The U.S. Supreme Court may soon weigh in on one of the most consequential—and unsettled—questions in recent SEC enforcement jurisprudence: whether the Commission may seek disgorgement without proving that investors suffered pecuniary harm.

What makes the moment especially notable is that, as of this month, both sides now want the Court to answer the question.[1] In SEC v. Sripetch,[2] the SEC prevailed before the Ninth Circuit—yet still urged the Supreme Court this month to grant review, agreeing with the defendant that a deep and consequential circuit split warrants resolution.

When the Commission that won at the federal appellate level agrees that the Supreme Court should step in anyway, the Supreme Court may finally heed that call.

1. Disgorgement Under the Microscope: From Kokesh to Liu

Scrutiny of the SEC’s disgorgement authority has been building for nearly a decade. In Kokesh v. SEC,[3] the Supreme Court held that disgorgement constitutes a “penalty” for statute-of-limitations purposes, calling into question the remedy’s longstanding use as a purely equitable tool.

Three years later, the Court addressed disgorgement head-on in Liu v. SEC.[4] There, the SEC had obtained a disgorgement award arising from a scheme that solicited foreign investors for a cancer-treatment center, alleging Liu misappropriated millions of dollars that had been invested in the fund, in violation of Section 17(a) of the Securities Act of 1933, which prohibits the making of false statements in the context of a securities offering. While the Court upheld disgorgement in principle, it imposed structural limits rooted in traditional equity. Disgorgement, the Court held, must (1) not exceed a wrongdoer’s net profits, (2) avoid being punitive, and (3) be awarded for victims.

Congress subsequently amended the Exchange Act to expressly authorize disgorgement, adding Section 21(d)(7).[5] But that amendment did not eliminate debate over how Liu’s equitable constraints apply—particularly whether the “for victims” requirement means the SEC must prove pecuniary harm.

2. A Growing Circuit Split on Pecuniary Harm

Post-Liu, the federal courts of appeals have fractured on whether disgorgement requires proof that investors actually lost money.

The Second Circuit, in SEC v. Govil,[6] held that disgorgement under Sections 21(d)(5)[7] and (d)(7) requires a showing of pecuniary harm. In its view, equitable relief must be “awarded for victims,” and a victim is someone who suffered an economic loss.

By contrast, the First Circuit, in SEC v. Navellier & Associates,[8] rejected that requirement, reasoning that disgorgement is a profit-based remedy focused on unjust enrichment, not victim compensation. The Fifth Circuit, in SEC v. Hallam,[9]  has taken a slightly different approach, concluding that post-2021 disgorgement under Section 21(d)(7) is not constrained by Liu’s equitable limits—further complicating the landscape.[10]

Until recently, however, the Supreme Court had declined to intervene.

3. SEC v. Sripetch: The Case That May Force the Issue

That may change with SEC v. Sripetch. The case arose from an SEC enforcement action alleging a multi-year fraudulent penny-stock “scalping” scheme and other securities law violations involving penny stock companies. The district court ordered approximately $2.25 million in disgorgement of “net profits,” and roughly $1 million in prejudgment interest. On appeal, the defendant argued—relying on Govil—that disgorgement was improper absent proof of investor pecuniary harm and the Commission had failed to prove that despite the district court’s disgorgement award.

The Ninth Circuit disagreed. Aligning itself with the First Circuit and expressly rejecting the Second Circuit’s reasoning, the court held that pecuniary harm is not a prerequisite to disgorgement. In the Ninth Circuit’s view, a “victim” need not have suffered an economic loss; disgorgement’s purpose is to strip ill-gotten gains, not to compensate damages.

The defendant filed a petition for certiorari in October 2025.[11] Interestingly, what followed, just this month, was the SEC’s response that—despite winning before the Ninth Circuit—the Supreme Court should take the case anyway. In a December 2025 brief filed as Respondent,[12] the Commission agreed that the question is “recurring and important,” acknowledged the entrenched circuit split, and asked the Court to resolve whether pecuniary harm is required. The SEC maintained that the Ninth Circuit was correct—but conceded that nationwide clarity is now essential.

4. Why This Matters—and What Comes Next

The question presented has enormous practical significance. Disgorgement is a centerpiece of SEC enforcement, often dwarfing civil penalties and driving settlement dynamics. As things stand, the availability of disgorgement may depend on geography, particularly between the Second and Ninth Circuits—two of the most active venues for securities enforcement.

If the Supreme Court holds that pecuniary harm is required, disgorgement may be unavailable in certain cases where harm is diffuse, indirect, or can be difficult to quantify—such as involving insider trading, market-structure manipulation (e.g., spoofing, wash trades),[13] or certain private-funds and RIA enforcement actions (e.g., conflicts of interest, allocation practices, disclosure failures or misrepresentations). If the Court adopts the broader view, the SEC’s disgorgement authority would remain a powerful and flexible tool.

Either way, the risk calculus for market participants who may find themselves as a potential enforcement action defendant—and the leverage dynamics in enforcement actions—would shift meaningfully.

With a clean legal question and the unusual alignment of regulator and regulated seeking review, this circuit split appears poised for Supreme Court resolution. For market participants and enforcement counsel alike, the Court’s next move could redefine the bounds of SEC disgorgement for years to come.