The U.S. Supreme Court has confirmed that the U.S. Securities and Exchange Commission (SEC) may continue to seek disgorgement in civil enforcement cases. Disgorgement requires a wrongdoer to give up money gained through unlawful conduct. In its unanimous decision from June, the court made clear, however, that there are limits.

The amount must be based on net profits from the wrongdoing, not gross revenue. Courts should subtract legitimate expenses, return money to harmed investors when possible, and generally tie the award to each defendant’s own gains. The SEC also must bring disgorgement claims within the applicable statutory time limits. The latest ruling gives courts and litigants a clearer framework while emphasizing that disgorgement remains an important enforcement tool that the SEC can leverage.

Background and Context

Disgorgement has long been one of the SEC’s main tools in enforcement cases. It is meant to take away profits from unlawful conduct and reduce the incentive to violate securities laws. In recent years, defendants challenged whether the SEC could seek disgorgement at all, and if so, how far the remedy could go. Earlier Supreme Court decisions questioned disgorgement awards that looked more like penalties, explained when time limits apply to monetary remedies, and required courts to keep disgorgement within traditional equitable limits. Congress also amended the securities laws to address how far back the SEC may seek monetary relief and how long it has to do so.

What the Court Decided and Why It Matters

The Supreme Court held that the SEC may obtain disgorgement in civil cases when the award is limited to net profits connected to the violation. When possible, the money should be used to compensate harmed investors. Courts should usually deduct legitimate business expenses that were not part of the misconduct.

The court also cautioned against making defendants jointly responsible for the same amount unless they acted together in a way that makes their gains inseparable. In most cases, each defendant’s liability should be based on that defendant’s own proven gains. The court also emphasized that the SEC must follow applicable time limits and cannot avoid those limits by calling a punitive money award "equitable."

For companies, financial institutions, advisers, and individuals, the decision confirms that disgorgement remains an important SEC remedy. At the same time, it gives defendants several important arguments. They can seek to limit disgorgement to net profits, request deductions for legitimate expenses, challenge joint liability where the facts do not support it, and raise statute-of-limitations defenses when appropriate.

Practical Implications for Issuers, Financial Institutions, Advisers, and Individuals

Issuers should expect the SEC to keep seeking disgorgement in offering, accounting, and internal controls cases. The agency is also likely to focus on returning money to harmed investors when that is feasible. Companies should keep records that show which revenue was lawful and which costs were legitimate, especially when revenue streams are mixed.

Financial institutions and advisers should expect scrutiny of fees, conflicts, and marketing statements, with the SEC focusing on investor harm and the defendant’s net benefit.

Individuals face more individualized exposure because the SEC must connect any award to their own gains. For that reason, records showing compensation, reimbursements, and the movement of funds will matter. In all cases, respondents should consider whether the SEC’s claim is timely and whether the requested relief is truly remedial rather than punitive.

Considerations for Compliance, Investigations, and Settlement Strategy

Firms should make sure their compliance and accounting systems can show where revenue came from, what expenses were incurred, and whether money can be returned to investors. Clear, timely records can help support deductions for legitimate expenses and responses to attempts to group profits across related companies or individuals.

During an investigation, early financial analysis can help narrow the disgorgement amount, identify proper deductions, and show whether investor repayment is possible. In settlement discussions, parties should consider distribution plans that return funds to investors where feasible, state agreed expense deductions, and tie liability to each respondent’s own gains. Respondents also should evaluate time-limit defenses early, including when the claim accrued and whether the SEC is seeking equitable relief or a penalty in substance.

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