THE WALL STREET JOURNAL. **** Saturday/Sunday, February 29 - March 1, 2020 |B
“The SEC now routinely
seeks disgorgement and, by
asking for such relief, has col-
lected billions more dollars
than the amounts Congress au-
thorized,” attorneys for Mr. Liu
and Ms. Wang wrote in their
petition to ask the Supreme
Court to decide the case.
Business groups have sided
with that view. “This case boils
down to a straightforward prin-
ciple: if Congress does not give
an agency a power, the agency
does not have it,” the U.S.
Chamber of Commerce wrote.
The SEC’s powers were al-
ready curbed by the court in
the 2017 decision, Kokesh v.
SEC, that said regulators have
only five years to get money
back for harmed investors. That
statute of limitations, SEC offi-
cials say, has caused them to
forgo over $1 billion that could
have gone to harmed investors.
The SEC says courts’ author-
ity to require disgorgement
comes from their power to or-
der corrective measures that
restore the status quo and undo
the effects of misconduct. Con-
gress has periodically refined
the SEC’s enforcement powers
with new laws that built on
that foundation, with some
clearly citing the SEC’s author-
ity to get disgorgement in the
courts, regulators say.
“A decision by this court to
remove that block would frus-
trate the workings of every-
thing built on top of it,” Indiana
University professors Donna
Nagy and Shana Wallace wrote
in a friend-of-the-court brief in
support of the SEC.
Critics say the SEC has used
disgorgement too expansively.
In cases such as Ponzi schemes,
for instance, the SEC has asked
defendants to turn over all pro-
ceeds, even if some money was
paid to other actors, such as
brokers, who might not have
known about the fraud.WASHINGTON—The Su-
preme Court on Tuesday will
weigh arguments in a case that
could build new barriers to reg-
ulators’ ability to win back
money for fleeced investors.
The appeal is one of the big-
gest challenges so far to the Se-
curities and Exchange Commis-
sion’s enforcement division,
whose oversight tactics have
been under attack for years at
the high court. The case turns
on the claim that courts for de-
cades have ordered defendants
in SEC cases to give back
money earned illegally despite
lacking authority from Con-
gress to order such measures.
A loss for the SEC would
hurt enforcement efforts that
often benefit mom-and-pop in-
vestors, according to securities
lawyers and researchers. In a
2017 decision, the Supreme
Court curtailed the amount of
time regulators have to sue
wrongdoers, significantly re-
ducing the annual sums the
SEC collects from the defen-
dants to return to investors.
The current appeal stems
from a 2016 enforcement action
ordering a couple to give back,
or disgorge, $26 million that
wastobeinvestedinapro-
posed cancer-treatment center.
The SEC found that Charles Liu
and Xin Wang defrauded the in-
vestors, pocketing millions for
themselves and never building
the facility. They also were or-
dered to pay $8.2 million in
civil fines, another way the SEC
can punish violators.
Disgorgement is one of the
SEC’s strongest enforcement
weapons. The agency often asks
defendants to turn over all the
money they raised in a scheme,
and not just their profits. The
agency obtained $9.9 billion in
court-ordered disgorgement
from 2010 through 2018.
BYDAVEMICHAELS
Regulators’ Power
To Help Cheated
Investors Is Tested
partner at law firm Winston &
Strawn, Mr. Lowell has repre-
sented prominent public offi-
cials, including former Demo-
cratic vice presidential
candidate John Edwards and
Sen. Bob Menendez (D., N.J.).
“Like most leading compa-
nies, Huawei sometimes relies
on industry experts, consult-
ing firms and advisory boards
across the breadth of our busi-
ness to ensure we’re operating
in the most effective manner
possible,” a Huawei spokes-BUSINESS & FINANCE
Both Huawei and the individu-
als reached by the Journal
whose expertise the company
has sought say they weren’t
compensated.
Mr. Brauchli acknowledged
meeting with officials at Hua-
wei but said he wasn’t acting
as a paid consultant and had
no intention of doing so. Mr.
Brauchli is managing partner
at North Base Media, a media-
focused venture-capital firm.
Mr. Lowell didn’t respond
to requests for comment. Aman said in a statement. Hua-
wei has “no current contracts
with third-party advisers out-
side of our usual consultants.”
Huawei is pushing back
more forcefully against the
U.S., as it seeks to overturn
Washington’s efforts to ex-
clude it from 5G cellular net-
work rollouts world-wide. The
company wants to reshape the
Washington narrative that it
enables state espionage by
Beijing, an accusation it con-
tests.The U.S. has raised the
stakes for Huawei in recent
weeks. It has expanded an ex-
isting indictment of the com-
pany alleging sanctions eva-
sion, adding charges of
racketeering and new allega-
tions of intellectual-property
theft. Huawei denies the
charges.
The Trump administration,
meanwhile, is considering
tightening a blacklist of Hua-
wei that has restricted its ac-
cess to U.S. technology, the
Journal reported earlier this
month.
