/>iOn June 6, 2025, the U.S. Supreme Court denied a petition for certiorari in Navellier & Associates, Inc. v. SEC, declining to resolve a circuit split regarding the circumstances under which the U.S. Securities and Exchange Commission (SEC) may obtain disgorgement. The Navellier petition, which arose from the U.S. Court of Appeals for the First Circuit, presented a question that has divided the federal appellate courts: whether the SEC may recover disgorgement where there is no evidence that an investor suffered pecuniary harm. Because the Supreme Court declined to answer that question (for now), the SEC’s ability to recover disgorgement in certain cases may depend on where the lawsuit is litigated.
Background on SEC Disgorgement
In an SEC enforcement action, the monetary remedies typically sought by the SEC are disgorgement (with prejudgment interest) and/or civil money penalties. Disgorgement aims to deprive wrongdoers of their “ill-gotten gains,” SEC v. Merchant Capital, LLC, 486 F. App’x 93, 96 (11th Cir. 2012), while penalties serve “deterrent and punitive purposes,” SEC v. Sourlis, 851 F.3d 139, 146 (2d Cir. 2016). Because disgorgement and penalties serve different purposes, courts often order both disgorgement and penalties in the same case.
As of the early 2000s, the federal securities laws did not expressly authorize the SEC to obtain “disgorgement.” Section 21(d)(5) of the Securities Exchange Act of 1934 (Exchange Act), however, authorized the SEC to obtain “any equitable relief that may be appropriate or necessary for the benefit of investors.” 15 U.S.C. § 78u(d)(5). And although the Exchange Act did not expressly authorize disgorgement, courts in SEC cases regularly ordered defendants to disgorge their ill-gotten gains as an equitable remedy. See SEC v. Hallam, 42 F.4th 316, 329 & n.32 (5th Cir. 2022) (collecting cases).
Additionally, courts ordered disgorgement regardless of whether the violations at issue caused pecuniary harm to investors, as long as the defendant received ill-gotten gains. For example, courts awarded disgorgement where investors’ funds were misappropriated, causing pecuniary harm, see, e.g., SEC v. Brown, 658 F.3d 858, 860 (8th Cir. 2011), and in insider trading cases where pecuniary harm typically cannot be quantified, see, e.g., SEC v. Contorinis, 743 F.3d 296, 301-07 (2d Cir. 2014).
The Supreme Court and Congress Address Disgorgement
In Liu v. SEC, 591 U.S. 71 (2020), the Supreme Court considered for the first time whether the SEC may obtain “disgorgement” as a form of “equitable relief” under Section 21(d)(5) of the Exchange Act. The Court said yes, with certain limitations. Specifically, the Supreme Court held that “a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under § 78u(d)(5).” Liu, 591 U.S. at 74.
The year after Liu was decided, Congress amended the Exchange Act to expressly authorize “disgorgement” in SEC enforcement actions. In the National Defense Authorization Act for Fiscal Year 2021 (NDAA), Congress made several revisions to the Exchange Act, including the addition of Section 21(d)(7), which provided that, “[i]n any action or proceeding brought by the [SEC] under any provision of the securities laws, the [SEC] may seek, and any Federal court may order, disgorgement.” 15 U.S.C. § 78u(d)(7).
After enactment of the NDAA, it was clear that Congress authorized the SEC to obtain disgorgement. But questions remained about whether disgorgement was still subject to the pre-NDAA restrictions described by the Supreme Court in Liu.
The Circuit Split Develops
In SEC v. Hallam, 42 F.4th 316 (5th Cir. 2022), the Fifth Circuit was the first appellate court to address SEC disgorgement following the NDAA. After analyzing the NDAA amendments to the Exchange Act, the Fifth Circuit “reject[ed] the suggestion that the amendments merely codify Liu.” 42 F.4th at 337. The court explained that, if the NDAA simply codified Liu, that “would render nearly each new word [in the Exchange Act] redundant with the unaltered Section 78u(d)(5),” a statutory reading the court found “unsupportable.” Id. The court held that the amended Exchange Act, including the new Section 78u(d)(7), “authorizes disgorgement in a legal – not equitable – sense,” and thus “ratifies the pre-Liu disgorgement framework used by every circuit court of appeals.” Id. at 338. To recover disgorgement under that pre-Liu framework, the SEC must reasonably approximate a defendant’s unjust enrichment from a securities law violation, but it need not show that investors suffered pecuniary harm. See id. at 341.
