adequate deterrent and for the same reason the rd characteristic that the court adequate to compensate kansas for its losses i'd like to turn next to the issue that was taking up the discussion towards the end of mr rap with his argument which is the formula by which the general rule that net profits are the measure of discords month and that the defendant is entitled to deduct its marginal costs now the term general rule implies that there will be exceptions and if you look at literally the next page of the  restatement from the one that the court cited the restatement says the defendant will not be allowed a deduction for the direct expenses of an attempt to defraud the claim to claim it and so for example if part of your expenditures are as justice prior were was hypothesizing it part of your expenditures are sending out fraudulent communications false sales pitches that are intended to deceive consumers into to buying securities that would be the kind of expense that under traditional equitable expenses under professional equitable principles would not be allowed a nd example in foreign corrupt practices case at case ticks the wrong is that the defendant company has obtained a contract by paying a bribe to the public official and the f c c would say in those cases the proper measure of discord judgement is net profits earned on the contract and so the defendant wouldn't be charged gross receipts the defendant would be allowed to  its operating expenses but we wouldn't allow the defendant to count the bribe itself as a cost of doing business as a deductible expense that in our view wouldn't be allowed in computing the amount of discord from it that would be order so that the one thing that i would emphasize most strongly is we are not as to measure of discord but we are not asking for an f c c specific rule we believe that the arguments we've made in prior cases have been consistent with traditional equitable principles because even though the general rule is that you use net profits as the measure that is subject to exceptions and we rely on the exceptions in a variety of circumstances the nd point i would make is if we're wrong if in some instance or a instances or in some category of cases courts have been in awarding discord but in an amount that exceeds what traditional equitable principles would produce then the correct answer is not to give us everything and it's not to give us nothing it's that courts should continue to order to scorch much but computed in accordance with traditional general equitable rules not in accordance with any f c c specific for your your position is if i understand it correctly follow whatever the common law or rule was with respect to calculated net profits and return it to investors but that you're also a victim and so that you can you could take the money ahead of investors that you can keep the left over of mounts what what is your position with respect to that broader question of who gets the money why is it the treasury it's not the s e c getting the money and one could see it's potentially an argument that is the s c c the money it could then spend it on protecting investors but if the treasury is getting it and i know you're going to save money is fungible but if the treasury is getting it we don't really know if it's being used so how in this years let me say three or four things in response to that the st is that as an empirical matter the s c t tries to return the money to investors when it can and we're largely successful in doing that now there is a category of cases like the the f c p eight cases the foreign corrupt practices cases where sometimes we do get big judgments they're not returned to investors because there really is no obvious universe of individual victims from an f c p a violation if c p a violation but in cases where individual victims can be located and the money can be distributed it's our general practice to do so the nd thing is perfectly before you leave that i'm sorry to interrupt but i thought last time around in co cash that the representation from the government was different on that score and that sometimes you do and sometimes you don't i mean sometimes it is done and sometimes it is not done sometimes the reason that it's not done is as i was saying with respect to the f c p a there just is no obvious universe of investors sometimes it's not done because it's a fraud that involves bilking a very large number of investors out of a very small amount of money each and it's deemed infeasible to go to the expense of locating the individuals given the small amount that each would receive sometimes not done just because it's not done i can't brule out that possibility i will say that this is at the discretion of the court now the statute doesn't require that it be forwarded to investors in any particular category of cases but this is at the court's discretion of government have any difficulty with the rule that the money should be returned to investors where feasible i would say if that is couched as a general equitable principle that is the court is sitting as a court of equity and there would be nothing wrong with a district judge in an individual case saying unless you can persuade me that is it isn't feasible to return this money to investors i am going to order that that be done i don't think that's typical so i didn't mean to interrupt brief the dodd frank act does have these i'm sorry the dodd frank act has these provisions that identify permissible uses of money that is discord in a judicial or administrative action but is not ultimately forwarded to investors it can be used for instance to pay whistleblowers and so the statute specifically contemplates the possibility that discord funds sometimes will not be distributed for whatever reason and it would really undermine the statutory scheme to say that distribution to investors is in all circumstances a prerequisite to why if if if the statute says is that equitable relief that may be appropriate or necessary for the benefit of the investors do we have to say here and should we say or not say here that that means if it's not feasible to return it to investors  that it's for the benefit of investors to give it to the i think that statutory language we think and i want to explain why refers to measures that will benefit the investor community generally not necessarily the particular individual victims and i give the following reasons the st is that language applies to equitable relief generally under section twenty one the five and so if you imagine a court contemplating an injunction it would obviously be a very constrained view of the court's injunctive authority in an f c c enforcement action to say that the court can only issue an injunction that will benefit the particular individuals who have been benefit victimized we can get back to the money which is