Supreme Court to Review Disgorgement Requirements
The Supreme Court will decide if the SEC must prove pecuniary harm to secure disgorgement awards in financial cases.
Updated on Oct. 28, 2026 in Financial Crime
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On January 9, 2026, the Supreme Court agreed to hear SEC v. Sripetch to resolve a circuit court split regarding SEC enforcement powers. The Court will evaluate whether demonstrating pecuniary harm is a mandatory requirement for disgorgement.
Why it matters
The outcome will settle conflicting legal interpretations across federal circuits, significantly impacting the SEC's authority to seek financial penalties. A ruling requiring proof of harm could restrict the agency's ability to pursue disgorgement as equitable relief.
The Supreme Court is weighing circuit splits including the Ninth Circuit decision in 154 F.4th 980, the First Circuit in 108 F.4th 19, the Second Circuit in 86 F.4th 89, and the Fifth Circuit in 42 F.4th 316.
The players
Supreme Court of the United States
This is the highest federal court in the United States, responsible for interpreting the law and resolving conflicts between appellate courts.
Securities and Exchange Commission
This is the federal regulatory agency tasked with protecting investors and maintaining fair, orderly, and efficient markets.
The details
The dispute centers on whether disgorgement must be limited to illicit net profits returned to victims as established in the 2020 Liu v. SEC ruling. The Court must now clarify if lower courts can continue to affirm disgorgement awards without demonstrating actual pecuniary harm to investors.
Timeline
June 24, 2020: The Supreme Court decided Liu v. SEC.
2022: The Fifth Circuit decided SEC v. Hallam.
2023: The Second Circuit decided SEC v. Govil.
2024: The First Circuit decided SEC v. Navellier & Associates.
2025: The Ninth Circuit decided SEC v. Sripetch.
Legal Context
The Supreme Court's review of SEC v. Sripetch acts as a direct extension of the 2020 Supreme Court decision in Liu v. SEC by further defining the boundaries of equitable disgorgement. This move addresses the persistent legal inconsistency across federal circuits regarding SEC enforcement.
This case determines the extent of SEC enforcement powers, which may affect the scope of financial restitution available to victims of securities fraud. Investors should monitor the outcome as it dictates the standards for returning illicit profits to those harmed by corporate misconduct.
The takeaway
The upcoming ruling will provide a definitive standard for how federal regulators seek disgorgement in financial fraud cases. Stakeholders should pay attention to whether the Court prioritizes broad agency enforcement powers or stricter requirements for proving individual harm.
Further reading
For more information on regulatory enforcement, visit the Financial Crime section.
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