The Supreme Court (Again) Takes Up SEC Disgorgement Powers

Key Points

• On April 20, 2026, the Supreme Court will hear argument on an appeal from the Ninth Circuit’s decision in Sripetch v. SEC.¹ The case concerns the ability of the SEC, and potentially other agencies, to obtain disgorgement of ill-gotten gains in enforcement proceedings.
• The Court will likely resolve a circuit split that has emerged as to whether proof of pecuniary harm to victims is needed for the SEC to obtain disgorgement. As it stands today, the SEC needs to submit such proof in a litigated action in the Second Circuit, but in the First and Ninth Circuits, no such proof is required.
• Any changes to the SEC’s ability to seek disgorgement could have far-reaching consequences. Disgorgement is often the largest component of financial remedies sought by the SEC. The Court’s decision could curtail or even eliminate the availability of the remedy for certain kinds of violations, such as insider trading or reporting violations.
• The SEC defended the decision below in Sripetch and has previously opposed any limitations on its disgorgement powers. However, a Supreme Court decision that requires the SEC to prove pecuniary harm to victims would align with the investor harm-focused enforcement principles espoused by SEC Chairman Atkins.

Background

Disgorgement is a key tool in the enforcement arsenal of the U.S. Securities and Exchange Commission (SEC). It is an equitable remedy that provides the agency with the means to recover ill-gotten gains or, in some cases, losses avoided. Paired with the imposition of a civil monetary penalty, it can generate substantial financial recoveries by the SEC. In fiscal year 2024, SEC enforcement actions resulted in total awards of $6.1 billion in disgorgement and prejudgment interest—compared to $2.1 billion in civil penalties during the same period.² By default, disgorgement is paid to the U.S. Treasury in the same fashion as a civil monetary penalty, although the SEC has authority to establish a “Fair Fund” to allow for disgorged funds to be paid over to harmed investors.³

On April 20, 2026, the U.S. Supreme Court will hear oral argument in Sripetch v. SEC, which turns on whether the SEC may obtain disgorgement without showing that a victim suffered pecuniary harm as a result of the defendant’s securities law violations.⁴ Sripetch will be the third time in less than a decade that the Court has considered a legal challenge to the SEC’s ability to obtain disgorgement. Below, we briefly discuss these prior decisions before turning to an analysis of the issues in Sripetch.

Prior Supreme Court Decisions on Disgorgement

In Kokesh v. SEC,⁵ decided in 2017, the Court unanimously held that disgorgement is subject to a five-year statute of limitations because it is a “penalty.” In doing so, the Court rejected the SEC’s position that disgorgement was not subject to any statute of limitations because it was “remedial” and merely restored the status quo. The Court reasoned that “SEC disgorgement…bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate.”⁶ 

The Court in Kokesh opened the door to broader challenges to the SEC’s ability to obtain disgorgement by stating, in what became a heavily analyzed footnote, that “[n]othing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.”⁷ 

In 2020, the Court took up another disgorgement challenge in Liu v. SEC.⁸ There, the Court reaffirmed the authority of courts to order disgorgement as an equitable remedy for violation of the securities laws, but held that the amount of disgorgement must “not exceed a wrongdoer’s net profits and is awarded for victims.”⁹ 

The Circuit Split

In recent years, the courts of appeals have split over whether disgorgement requires proof of a victim that suffered pecuniary harm, with one circuit imposing such a requirement and two other circuits holding no such proof of harm is required, instead focusing on the role that disgorgement plays in depriving a wrongdoer of ill-gotten gains.

In SEC v. Govil, the Second Circuit held that a “victim” for purposes of awarding disgorgement “is one who suffers pecuniary harm from the securities fraud.”¹⁰ The Second Circuit relied on language from Liu emphasizing that the purpose of disgorgement was to “return[] the funds to victims” and asserted that “the return of funds presupposes pecuniary harm” to victims.¹¹ Accordingly, in the Second Circuit, the SEC must show that victims suffered pecuniary harm before the SEC can obtain disgorgement. 

The First Circuit has taken the opposite view. In SEC v. Navellier, the court concluded that a “victim” for purposes of awarding disgorgement need not suffer pecuniary harm, and accordingly, the SEC is not required to show victims suffered pecuniary harm to obtain disgorgement.¹² According to the First Circuit, requiring a showing of pecuniary harm “mischaracterizes the nature and purpose of disgorgement,” which is “tethered to a wrongdoer’s net unlawful profits” and not financial harm to victims.¹³ 

In SEC v. Sripetch, the Ninth Circuit joined the First Circuit in holding the SEC can obtain disgorgement without proof that a “victim” suffered financial harm.¹⁴ Like the First Circuit, the Ninth Circuit held that requiring the SEC to show pecuniary harm is contrary to “traditional equity practice” and “ignores the fundamental distinction between compensatory damages, which are designed to compensate the victim for her losses, and restitution, which is designed to deprive the wrongdoer of his ill-gotten gains.”¹⁵ The decision in Sripetch, and thus the circuit split, is now before the Supreme Court.

