CERTainly Getting Interesting: Supreme Court Again To Address SEC's Power To Obtain Disgorgement

The U.S. Supreme Court on January 9, 2025, granted certiorari in Ongkaruck Sripetch v. U.S. Securities and Exchange Commission, a case from the U.S. Court of Appeals for the Ninth Circuit that tees up a circuit split on the question whether, to obtain disgorgement, the SEC must establish that investors suffered actual financial (pecuniary) harm. SEC v. Sripetch, 154 F.4th 980 (9th Cir. 2025), cert. granted sub nom. Sripetch v. SEC, No. 25-466, 2026 WL 73091 (U.S. Jan. 9, 2026). The forthcoming decision will be the third in a series of key Supreme Court decisions since 2017 reshaping the agency's disgorgement power. The potential ramifications of this decision could have a serious impact on whether and how the SEC seeks disgorgement in future cases.

SEC Disgorgement in a Nutshell

Disgorgement is a financial remedy through which the SEC requires defendants who profited from securities violations to return their "ill-gotten gains" rather than retain the financial fruits of their alleged wrongdoing. The ability to secure disgorgement has long served as a powerful tool in the SEC's efforts to enforce federal securities laws. Disgorgement is often, but not always, awarded or agreed to in a settlement along with assessment of a civil penalty, a separate financial remedy long seen as serving a different, purely punitive purpose.

Until fairly recently, courts have broadly awarded disgorgement across the spectrum of securities violations – from cases alleging intentional fraud to cases alleging pure strict liability violations (e.g., failure to register) and, hence, in cases where investors suffered financial harm (e.g., Ponzi scheme cases, offering frauds, etc.) and other cases in which such harm was not alleged or could not be established (e.g., insider trading cases).

Prior Supreme Court Decisions on Disgorgement and the Legislative Response

The SEC's power to obtain disgorgement from alleged securities law violators has been the subject of numerous district court and appellate cases and legislation. Two cases – Kokesh v. SEC and Liu v. SEC – are worth bearing in mind when considering the Supreme Court's recent decision to once again consider the extent of the SEC's power to strip alleged wrongdoers of their financial gains.

Disgorgement Found to Function as a Penalty

In 2017, the Supreme Court in Kokesh overturned the U.S. Court of Appeals for the Tenth Circuit's decision affirming a district court order that the defendant pay more than $34 million in disgorgement representing the ill-gotten gains "causally connected" to the violations. Kokesh v. SEC, 581 U.S. 455 (2017).

Siding with the defendant, in an opinion authored by Justice Sonia Sotomayor, the Supreme Court unanimously concluded that disgorgement in fact does function as a penalty insofar as it is intended to serve as a deterrent for wrongs to the public rather than a purely remedial purpose in compensating a harmed plaintiff. In the Court's words, "SEC disgorgement thus 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." Id. at 465. Accordingly, the Court concluded that SEC disgorgement claims are subject to a five-year statute of limitations.

In 2021, in response to Kokesh and the Supreme Court's later decision on disgorgement in Liu v. SEC (discussed below), the SEC's disgorgement power was codified through the National Defense Authorization Act (NDAA) and amendments to applicable securities laws under which the SEC can obtain disgorgement of ill-gotten gains within a five-year period or, for scienter-based violations, 10 years.

Disgorgement Available as Equitable Relief When Limited to Net Profits and Returned to Victims

Three years after Kokesh, the Supreme Court again addressed – and further restrained – the SEC's power to obtain disgorgement. In June 2020, the Court issued its opinion in Liu v. SEC, a case involving the SEC's ability to obtain disgorgement as "equitable relief" in civil enforcement proceedings under Section 21(d) of the Securities Exchange Act of 1934. Liu v. SEC, 591 U.S. 71 (2020).

Section 21(d) (which the NDAA amended a year after Liu, as noted above) allows federal courts to grant the SEC "any equitable relief that may be appropriate or necessary" in enforcement actions. 15 U.S.C. §78u(d)(5). In Liu – another opinion authored by Justice Sotomayor – the Court held 8-1 (Clarence Thomas dissenting) that a disgorgement award is permissible "equitable relief" only if 1) it does not exceed the wrongdoer's illicit net profits and 2) disgorged funds are returned to impacted "victims." Hemming in the SEC's disgorgement reach in this way, the Court reasoned, avoided "transforming an equitable remedy into a punitive sanction." Id. at 79. But what it means to be a "victim" has proved a thorny and challenging question to answer.

