SEC has been in the habit of charging penalties that are higher than money raised by a project to deter others from committing fraud. However, this practice has been inadvertently impacting the projects on the crypto space.
Companies that raised money through ICOs were subject of these SEC disgorgement practices. SEC sometimes has assessed penalties and punitive damage fines that far exceeded the money raised by the company through ICO.
The new ruling by the Supreme Court might change this situation.
In the new ruling "Supreme Court found that the SEC is entitled to seek equitable relief in the form of disgorgement, it curbed the SEC’s enforcement powers by imposing limitations on the scope of such relief. Namely, the Court held that a disgorgement award that (i) does not exceed a wrongdoer’s net profits and (ii) is awarded for the benefit of victims, is equitable relief permissible under Section 78u(d)(5)."
This means, that SEC cannot ignore the legitimate business expenses incurred by the companies. In addition, Supreme Court also clarified that SEC cannot keep the money collected through damages in its own funds, Court held "that if the SEC does not intend to return the entirety of disgorged funds to investors, lower courts must evaluate whether the relief sought is truly “for the benefit of investors” as required by Section 78u(d)(5)."
This is a good news for the entire crypto space who can take a sigh of relief knowing that if SEC cannot slap them with bill bigger than what they raised during the ICO minus the legitimate expenses.
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Picture source: "SEC Crest" by ebayink is licensed under CC BY-NC-ND 2.0