US Supreme Court Petition Challenges Joint-and-Several Disgorgement After SEC Pump-and-Dump Enforcement
Defendants held jointly and severally liable for disgorgement in an SEC pump-and-dump enforcement action have petitioned the US Supreme Court, arguing the First Circuit's approach conflicts with the Supreme Court's 2020 ruling in *Liu v. SEC*. The lead petitioners, Paul Sexton, Mike K. Veldhuis, and Jackson T. Friesen, alongside companion petitioner Courtney Kelln, were participants in a scheme orchestrated by Frederick Sharp's Sharp Group, which used nominee entities to keep stock ownership below 5% reporting thresholds. The district court imposed joint-and-several liability based on "concerted wrongdoing," even though the SEC did not prove the petitioners actually received any of the funds at issue; disgorgement amounts were drawn from Sharp's internal accounting system. The petitioners contend this is the first post-*Liu* appellate decision to impose joint-and-several disgorgement on unrelated defendants who did not commingle or receive the relevant funds. *Liu* held that making a wrongdoer liable for affiliates' profits risks transforming an equitable remedy into a penalty. K&L Gates LLP is named in connection with the matter.
Why this matters
The cert petition directly tests the outer limits of the SEC's disgorgement toolkit after *Liu*, which was meant to constrain the remedy to actual profits received. If the Supreme Court grants certiorari, it could reset enforcement economics across securities fraud cases, reducing the deterrent force of joint-and-several disgorgement in co-defendant schemes. The case is particularly significant where the SEC relies on a target's internal records rather than tracing actual receipts to individual defendants, a common feature of complex pump-and-dump investigations. A ruling restricting joint-and-several liability would shift the evidentiary burden back onto the Commission to disaggregate profits defendant-by-defendant, increasing litigation costs and potentially narrowing recoveries for harmed investors.
On the Ground
Securities enforcement and white-collar defence teams will be monitoring docket developments closely; firms with SEC enforcement practices should brief clients on the petition's arguments before any cert grant. The case activates securities regulation, appellate, and financial crime practice groups. A trainee would be tasked with pulling the First Circuit opinion in *SEC v. Gasarch*, the *Liu* decision, and the cert petitions, then preparing a comparative memo on how courts have applied joint-and-several disgorgement post-*Liu*. Named firm K&L Gates is on the record in connection with this matter.
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“How does this petition challenge the SEC's ability to recover disgorgement in multi-defendant fraud cases after Liu v. SEC?”
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