About one year later, the Second Circuit reached a different conclusion. In SEC v. Govil, 86 F.4th 89 (2d Cir. 2023), the court opined that “Liu’s equitable limitations on disgorgement survive[d] the NDAA,” and thus “disgorgement under both § 78u(d)(5) and § 78u(d)(7) are constrained by Liu.” Govil, 86 F.4th at 100 (citation omitted). In the Second Circuit’s view, (i) Sections 78u(d)(5) and 78u(d)(7) of the Exchange Act authorize disgorgement that is “equitable relief”; (ii) such relief must be “awarded for victims”; and (iii) the victim element “requires a finding of pecuniary harm” to investors before disgorgement may be ordered. Id. at 106. So, the Second Circuit remanded for the district court to determine whether the defrauded investors suffered pecuniary harm. The Second Circuit acknowledged that its interpretation of disgorgement after the NDAA was at odds with the Fifth Circuit’s interpretation. See Govil, 86 F.4th at 100.
The next year, the First Circuit considered and rejected the Second Circuit’s pecuniary harm requirement. In Navellier, an SEC case against investment advisers, the defendants argued that “disgorgement was not an available equitable remedy” because their investor “clients suffered no pecuniary harm.” 108 F.4th at 41. The First Circuit rebuffed that argument, and declined to follow Govil, stating that neither Liu nor First Circuit precedent “require investors to suffer pecuniary harm as a precondition to a disgorgement award.” 108 F.4th at 41 n.14. The First Circuit explained that disgorgement is a “profit-based measure of unjust enrichment,” which focuses on a “wrongdoer’s net unlawful profits,” and so it is “available even in the absence of direct economic loss to the complaining party.” Id. at 41 (citations omitted). The First Circuit thus affirmed the district court’s disgorgement award.
The Petition for Certiorari in Navellier
The Navellier defendants sought review by the Supreme Court, presenting the question of whether the SEC may obtain disgorgement without evidence of pecuniary harm to an investor. See Pet. for Writ of Certiorari at i, Navellier & Assocs., Inc. v. SEC, No. 24-949 (S. Ct. filed Mar. 3, 2025). The petition highlighted the split between the First and Second Circuits on this issue, as well as the different views among the First, Second, and Fifth Circuits on whether disgorgement is a legal or equitable remedy after the NDAA amendments to the Exchange Act. Id. at 10-13.
The SEC, represented by the U.S. Department of Justice, opposed the petition. The SEC asserted the “court of appeals correctly determined that an award of disgorgement … does not require a showing that investors suffered pecuniary harm.” Brief for Respondent in Opp’n at 6, Navellier & Assocs., Inc. v. SEC, No. 24-949 (S. Ct. filed May 5, 2025). In the SEC’s view, disgorgement is a “profits-focused remedy” that “turns on whether the violator has made a profit, not on whether the victim has suffered a loss.” Id. The SEC acknowledged that the First Circuit’s decision in Navellier was “in tension with Govil,” but argued that the decisions did not “squarely conflict” because of factual distinctions between the cases. Id. at 8. The SEC also noted the differences in how the Second and Fifth Circuit viewed disgorgement after the NDAA – as either an equitable or legal remedy – but claimed those discrepancies did not merit review by the Supreme Court. See id. at 9-10.
On June 6, 2025, the Supreme Court denied the petition for certiorari.
Takeaways
Accordingly, for now, the issue of whether the SEC may obtain disgorgement without a showing of pecuniary harm remains unresolved. In cases where the SEC can show pecuniary harm to investors, disgorgement likely remains available in all circuits. But in cases where the SEC cannot make such a showing (e.g., insider trading and certain other cases), disgorgement may be unavailable within the Second Circuit and other courts that might follow the Second Circuit’s view. Resolution of this issue likely will require a ruling by the Supreme Court. But until that ruling arrives, it appears the SEC’s ability to obtain disgorgement in cases without pecuniary harm may continue to vary from circuit to circuit.
