- within Insolvency/Bankruptcy/Re-Structuring topic(s)
Introduction
On January 9, 2026, the U.S. Supreme Court granted a writ of certiorari in SEC v. Sripetch, 154 F.4th 980 (9th Cir. 2025) to resolve a Circuit split concerning what the U.S. Securities and Exchange Commission ("SEC") must prove to secure disgorgement. In Sripetch, the U.S. Court of Appeals for the Ninth Circuit affirmed a $2 million disgorgement award for the SEC in a civil enforcement action. The Ninth Circuit joined the First Circuit in finding that an award of disgorgement requires no showing that investors incurred pecuniary harm under 15 U.S.C. § 78u(d)(5) and (d)(7). In doing so, the panel evaluated and rejected the reasoning of the Second Circuit's decision in SEC v. Govil, 86 F.4th 89 (2d Cir. 2023), which held that a victim's pecuniary harm was a prerequisite for an award of disgorgement.
The Supreme Court's upcoming ruling will settle the circuit split over this powerful SEC enforcement tool, harmonizing the law and the SEC's remedial authority nationwide.
History of the Split
By way of background, the roots of the circuit split stem from the Supreme Court's decision in Liu v. SEC, 591 U.S. 71 (2020). There, the Court clarified that disgorgement qualified as "equitable relief" under Section 21(d)(5) of the Exchange Act in light of the historical practice by courts in equity to deprive "wrongdoers of their net profits from unlawful activity." 591 U.S. at 79. Under such equitable principles, the Court narrowed the scope of disgorgement by requiring an award to comport with common-law limitations, holding that "a disgorgement award that does not exceed a wrongdoer's net profits and is awarded for victims is equitable relief" permissible under the statute. Id. at 75.
A few years later, the Second Circuit was tasked with interpreting the outer bounds of Liu's limitations on disgorgement. In Govil, the Second Circuit focused on the Supreme Court's instruction that "disgorgement must be 'awarded for victims'" and found that a defrauded investor could not be a "victim" for equitable purposes absent a showing of pecuniary loss. 86 F.4th at 94. The court explained that if a "victim" included those who did not suffer such loss, disgorgement would fail to restore the status quo for those investors and instead confer "a windfall on those who received the benefit of the bargain." Id. at 103. Additionally, the court found support for the pecuniary harm requirement by comparing SEC civil enforcement actions with private damages actions for securities fraud under Section 10(b) of the Exchange Act and Rule 10b-5, which similarly requires an investor to have suffered "economic loss." Govil thus prohibits courts in the Second Circuit from awarding the SEC disgorgement without a predicate determination that the victims suffered "pecuniary harm from the securities fraud." Id. at 102.
Thereafter, the First Circuit reached the opposite conclusion in considering an appeal to a $23.7 million disgorgement award. In SEC v. Navellier & Associates, Inc., the First Circuit rejected the appellant's argument that disgorgement was an unavailable equitable remedy because the victims did not suffer pecuniary harm. 108 F.4th 19, 41 (1st Cir. 2024). Focusing on the equity principles delineated by Liu, the court explained that disgorgement "is a 'profit-based measure of unjust enrichment'" that is "tethered to a wrongdoer's net unlawful profits." Id. at 41 (emphasis in original). The court invoked First Circuit precedent to explain that "when a fiduciary has secured an undue advantage by virtue of his position, equitable relief is available even in the absence of direct economic loss to the complaining party." Id.
The Ninth Circuit Decision
On September 3, 2025, the Ninth Circuit sided with the First Circuit's approach to disgorgement and explicitly rejected Govil. The appeal arose from an SEC enforcement action against Onkaruck Sripetch under 15 U.S.C. § 78u(d)(5) and (d)(7) for a host of federal securities law violations relating to penny-stock companies, including fraudulent stock scalping schemes, the sale of unregistered securities, cross-trading schemes, and pump and dump schemes. SEC v. Sripetch, No. 20-CV-01864 (MLH) (BLM), 2024 WL 1546917, at *2-4 (S.D. Cal. Apr. 8, 2024). Sripetch consented to entry of judgment against him, which included a stipulation that the court order disgorgement of the profits obtained through fraud. The SEC moved to disgorge over $4 million in ill-gotten gains. Sripetch opposed the request by arguing that the SEC failed to show that the victims suffered pecuniary harm, as required by the Second Circuit's decision in Govil. The district court granted the SEC's request in part and ordered Sripetch be disgorged of $2.2 million. Without analyzing the circuit split, the district court assumed that pecuniary harm was a required showing and determined the SEC had met its burden. Sripetch appealed the district court's order and reiterated the same argument he made under Govil.