Huawei is the world’s larg-
est maker of telecom equip-
ment and the No. 2 vendor of
smartphones, ahead of Apple
Inc. and behind Samsung Elec-
tronics Co., though most of its
products have been effectively
unavailable in the U.S. after a
2012 congressional report
branded it a security threat.
Its strategy in the U.S. has
become more aggressive as
the Trump administration’s
opposition to Huawei has in-
tensified. The company
launched a series of lawsuits
in the U.S., including one seek-
ing to reverse a ban on federal
agencies from buying its gear,
and another seeking to over-
turn restrictions on its busi-
ness with rural carriers.
Other figures that Huawei
has approached about its U.S.image-enhancing effort in-
clude Jason Pontin, a senior
adviser at Flagship Pioneering,
a venture-capital firm. Mr.
Pontin, a longtime technology
journalist, is former publisher
and editor in chief of the MIT
Technology Review.
Mr. Pontin said he attended
the New York meeting “at
Huawei’s suggestion where I
offered some mild advice on
their predicament.” He added:
“My sole personal interest is
that, as a friend of China and a
technologist, I’d prefer there
not to be a fracturing of [tech-
nical] standards and supply
chains.”
Ian Bremmer, president of
Eurasia Group, a political-risk
consulting firm, said he met
individually with Huawei offi-
cials to discuss the company’s
challenges. He said he believes
it is important for the com-
pany to have an understanding
of the U.S. and its policies.
“I’ve been happy to engage
with them and I’ve been trying
to tell them why I think the
United States is not particu-
larly receptive to their en-
treaties,” Mr. Bremmer said. “I
suspect they’d be interested in
being a client but we have no
interest in doing that,” he
added, saying his company
doesn’t “take money from
companies from places that
don’t have rule of law.”Under fire from the Trump
administration, China’sHua-
weiTechnologies Co. has ap-
proached high-profile figures
in Washington to try to turn
around negative perceptions
of the company.
Among those contacted are
Abbe Lowell, a lawyer who has
represented President Trump’s
son-in-law, Jared Kushner, and
Marcus Brauchli, a former ex-
ecutive editor of the Washing-
ton Post and former managing
editor of The Wall Street Jour-
nal.
Huawei has approached at
least six such figures seeking
their help as the company nav-
igates challenges posed by the
U.S. government and tries to
change how it is covered by
the media, people familiar
with the initiative say. Some
individuals approached by
Huawei met with staff of the
Chinese telecom company at
its New York offices earlier
this month to discuss company
strategy, these people said.
Others who have spoken to
Huawei told the Journal they
discussed the company’s legal
and regulatory obstacles in the
U.S. and how to overcome
them. Huawei was considering
the possibility of hiring such
advisers, according to a per-
son familiar with the matter.
BYDANSTRUMPF
Huawei Looks to Enhance Its U.S. Image
ets of Awesome was staffed
with growth as a central prior-
ity, and now has to be reorga-
nized with an eye to efficiency
and profitability.
The pullback follows a
broader realignment of priori-
ties among startups, as inves-
tors in fast-growing companies
fromWeWorkparent We Co.
toCasper SleepInc. are push-
ing them to rein in costs.
“The world is shifting,” Ms.
Blumenthal said. “We’re proac-
tively responding to the pres-
sures in the market.”
Foot LockerInc. invested
$12.5 million in the startup a
year ago, creating a partner-
ship that allowed it to sell
Rockets of Awesome merchan-
dise on its website and stores.
The company didn’t respond toa request for comment.
Overall, Rockets of Awe-
some has raised about $
million through private inves-
tors. Ms. Blumenthal said there
are no immediate plans to
raise additional funds.
The company will also be
closing its only physical store,
located in New York City. Ms.
Blumenthal said the decision
was unrelated to the layoffs
and the result of Rockets of
Awesome’s lease expiring.
“The store has been incredi-
bly successful for us,” she said.
She said the company is look-
ing for other locations to open
another store, but didn’t want
to commit to a specific city or
timeline. Rockets of Awesome
will continue to sell its apparel
through its own website.Rockets of Awesome,a
children’s apparel startup, is
laying off about half of its staff
in a retrenchment focused on
shifting away from high-paced
growth and toward profitabil-
ity.
“This is a difficult moment,
but it’s necessary for the long-
term health of the company,”
founder and Chief Executive
Rachel Blumenthal said in an
interview.
The New York City-based
company, launched in 2016, is
known for trendy children’s
clothes and a subscription ser-
vice that allows parents to sign
up to receive a personalized
box of items four times a year.
Ms. Blumenthal said Rock-
BYCHARITYL.SCOTT
Apparel Startup Slashes Staff
doned a plan centered around
adding businesses and churning
out new products, and began
putting businesses up for sale
to help pay down debt.
The New York company, con-
trolled by European investment
firm JAB Holding Co., had
floundered since it acquired
dozens of beauty brands from
Procter & GambleCo. in 2016.
