In Liu v. SEC, 140 S. Ct. 1936 (2020), the Supreme Court limited the U.S. Securities and Exchange Commission’s (SEC) disgorgement power to cases where disgorgement is “awarded for victims.” In its recent decision in SEC v. Govil, 2023 WL 7137291 (2d Cir. Oct. 31, 2023), the U.S. Court of Appeals for the Second Circuit further limited the SEC’s power by construing “victims” to be limited to those who suffer pecuniary harm. This holding will likely prevent the SEC from obtaining disgorgement in numerous types of cases, such as those involving books and records or registration violations, and even insider trading.

‘Liu’ and Subsequent Statutory Amendments

In 2020, the Supreme Court held that the SEC may seek disgorgement in a civil enforcement action, even though it is not explicitly authorized by the Securities Exchange Act of 1934 (Exchange Act), so long as the disgorgement award does not exceed a wrongdoer’s net profits and the award is paid to the wrongdoer’s victims. See generally Liu, 140 S. Ct. 1936.