On appeal, the Ninth Circuit began by agreeing with the Second Circuit proposition that disgorgement requires at least one victim. The Ninth Circuit sharply departed from its sister-Circuit thereafter, however, by rebuffing Govil's requirement that a "victim" be "an individual or entity that has suffered pecuniary harm" on two grounds. 154 F.4th at 986. First, the panel determined that the requirement is "contrary to the common law" as recognized in Liu's holding: that disgorgement is subject to "common-law principles" and "traditional equity practice." Id. Under those principles, the court determined that a claimant seeking disgorgement—here the SEC—need only show "an actionable interference by the defendant with the claimant's legally protected interests" and any showing of loss, including pecuniary, is not required. Id. In so holding, the Ninth Circuit rejected the notion that "[r]equiring a financial loss for disgorgement claims would effectively ensure that wrongdoers could profit from their unlawful acts as long as the wronged party suffers no financial loss." Id. at 987.
Second, the Ninth Circuit stated that the Second Circuit's narrow definition "misapprehended the meaning of certain language in Liu, certain language in the Restatement, and the relationship between private securities actions and SEC civil enforcement actions." Id. at 987. The Ninth Circuit asserted that the Second Circuit's basis for the pecuniary loss requirement—derived in part from the Supreme Court's observation that disgorgement "restores the status quo"—conflates the "fundamental distinction" between compensatory damages and restitution. Id. The former are "designed to compensate the victim for her losses," while the latter "is designed to deprive the wrongdoer of his ill-gotten gains." Id. The panel thus implied that the pecuniary loss requirement was erroneously rooted in principles of compensatory damages that are inapplicable to disgorgement—a measure of unjust enrichment. Moreover, the Ninth Circuit repudiated the Second Circuit's comparison of disgorgement under Section 78u(d)(5) and private securities actions. The court explained that the public policy underpinning the economic loss requirement in a private securities action, which deters abusive litigation by private parties, was inapposite to a civil enforcement action brought by the SEC.
Implications
It is no surprise that the Supreme Court granted certiorari in Sripetch. Over the last decade, the Court has granted cert on two other cases involving the scope of the SEC's authority to seek disgorgement. The first case, decided in 2017, was Kokesh v. SEC where the Court held that disgorgement constitutes a penalty subject to a five-year statute of limitations period under 28 U.S.C. § 2462. 581 U.S. 455 (2017). That case was significant, because prior to Kokesh, the SEC took the position that disgorgement was nonpunitive, rendering Section 2462 inapplicable to SEC disgorgement claims. Kokesh reigned in this practice.
More recently in 2020, as noted above, the Supreme Court held in Liu that a "disgorgement award that does not exceed a wrongdoer's net profits and is awarded for victims is equitable relief" authorized under the Exchange Act. 591 U.S. at 75. As in Kokesh, the Supreme Court in Liu sought to curtail SEC disgorgement claims, tethering them to a wrongdoer's actual ill-gotten gains.
Since Liu, there has been disagreement amongst the lower courts whether the SEC must prove that a victim suffered pecuniary harm to obtain disgorgement. The question here is whether the Supreme Court will use Sripetch to limit SEC disgorgement claims even further by requiring proof of a victim's financial loss. The Court's determination will have significant consequences on the SEC's authority to pursue this powerful penalty. As the SEC's brief in support of certiorari points out, disgorgement has been—and remains—an important tool to deter securities law violations. Since the 1970s the SEC has sought—and courts have awarded—disgorgement of ill-gotten gains. "In fiscal year 2024, for example, the SEC obtained orders for $8.2 billion in financial remedies, including $6.1 billion in disgorgement and prejudgment interest."1 While disgorgement itself is not on the chopping block, the Supreme Court's decision in Sripetch will potentially impact the availability of disgorgement as an enforcement tool in future cases.
We will continue to monitor developments as this case heads to the Supreme Court for full briefing and oral argument later this spring. We anticipate a decision by summer 2026.
Footnote
1. See Brief for the Respondent Securities and Exchange Commission, No. 25-466 (Dec. 17, 2025).
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