On April 20, 2026, the Supreme Court will hear oral arguments in Sripetch v. SEC, a case addressing what the Securities and Exchange Commission (SEC) must show to obtain disgorgement from a defendant in federal court. In the decision below, the Ninth Circuit held that the SEC may seek disgorgement without having to establish that the defendant's wrongful conduct caused investors pecuniary harm. That holding squarely conflicts with the Second Circuit's view that pecuniary harm to investors is a prerequisite for disgorgement.
The Supreme Court granted review to resolve this circuit split. The Court's resolution of the question is likely to have a significant impact on SEC enforcement actions—and may substantially constrain what the SEC has described as a central feature of its enforcement program.
The SEC's Authority to Seek Disgorgement
Beginning in the 1970s, courts determined that the SEC has authority to seek "restitution of the profits" gained by defendants through their "wrongful conduct," a remedy known as disgorgement. See SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971). In 2002, Congress enacted the Sarbanes-Oxley Act, which, among other things, provides that the SEC may seek "equitable relief" for the "benefit of investors" in civil actions. 15 U.S.C. § 78u(d)(5).
The Supreme Court addressed this statutory language and the SEC's disgorgement authority in Liu v. SEC, 591 U.S. 71 (2020). The Court held in Liu that "equitable relief" under § 78u(d)(5) refers to "categories of relief that were typically available in equity," and the Court recognized that equity courts routinely awarded relief to deprive "wrongdoers of their ill-gotten gains." Id. at 79. The Court emphasized, however, that such an award was traditionally subject to important limitations, and the Court noted several ways that lower courts were ordering disgorgement awards in SEC enforcement actions that "test[ed] the bounds" of these limitations. Id. at 85. The Court clarified that for a disgorgement award to be permissible under § 78u(d)(5), the award must "not exceed a wrongdoer's net profits" and must be "awarded for victims." Id. at 75.
Six months after Liu, Congress amended 15 U.S.C. § 78u(d) to provide that the SEC may seek, and courts may award, "disgorgement" of any "unjust enrichment" gained as a result of a violation of securities law. 15 U.S.C. §§ 78u(d)(3)(A)(ii), (d)(7). Unlike subsection (d)(5), the provision interpreted by Liu, the new statutory language in subsection (d)(7) makes no mention of equitable relief, nor does it state that the remedy must be "for the benefit of investors."
The Circuit Split
Following Liu and Congress's amendment to the statute, new questions emerged regarding the SEC's authority to seek disgorgement in civil actions. Although Liu makes clear that disgorgement under § 78u(d)(5) is subject to equitable limitations, courts have grappled with the precise scope of those limitations. Courts have also confronted whether those limitations apply only to disgorgement under subsection (d)(5) or apply equally to the SEC's new disgorgement authority under subsection (d)(7).
In answering these questions, the circuits divided.
The Fifth Circuit was the first to address these new uncertainties. In Hallam v. SEC, the Fifth Circuit held that Congress's statutory amendment was intended to "curtail the [Supreme] Court's decision" in Liu and to authorize "the sort of disgorgement awards" that courts had awarded prior to Liu. 42 F.4th 316, 341 (5th Cir. 2022). Under that interpretation, the SEC could seek—and courts could award—disgorgement under subsection (d)(7) without regard to the traditional equitable limitations that Liu emphasized. See id.
The Second Circuit reached a different conclusion in SEC v. Govil, 86 F.4th 89 (2d Cir. 2023). According to the Second Circuit, the new statutory language in subsection (d)(7) was not intended to supersede the Supreme Court's decision in Liu but instead was intended to remove any doubt "that equitable disgorgement is available" in SEC civil enforcement actions. Id. at 100. The Second Circuit reasoned that the SEC's disgorgement authority under both subsections (d)(5) and (d)(7) is subject to the limitations discussed in Liu. Id.
The Second Circuit in Govil also addressed the scope of those limitations. The court explained that, under Liu, disgorgement must be "awarded for victims" and held that an investor who has not suffered any "pecuniary harm as a result of the fraud is not a victim" for equitable purposes. 86 F.4th at 98. Govil emphasized that if investors who did not suffer any financial harm were allowed to receive proceeds from the disgorgement of a defendant's profits, courts would be "conferring a windfall." Id. at 103.
As discussed in a previous analysis of Govil, the Second Circuit's decision underscored significant "uncertainty" over the SEC's disgorgement authority. Adding to that uncertainty, the First Circuit in SEC v. Navellier concluded after Govil that "neither Liu, nor our case law, [] require investors to suffer pecuniary harm as a precondition to a disgorgement award." 108 F.4th 19, 41 n.14 (1st Cir. 2024).
The Supreme Court Grants Review in Sripetch
It was against this backdrop that the Ninth Circuit confronted the SEC's disgorgement authority in SEC v. Sripetch, 154 F.4th 980 (9th Cir. 2025). There, the SEC sought over $4 million in ill-gotten gains plus prejudgment interest for Sripetch's role in multiple fraudulent penny stock schemes. Id. at 984-85. Sripetch argued that the SEC was not authorized to seek disgorgement because it had failed to show that any investors had suffered pecuniary harm from the schemes. Id. at 985.
The Ninth Circuit joined the First Circuit in holding that pecuniary harm is not a precondition to a disgorgement award, reasoning that under common-law principles and traditional equity practice, disgorgement requires only "an actionable interference" with an investor's "legally protected interests"—not a particular showing of pecuniary loss. 154 F.4th at 986 (citing Restatement (Third) of Restitution and Unjust Enrichment § 51(1)). In its view, courts may award disgorgement as "equitable relief" under § 78u(d)(5) without a showing of pecuniary harm. And because there was no reason to think that the SEC's new disgorgement authority under subsection (d)(7) authorizes a narrower disgorgement remedy than subsection (d)(5), the Ninth Circuit held that a showing of pecuniary harm is not required for disgorgement under subsection (d)(7) either. Id. at 989.
The Supreme Court granted review at the request of the defendant and the government, which both urged the Court to resolve whether the SEC must show pecuniary harm to obtain disgorgement under § 78u(d)(5) and (d)(7). In addressing that question, the Court may also be required to confront whether Congress intended subsection (d)(7) to codify the equitable disgorgement remedy recognized by Liu or instead authorize courts to award more expansive relief. Regardless of how the Court answers these questions, its decision is likely to have a significant impact on SEC enforcement actions. Disgorgement is a central feature of the SEC enforcement scheme. Indeed, the agency obtained over $6 billion in disgorgement orders in fiscal year 2024 alone. Pet'r's Cert. Br. 16; Resp't Cert. Br. 10. Should the Supreme Court agree with the Second Circuit that pecuniary harm to investors is a precondition for disgorgement under subsections (d)(5) and (d)(7), the Court's decision could substantially constrain the SEC's ability to pursue disgorgement as a remedy because it may be difficult for the SEC to prove and quantify the pecuniary harm to investors in particular cases.