where we're at injunctive relief i just want to i would like an answer to just to sort of meyer's question which is it if if it's feasible on what account should the government not be in the business of returning the money given given the statement and in that statute that we're supposed to be following equitable principles i take that to be her point her question to you and and i would appreciate it so that i don't i don't see a problem with saying it is appropriate necessary only if it is forwarded to investors if it is feasible to do that the point i was making about the whistleblowers and such was congress clearly didn't think that a discordant award could be appropriate or necessary only if it was forwarded to investors because it made specific provision for the circumstance in which discords funds were left over that the other point i'd like to address and mr i make sure i'm clear in your answer to just discourse it's just the sort o because the st time you answer you said it would be appropriate for a district court to say that and i think justice corsets and followed up in just the sort of my world would it be appropriate for this court to say that's the rule namely that it has to be returned to investors where feasible i don't i wouldn't have a problem with that i mean i don't know that it is kind of in accordance with usual principles for the court to announce that sort of instruction but it would be consistent with the s practice it would certainly be directing the district courts to do something that they could do already as an exercise of their equitable discretion the only other thing i would say is it's common ground that the f c c is authorized to impose discords meant administratively and its decisions are reviewable but they were reviewed under a more deferential standard and so the court reviewing an f c c discordant order is not going to be asking was this the correct exercise of equitable discretion just one of the reasons that the f c c sometimes elects to proceed in court originally is if we have doubts about the defendant's compliance and we think we're going to be in court anyway than we might want to save a step and go there st i guess part of our response to the arguments about could we do this administratively are to the effect that it wouldn't be entirely unworkable it would be better than no alternative at all but there's no reason for the court to set up an incentive that creates an artificial  system that creates an artificial incentive for us to proceed in that way since the defendant will receive additional proceed protections if the case is in court that the other thing i would say that i think is at least in part respect responsive to justice bios question and also response to something that mr rapp we said he characterized the government as having conceded that are just words meant as a substantial departure from historical norms and that that's not really what we said in the last paragraph or of our brief the point we were trying to make was that if you look back at the th century cases in which discouragement was ordered and they all involved awards to individual victims that wasn't because there was a large body of law saying you couldn't award to score judgment to the government it was simply because until the people part of the th century civil enforcement actions filed by federal regulatory agencies were not one thing and so the question didn't come up where the other and when those types of action started to become prevalent courts had to grapple with questions about how do legal principles that were developed in the context of private suits map on to government enforcement and fifty somebody could have argued very plausibly that it just doesn't make sense to order to scorch money to the government because the essence of discords one has always been payment to the wronged entity you could also have made a strong argument on the other side that the core purposes of discords money are to prevent the wrongdoer from profiting from its own wrong and thereby to deter future violations and disco mccann serve those traditional purposes regardless of where the money up and as of eight hundred and fifty that was an open question by the time that congress an act of section two hundred and fifteen in two thousand and two that question had really been resolved because this court importer in mitchell had said the federal courts equitable powers are at their height when the public interest is involved for thirty years courts in f c c enforcement actions had been awarding congress had passed statutory provisions that priest both presuppose the availability of the score judgement in s c c judicial proceedings and that authorized the f c c to impose discords meant administratively and so whatever else you whatever other blessings you might derive from the decision to authorize this to be done it and minister greater proceedings clearly congress didn't think that there was anything in congress about the idea of discords but going to the government discouragement going in and ses in a government enforcement action and so when congress passed section twenty one dollars d five in two thousand and two if you were asking in kind of a conscientious well informed member of congress what do you think you were authorizing when you authorize district court to issue appropriate equitable relief that may be appropriate or necessary the st thing they would ask is what kind of equitable relief have courts been awarding up to this point for instance when you get statutes where that authorizes a court to issue an injunction in accordance with the principles of equity how do you decide whether a particular injunction is in accordance with the principles of equity you look at the way that equity courts have been doing it in the past and the lesson the court has drawn is you look to factors like adequacy of the remedy at law irreparable injury a grant of authority to proceed in accordance with the principles of equity is basically an admonition keep doing it the way the courts of equity have been doing it and similarly in two thousand and two a conscientious member of congress would have thought at the very least i'm authorizing courts to continue to enter the equitable remedies that they have entered up to case in law well i think what great west was dealing with specifically was a different thing that i got agree with out that there is the statement there that restitution just what i said let me say two things in response to that the st are great west was dealing with a breach of contract action and so the court in great west said that in breach in breach of contract suits if the contract calls for party a to pay money to party b a suit seeking to compel a to pay the money to be had historically been regarded as seeking legal relief not equitable relief and then as mr appleby was