In its brief responding to the petition for certiorari to the Court, the SEC stated it need not show pecuniary harm because disgorgement post-Liu is a “profits-focused remedy” and “rests on the principle that a wrongdoer should not ‘make a profit out of his own wrong.’”¹⁶ But the SEC nevertheless has agreed that resolution of the circuit split is needed to avoid inconsistent outcomes from lower courts.

Implications

If the Court agrees with the Second Circuit and determines that pecuniary harm to a victim is a precondition for disgorgement, it is likely that there will be future litigation about whether there are actually any “victims” of a defendant’s securities law violations and, if so, how to characterize the alleged pecuniary harm allegedly suffered by these parties. Defense counsel should be alert to these issues during the course of an investigation, as the SEC staff builds its investigative record and during the Wells process or settlement discussions, when counsel may have the opportunity to challenge the factual underpinnings of a demand for disgorgement.

These issues were recently litigated before the district court in Govil, applying the holding of the Second Circuit on remand.¹⁷ In that case, the defendant allegedly directed a publicly traded company he founded and controlled to raise approximately $14.2 million through equity and convertible bond offerings, then misappropriated over half the proceeds to finance business ventures unrelated to the company and for his personal use. In support of its request for disgorgement, the SEC submitted an expert witness report and testimony from both an investor in the offerings who lost money and from the CEO of the company.

The district court accepted the SEC’s evidence and, in doing so, embraced an expansive view of pecuniary harm and victim status. For example, crediting the testimony of one investor who lost money, the court found that investors suffered pecuniary harm not just through trading losses resulting from the purchase of artificially inflated stock, but also through the “dilutive effect[s]” of capital-raising efforts “that were necessary because of” the securities law violation.¹⁸ 

The court also took an expansive view of who can qualify as a “victim” for disgorgement purposes. It concluded that the company (and not just its investors) qualified as a victim that suffered pecuniary harm because the defendant “misappropriated proceeds reserved for corporate use,” causing “a shortfall in funds available for operating expenses, financing, and investments.”¹⁹ Citing the SEC’s expert report, the court also pointed out that “corporate theft, fraud, and misconduct by insiders . . . causes significant harm to companies and their shareholders through immediate financial losses, reduced future profits and growth, and increased costs (legal, compliance, reputational, etc.), all of which result in erosion of company value.”²⁰ These categories of harm to a company are at least one step removed from the sort of direct harm that an investor might suffer from misappropriated funds.

In some cases, defense counsel may be able to argue that there is no identifiable victim or that there is no ascertainable pecuniary harm. For example, in a misappropriation-theory insider trading case, the SEC will allege a person who traded while in possession of material nonpublic information (MNPI) while bound by a duty of confidentiality breached his duty to the source of the information by misusing his privileged access for personal gain. This theory could support an argument that the person or entity who entrusted the trader with MNPI is a “victim,” but in many cases it will be uncertain at best as to whether the “victim” suffered any pecuniary harm as a result of the defendant’s securities trades.²¹ 

In most insider trading cases, the SEC has traditionally pursued two forms of financial remedies: disgorgement of the ill-gotten profits (or losses avoided) and a civil monetary penalty, sometimes for the same amount as the disgorgement (and sometimes as a multiple of the disgorged amount).²² These amounts are tied to the conduct of the defendant and bear no tangible relation to a victim. If the SEC were required to establish pecuniary harm to a “victim” in insider trading cases, it could create new litigation issues and, potentially, curtail the SEC’s ability to seek what has traditionally been a bread-and-butter remedy for these offenses. 

As an additional example, the SEC can bring enforcement actions associated with the reporting requirements of Section 13(d) of the Exchange Act, which requires an individual or group who obtains beneficial ownership of more than 5% of a public company’s equity to disclose their holdings in a Schedule 13D within five days of crossing the 5% threshold. The SEC has, in the past, sought disgorgement from individuals who fail to timely disclose such holdings on the theory that those individuals acquired equity at a lower price than if the market was aware of the purchasing activity.²³ As in an insider trading case, this theory of disgorgement turns on the trader’s profit or loss avoidance as opposed to anything relating to a victim suffering pecuniary harm. If Sripetch limits disgorgement, such theories would be subject to significant judicial scrutiny.

