Disgorgement – the perfect remedy or agency overreach?
The decision reached by the Second Circuit Court of Appeals in SEC v. Govil[1] is another example of courts narrowing the scope of the disgorgement remedy pursued by the SEC. Disgorgement is a remedy that requires a “party who profits from illegal or wrongful acts to give up any profits” they made from that illegal or wrongful act.[2] After the SEC broadly pursued this remedy over the years, courts have limited its application in recent years. The Second Circuit held in SEC v. Ahmed that the disgorgement remedies available under 15 U.S.C. § 78u(d)(5) and § 78u(d)(7) are limited by equitable principles. See SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023) (“[W]e conclude that disgorgement under § 78u(d)(7) must comport with traditional equitable limitations as recognized in Liu [v. SEC, 591 U.S. ––––, 140 S. Ct. 1936, 207 L.Ed.2d 401 (2020)].”). The Supreme Court in Liu held that disgorgement must be “awarded for victims.” Liu, 140 S. Ct. at 1940.
The Second Circuit in Govil has narrowed the meaning of disgorgement further, and applied guiding principles provided by the Supreme Court in Liu v. SEC to reach its holding in Govil that “equitable relief” means that the relief must be awarded to victims, which “in turn requires a finding of pecuniary harm.”[3]
The court found that the SEC has not “made such a showing” when it came to proving that the investors in Govil suffered pecuniary harm.[4] The SEC on the other hand, argued that pecuniary harm is not a prerequisite within the meaning of § 78u(d)(5).[5]
There has been concerns regarding the SEC’s potential overreach when it came to disgorgement, which is based on “strained interpretations of earlier laws passed by Congress.”[6] Meanwhile, the SEC is concerned about the cases that involve insider trading, crypto companies’ registration violations, and “investment advisers’ alleged breach of duty where disgorgement may [now] be ‘substantially constrain[ed].’”[7]
Not all circuits align with the Second Circuit’s narrowed interpretation of disgorgement. Therefore, on April 20, 2026, the Supreme Court will hear oral arguments for Sripetch v. SEC regarding the circuit split issue of whether the SEC may seek equitable disgorgement under 15 U.S.C. 78u(d)(5) and (d)(7) without showing investors suffered pecuniary harm.[8]
[1] Sec. & Exch. Comm’n v. Govil, 86 F.4th 89, 103 (2d Cir. 2023)
[2] https://www.law.cornell.edu/wex/disgorgement
[3] Sec. & Exch. Comm’n v. Govil, 86 F.4th 89, 98 (2d Cir. 2023)
[4] Id.
[5] Id. at 105
[6] See Russell Ryan, Congress’ Expansion of SEC Disgorgement Was Irresponsible, LAW360, https://www.law360.com/articles/1356807/congress-expansion-of-sec-disgorgement-was-irresponsible
[7] See Matthew Bultman, SEC’s $3 Billion Enforcement Tool on Murky Path as Courts Split, BLOOMBERG LAW, https://news.bloomberglaw.com/securities-law/secs-3-billion-enforcement-tool-on-murky-path-as-courts-split
[8] Sripetch v. SEC, No. 25-466 (U.S. Jan. 9, 2026) (cert. granted) https://www.supremecourt.gov/docket/docketfiles/html/public/25-466.html
Faruqi & Faruqi, LLP focuses on complex civil litigation, including securities, antitrust, wage and hour and consumer class actions as well as shareholder derivative and merger and transactional litigation. The firm is headquartered in New York, and maintains offices in Atlanta, Los Angeles and Philadelphia.
Since its founding in 1995, Faruqi & Faruqi, LLP has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, direct purchasers, consumers and employees.
To schedule a free consultation with our attorneys and to learn more about your legal rights, call our offices today at (877) 247-4292 or (212) 983-9330.
Ellen Lee is an associate in the New York office of Faruqi & Faruqi LLP and focuses her practice on securities litigation. She is currently awaiting admission in New York.