saying the court in great west emphasized that yes there are some sorts of legal remedies that are not considered inherently equitable but courts of equity could sometimes award them as a matter ancillary to their equitable jurisdiction and the court said at least under arrest that's not what equitable relief met i don't think dischord can really be portrayed in that way i mean obviously in kansas versus nebraska the court ordered discord much as treated discords when as inherently equitable relief and one sign that it regarded discord as equitable rather than legal was it said it is an appropriate exercise of authority to enter partial discourse but yes we would have authority to issue require the defendant to hand over the full amount of its profits but under the circumstances of the case we think an adequate deterrent purpose would be served by requiring nebraska to hand over a fraction of its profits but far from the whole that's the kind of equitable discretion that the that that's the kind of discretionary judgement that is inherent in equity the other thing i would say about mr aqui is argument with respect to livingstone and the patent cases i mean the before the court had specific statutory authority to do so in cases like livingstone the court held that a defendant's profits were the were appropriate element of relief in a patent infringement suit and the defendant was not acting as for your trustee the defendant was simply committing a wrong using an invention in which the plaintiff had a property right and that was found to be an appropriate element of relief in the court and livingston said it is not permissible for a court of equity to also award interest because that would be a penalty now i think our legal system regards interests differently than it did back in the day but i think the general principle from livingston remains sound that is if a court were to compute disco accordance with traditional equitable principles both the general rule that net profits are the measure and any stablished equitable exceptions to that rule if the court computed the discordian award in that manner and then said i'm tacking on another fifty percent because your behavior was so egregious we would agree that that would be a penalty that would be something that would not be an appropriate exercise of equitable authority under section twenty one dollars d five it could still be done in the f c c cases because the congress has authorized civil penalties in addition to equitable relief but it could not be justified as an exercise of equitable authority but that's not what's being done in this case  account and could be distributed to investors and certainly that would always be an appropriate deduction in any any benefit the investors received at the end of the day but they were basically two categories of expenses that the th circuit in the district court didn't allow one was for the overseas marketing attempts and i think that was simply the type of expense that justice pryor was talking about this was money spent to perpetrate the fraud money spent to try to induce other investors to pay their money qualified as legitimate business expenses had there been a true intent to construct a cancer treatment facility and do what the marketer said they were going to do what the district court said and i believe it says on page eighteen a petition appendix it characterized those expenses as a half hearted attempt to convey the illusion of progress and so the courts analysis on that point was not extensive but we take the point to have been these were not legitimate business expenses because they didn't represent a true good faith effort to construct the relevant facility they simply represented an effort to fool investors into thinking that things were going along as planned and those findings were certainly subject to being reviewed on appeal we would agree that had the investors had it in their minds to construct the facility and it just didn't pan out at the end of the day those would have been the sorts of things that could have been used as deductions but given the conclusion of the lower courts that this was a pervasively fraudulent scheme in which essentially all of the expenses were made to perpetrate the fraud then we think it's in accordance with traditional equitable principles to allow no deductions but but again the point we have stressed most strongly is we think that congress has authorized courts to award discords meant as computed under traditional rules of equity if in a particular case or even if in some larger category of cases the court believes that exorbitant discouragement has been awarded than the proper response is be more careful about it to tell lower courts be more careful about the computation it couldn't under any circumstances be a justification for holding that congress is not authorized to score judgment at all if there were there are no further questions we would urge the court to affirm thank you counsel four minutes just to wrap thank you traditional equable principles there was a dispute between the majority in the center about whether it was appropriate to adopt section thirty nine of the rd restatement but either way that was a case of the court making a new remedy that did not previously historically exist and that would not be appropriate to do here where you are interpreting a statute in which congress has already set forth a detailed remedial scheme on the question of the calculation of the individuals of the amount of discouragement there are explicit findings in this record as to the gro defendant to each defendant you wouldn't start at the total losses to investors and take adoptions from there and i think that goes to show how far the the both both what happened this individual case and also how far the analysis that's going on here is from the principles i think it's practical function has been to can compel payments to the treasury there is no historical precedent for that i would cite the courts the case in which the court found that there was no precedent for applying the equitable doctrine of  there are one or two that don't even in those cases i would say that those statutes at most reflect a pre supposition or awareness by congress the courts were doing this not an authorization and authorization is what's needed to authorize a path to inflict a penalty  finally if the court does conclude that some remedy may survive may survive in some case i would urge its nevertheless traverse and not for a man in this case these individuals have already been ordered to pay their entire gains and anything above and beyond that would go beyond the ethical principle that no individual should be should be permitted to profit from his or her own wrong and without your honors i would respectfully request the court reverse thank you counsel the case was submitted