The US Supreme Court heard oral arguments in two cases Tuesday: Seila Law v. Consumer Financial Protection Bureau and Charles Liu v. Securities and Exchange Commission.
The first case challenges the constitutionality of the structure of the Consumer Financial Protection Bureau (CFPB). The director of the CFPB, while appointed by the president and confirmed by the Senate, can only be removed “for cause,” specifically only for “inefficiency, neglect of duty, or malfeasance in office,” as opposed to most other presidential appointments, which are removable “at will.” The case began when the CFPB started investigating Seila Law, a California law firm that provides debt-relief services. The agency alleged that the law firm violated telemarketing sales rules and requested information and documents from the firm. Seila Law refused the request, based on the CFPB’s unconstitutional structure.
Representing the law firm, Kannon Shanmugam argued that “[t]he structure of the CFPB is unprecedented and unconstitutional,” given that once appointed, the director is largely free from presidential oversight or control and that this is a violation of “core presidential prerogatives” to remove officers at will. A major concern is, if this structure is upheld, what prevents Congress from creating or modifying Cabinet positions to similarly restrict the president’s ability to remove officers? Paul Clement, representing the CFPB, argued that the Constitution would prevent imposition of such restrictions, at least on Cabinet secretaries who exercise “authorities that the Constitution assigns directly to the President.”
However, no consensus emerged among the justices about what to do should the court find that the CFPB’s structure is unconstitutional.
The second case raises the question of the Securities and Exchange Commission’s (SEC) ability to impose disgorgement of profits upon violators of securities law. The case involves a couple, Charles Liu and Xin Wang, who solicited investments from foreign nationals who were seeking immigrant visas through investment in domestic businesses. The couple raised $27 million from Chinese investors on the promise that it would be used to build a cancer treatment center in California. A federal court found the investment scheme to largely be fraudulent, however. The district court imposed penalties equal to the personal gain the couple made off the scheme, about $8.2 million, but the question before the Supreme Court is if the lower court erred in ordering the couple to disgorge the remaining $19 million as well.
The court pressed Gregory Rapawy, the couple’s attorney, on why his clients should be allowed to keep any money, to which he answered that as an equitable principle his clients should be left no worse off than they began, and that disgorgement is a penalty, not an equitable remedy. The court however, seemed to favor the government’s argument that Congress authorized awards of disgorgement to the SEC in cases such as these. Justice Neil Gorsuch, in a question that was on the minds of several justices, asked, “Would the government have any difficulty with a rule that the money should be returned to investors where feasible?” to which deputy solicitor general Malcolm Stewart saying he did not “see a problem” with that solution.
A decision is expected in both cases by late June.