Circuit Split: Whether the SEC Must Establish Pecuniary Harm to Investors

As noted above, the NDAA codified the SEC's legal right to obtain disgorgement while existing securities laws also allow disgorgement as an equitable remedy. Open questions remain around Liu's application, who qualifies as a victim and whether the SEC must establish pecuniary (financial) harm to "victims" to obtain disgorgement. District and appellate courts have split on this issue:

• First Circuit. Holding that no showing of pecuniary harm is required to obtain disgorgement (see SEC v. Navellier & Assocs., Inc., 108 F.4th 19, 41 & n.14 (1st Cir. 2024), denied, 145 S. Ct. 2777 ("Neither Liu nor our case law, however, require investors to suffer pecuniary harm as a precondition to a disgorgement award.")
• Second Circuit. Vacating judgment and holding that pecuniary harm is a required showing to obtain disgorgement (see SEC v. Govil, 86 F.4th 89, 106 (2d Cir. 2023) ("The district court did not make that predicate finding and therefore abused its discretion.")
• Ninth Circuit. Joining the the First Circuit's holding in Navellier (see above) and upholding a ~$2 million disgorgement award against Stripetch (one of several defendants in an alleged pump-and-dump scheme) without requiring proof that investors lost money. SEC v. Sripetch, 154 F.4th 980 (9th Cir. 2025), cert. granted sub nom. Sripetch v. SEC, No. 25-466, 2026 WL 73091 (U.S. Jan. 9, 2026).
• The Ninth Circuit rejected the Second Circuit's reasoning in Govil (see above) that pecuniary harm was required to qualify as a "victim" because such harm is not a statutory "precondition" (see Stripetch, 154 F.4th at 989). Rather, the Ninth Circuit held that "a claimant seeking disgorgement need only show 'an actionable interference by the defendant with the claimant's legally protected interests,'" at 986, and that, to be a victim, "the claimant need not show any loss whatsoever, let alone a pecuniary loss," id. at 986. The Ninth Circuit stated that the Second Circuit's holding in Govil "ignores the fundamental distinction between compensatory damages, which are designed to compensate the victim for her losses, and [disgorgement], which is designed to deprive the wrongdoer of his ill-gotten gains." Id. at 987.

What Comes Next

In its October 2025 petition for a writ of certiorari, Sripetch presented the question to be decided as "[w]hether the SEC may seek equitable disgorgement under 15 U.S.C. 78u(d)(5) and (d)(7) without showing investors suffered pecuniary harm." In seeking review, Sripetch argues (and certain amici curiae agree) that "the stakes nationwide are massive." Indeed, Sripetch argues out that "disgorgement has staggering consequences for the SEC and individual defendants alike," pointing out that in fiscal year 2024, "the SEC seized $6.1 billion in disgorgement – a new record," and that with this powerful tool at its disposal, the SEC "routinely threatens defendants (including individuals) with millions of dollars in disgorgement, and it aims high when making demands – as it need not actually prove profits beyond a 'reasonable approximation,'" arguing it is "imperative to restrain the SEC's authority within its proper scope."

In December 2025, the SEC agreed that the Supreme Court should grant the petition for writ of certiorari to resolve a clear circuit split and avoid further inconsistent outcomes from courts around the country. In agreeing to Supreme Court review – as it has in certain prior instances – the agency presented a similar but slightly reframed question to be decided – that is, "[w]hether a showing that investors suffered pecuniary harm is a prerequisite to an award of disgorgement in a civil action brought by the Securities and Exchange Commission."

For its part, the SEC contends that pecuniary harm is not – and should not be – required for disgorgement to be awarded, because the disgorgement remedy is inherently "profits-focused" and rests on the principle that a wrongdoer should not "'make a profit out of his own wrong'" (citing Liu, 591 U.S. at 80, 90). The SEC posits that disgorgement focuses on whether a defendant made a profit, not whether victims suffered a financial loss. Squaring this with Liu's requirement that to adhere to equitable principles, disgorgement must be awarded for victims, the SEC contends that Liu was focused on awarding relief for victims' benefit rather than "simply 'deposited in [the] Treasury'" and, thus, Liu's statement "does not require the SEC to show pecuniary harm."

The decision has consequential implications for the SEC's enforcement power and weight with which it can wield disgorgement as a carrot or stick before and during litigation and in settlement negotiations. Indeed, a holding that pecuniary harm is a required element will have significant implications on the kinds of cases the SEC might choose to pursue.

It remains to be seen if the Court will further limit the SEC's remedial reach or secure its ability to obtain disgorgement even where it does not allege or cannot show investors suffered actual financial harm. The case should be decided in the Court's current term.

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