Supreme Court: SEC May Seek Disgorgement of Profits Without Proving Investor Loss
The Supreme Court's unanimous decision resolves a significant question regarding the SEC's disgorgement authority, foreclosing defendants from contesting disgorgement awards based on the absence of investor financial harm.
On June 4, 2026, the Supreme Court unanimously held in Sripetch v. Securities and Exchange Commission that the SEC need not prove that investors suffered pecuniary loss before obtaining disgorgement through an enforcement action in federal court.
For more than 50 years, the SEC sought disgorgement of defendants' ill-gotten gains as a remedy for violations of federal securities law, without having to prove that any investors suffered financial harm. In 2023, however, the Second Circuit required the agency to provide such proof in SEC v. Govil. The First and Ninth Circuits subsequently reached the opposite conclusion, setting up a circuit split.
The Supreme Court sided with the SEC, concluding that "courts sitting in equity have long issued remedies designed to deprive wrongdoers of their net profits from unlawful activity," without regard to victims' losses. While the Court acknowledged the possibility that, absent proof of investor harm, disgorgement could transform into a punitive, rather than equitable, remedy, it found this possibility insufficient to require the SEC to prove that victims suffered pecuniary losses.
The Court left unanswered whether disgorgement is now a legal (rather than an equitable) remedy subject to the right to a jury trial, as a result of Congress's 2021 enactment of Section 21(d)(7) of the Securities Exchange Act of 1934, which codified the SEC's power to seek disgorgement. This question may be academic, however, because the SEC has brought all of its contested enforcement actions in federal court, rather than its in-house administrative courts, following the Supreme Court's decision in SEC v. Jarkesy. But this could become an issue should the SEC seek to revive its administrative court proceedings where it also has statutory authority to seek disgorgement.
Companies should proactively assess how this ruling impacts their potential litigation and regulatory exposure by revisiting pending SEC litigation, SEC investigations, and related risk assessments in which arguments regarding a lack of investor harm were a defense strategy. The adjustment is most immediate for matters within, or with a nexus to, the Second Circuit, where Govil has been overturned.