Rather than face these uphill battles, the SEC could look to its authority under Section 21A of the Exchange Act, which allows for a penalty “determined by the court in light of the facts and circumstances” up to “three times the profit gained or loss avoided as a result of such unlawful purchase, sale, or communication.”²⁴ In theory, the SEC could push for penalties that are up to three times the profits or losses avoided through insider trading as an end-run of sorts around a Supreme Court ruling reigning in its disgorgement authority. Yet such an outsized remedy may be harder for the SEC to achieve in litigation because courts may be reluctant to impose penalties that effectively circumvent a Supreme Court ruling. Relatedly, such a remedy would likely be harder to achieve in settlement negotiations if it would be subject to litigation risk in a contested proceeding.

Takeaways

• This decision comes at a moment of inflection for the SEC’s enforcement program. Since his confirmation, Chairman Paul Atkins has articulated a narrower vision of SEC enforcement, prioritizing “cases of genuine harm and bad acts” over cases that “consumed excessive Commission resources not commensurate with any measure of investor harm.”²⁵ 
• A Supreme Court decision limiting disgorgement to cases involving pecuniary harm would, conceptually, align with Chairman Atkins’s focus on enforcement actions aimed at remedying investor harm. In effect, a tightening of the SEC’s ability to seek disgorgement might lead to lower remedies and potentially less overall enforcement activity.
• The parties’ briefing—and any amici briefing that may appear—on the issues and the subsequent oral argument will be worth following closely given the direct impact this case is expected to have on the SEC’s enforcement program. With oral argument set for late April, we expect a decision in this case by the end of the Court’s current term in late June 2026.

1 Sripetch v. SEC, No. 24-3830.

2 https://www.sec.gov/newsroom/press-releases/2024-186.

3 Section 308(a) of the Sarbanes-Oxley Act empowers the SEC to create a “Fair Fund” to compensate victims of a securities laws violation for their losses. In practice, it can often take several years for a Fair Fund to finish returning funds to investors and close. Fair Funds are also infrequently deployed. In fiscal year 2024 the SEC filed 583 total enforcement actions but created only ten new Fair Funds during that period. See https://www.ncpers.org/blog/strategies-for-addressing-common-sec-fair-fund-recovery-challenges; https://www.sec.gov/newsroom/press-releases/2024-186.

4 Sripetch v. SEC, No. 24-3830.

5 Kokesh v. SEC, 581 U.S. 455 (2017).

6 Id. at 465.

7 Id. at 461 n.3.

8 Liu v. SEC, 591 U.S. 71 (2020).

9 Liu, 591 U.S. at 75.

10 SEC v. Govil, 86 F.4th 89, 102 (2d Cir. 2023).

11 Id. at 103.

12 SEC v. Navellier & Assocs., Inc., 108 F.4th 19, 41 (1st Cir. 2024).

13 Id.

14 SEC v. Sripetch, 154 F.4th 980 (9th Cir. 2025).

15 Id. at 987.

16 Respondent Br. at 5, Sripetch v. SEC, No. 24-3830.

17 SEC v. Govil, No. 21-CV-6150 (JPO), 2026 WL 145342 (S.D.N.Y. Jan. 20, 2026).

18 Id. at *4.

19 Id.

20 Id.

21 Proving pecuniary harm to a victim may also be challenging in classical-theory insider trading cases. In such cases a corporate insider in possession of MNPI about their company breaches their fiduciary duty to a trading counterparty (e.g., another shareholder) by trading without disclosing the fact that they are in possession of MNPI. The “victim” in classical-theory cases is the trading counterparty, and proving the insider’s gains or losses avoided is straightforward, but once again the question of ”harm” to the trading counterparty is debatable.

22 See, e.g., https://www.sec.gov/enforcement-litigation/administrative-proceedings/34-103764-s.

23 See e.g., SEC v. First City Fin. Corp., 688 F. Supp. 705, 708, 726 (D.D.C. 1988) (ordering disgorgement because of Section 13(d) violation); SEC v. Musk, No. 25‑cv‑00105 (D.D.C. filed Jan. 14, 2025) (seeking disgorgement because of alleged Section 13(d) violation).

24 15 U.S.C. §78u-1.

25 https://www.sec.gov/newsroom/speeches-statements/atkins-100925-keynote-address-25th-annual-aa-sommer-jr-lecture-corporate-securities-financial-law; https://www.sec.gov/newsroom/speeches-statements/atkins-testimony-sbhuac-021126.