The deal was supposed to cre-
ate a behemoth that could rival
industry giants Estée Lauder
Cos. and L’Oréal SA in makeup,
fragrances and hair care. Coty
predicted annual revenue
would double to $10 billion.
But the deal happened as
consumers were beginning
their shift away from mass-
market skin-care and beauty
products sold in drugstores and
toward higher-end and niche
brands fueled by celebrityfounders and social media-
driven marketing.
Last year, Coty took $4 bil-
lion in write-downs on the P&G
business.
Most recently, Mr. Laubies
struck a deal to invest in Kylie
Jenner’s cosmetics brand, buy-
ing a controlling stake of the
company in a deal that valued
the social-media influencer’s
startup at $1.2 billion.
Mr. Laubies, who came out
of retirement to take the CEO
job, told Coty directors earlier
this month that he wanted to
step down and felt the com-
pany would benefit from a chief
executive with industry experi-
ence, according to people famil-
iar with the matter. The board
requested he stay on until the
company completed sales of
the hair-care and professional
businesses, they said.“We can’t help but view this
as an incremental negative as a
CEO transition in the midst of
much so much organizational
change brings additional uncer-
tainty to the story,” Wells Fargo
analyst Joe Lachky said in a
note to investors.
Coty also said Pierre-Andre
Terisse, who currently serves
as chief financial officer, will
assume the newly created post
of chief operating officer while
retaining his CFO duties.
Mr. Denis is currently CEO of
luxury shoemaker Jimmy Choo,
which was owned by JAB when
he took the helm in 2012. It is
now a unit of Capri Holdings
Ltd. Coty also said it has named
Isabelle Parize and Justine Tan
to its board. Ms. Parize is cur-
rently interim CEO of luggage
maker Delsey; Ms. Tan is a
partner at JAB.CotyInc. said Chief Execu-
tive Pierre Laubies will leave
less than two years after he
took over at the beauty and fra-
grance giant.
Mr. Laubies will be replaced
this summer by Pierre Denis,
the CEO of the Jimmy Choo
fashion brand and a Coty direc-
tor, the company said. Coty
shares fell 4% on the news.
Mr. Laubies joined the
maker of CoverGirl cosmetics,
Clairol hair dye and OPI nail
polish as CEO in November
2018 and initiated a strategic
review to shrink the struggling
company.
Coty’s third CEO in three
years, Mr. Laubies set out to
unwind some of his predeces-
sors’ biggest moves. Coty aban-BYSHARONTERLEP
ANDCOLINKELLAHERBeauty Giant Coty Changes CEO—Again
The company, which makesCoverGirl cosmetics, has floundered since it acquired dozens of beauty brandsfrom Procter & Gamble in 2016.KELLYANN PETRY FOR THE WALL STREET JOURNALThe firm wants to reshape the narrative that it enables espionage by Beijing, an accusation it contests.NACHO DOCE/REUTERSnual domestic sales have fallen
for five straight years—the en-
tirety of Mr. Levatich’s tenure
since taking the top job in 2015.
Harley’s motorcycle sales in
the U.S. fell 5.2% in 2019, amid
prolonged weakness in de-
mand for the big, expensive
touring bikes that make up the
core of its model line. The
company’s loyal base of aging
baby boomers, who drove a
Harley revival during the
1980s and 1990s, is purchasing
fewer motorcycles.
The company has struggled
to attract younger customers.
Efforts to woo new riders have
included ridership classes, a
fleet of smaller, cheaper bikes
and Harley’s first electric mo-
torcycle.
“I am proud of what wehave achieved during my time
as CEO, in one of the most
challenging periods in our his-
tory,” Mr. Levatich said in a
statement. Shares in the Mil-
waukee-based company rose
5% to $31.99 after hours.
Mr. Levatich, who joined
the company in 1994, set a
goal as CEO to attract 2 mil-
lion new riders over 10 years.
He signed off on dozens of
new models for both the U.S.
and foreign markets where
Harley sees growth opportuni-
ties. But those models are just
reaching the market and face
tough competition.
Mr. Zeitz’s professional
background is in sporting goods
and lifestyle products, serving
as chairman and chief executive
of Puma SE from 1993 to 2011.Harley-Davidson Inc.’s
Chief Executive Matt Levatich
resigned Friday, leaving the
motorcycle maker after years
of declining sales and limited
success attracting younger rid-
ers to its iconic brand.
Harley’s board said Friday
that director Jochen Zeitz
would serve as acting CEO and
board chairman as it looks for
a permanent chief executive.
Mr. Zeitz will remain chairman
when a new chief is hired.
“We will look to new lead-
ership to recharge our busi-
ness,” said Mr. Zeitz, who re-
placed Michael Cave as
chairman.
Harley remains the top U.S.
motorcycle maker, but its an-BYBOBTITAHarley’s Chief Executive Quits