Supreme Court To Resolve Circuit Split Regarding The SEC's Authority To Seek Disgorgement

• Published date: 05 February 2026
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Securities
• Law Firm: Baker Botts LLP
• Author: Ms Bridget Moore, Joseph Perry and Graeme M. Waples

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...