Liu and Wang’s attorneys say the SEC has sought so much money through disgorgement that it’s become a punitive measure, much like a penalty. They say the order in their case went well beyond the $8 million the trial judge found they had gained from their scheme.

“This court, other courts, and commentators have understood for centuries that equity does not authorize punishment,” they argued.

Liu and Wang point to a 2017 Supreme Court decision that said disgorgement is covered by a five-year statute of limitations that applies to penalties. That ruling declined to say whether the SEC has the power to seek disgorgement in the first place.

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The SEC says it tries to return disgorged funds to injured investors when possible. The agency says it collected $1.5 billion in disgorgements and penalties in 2019 and paid out $1.2 billion to investors that year.

Attorneys at the SEC are increasingly concerned the agency is in danger of losing the case, according to people familiar with the matter. That outcome could damage its enforcement efforts in the near term, said the people, who asked not to be identified so they could discuss internal matters.

If the court rules against the SEC, the agency may need to press Congress to pass a fix or shift its strategy to try to recoup ill-gotten gains outside of federal court.

Some outsiders say the court could trim the SEC’s disgorgement power without rejecting it altogether. Oak Management Corp., a venture capital firm that says it was defrauded out of tens of millions of dollars by a former partner, told the justices they can bar the SEC from using disgorgement as a penalty while leaving the commission with the power to seek restitution for victims.

A group of law professors led by Douglas Laycock of the University of Virginia School of Law filed a brief urging the court to allow disgorgement but only up to the level of the wrongdoer’s net profits.

“Each party’s position seriously overreaches,” Laycock wrote. “The measure of disgorgement has always been the wrongdoer’s net profits.”

The case is Liu v. SEC, 18-1501.