Disgorgement Without Harm? Ninth Circuit Sets New Stakes for Public Companies and Investors Across the Western United States

In a decision that strengthens the Securities and Exchange Commission’s (SEC[s]) enforcement tools in the Ninth Circuit, the court has now permitted disgorgement without proof of investor financial harm — a ruling that deepens a growing circuit split and sets the stage for possible Supreme Court review.

The Ninth Circuit has joined the First Circuit in holding that the SEC may seek disgorgement in civil enforcement actions even when investors did not suffer measurable financial harm. In United States SEC v. Sripetch (9th Cir. 2025), the court affirmed a $2.25 million disgorgement order, ruling that the SEC need not prove investor pecuniary harm to recover ill-gotten gains under Sections 21(d)(5) and 21(d)(7) of the Securities Exchange Act of 1934. The court found that these provisions empower the SEC to seek equitable relief in the form of restitution aimed at preventing unjust enrichment — even where specific financial injuries cannot be demonstrated.

Background: Disgorgement and Investor Loss

Disgorgement is an equitable remedy designed to strip wrongdoers of profits earned through unlawful conduct. Traditionally, courts viewed disgorgement as a means to restore funds to defrauded investors and deter future misconduct. In the absence of statutory authorization for monetary remedies, courts accepted the SEC’s position that disgorgement was within their “inherent equity power to grant relief ancillary to an injunction.” SEC v. Tex. Gulf Sulphur Co., 312 F. Supp. 77, 91 (S.D.N.Y. 1970).

Beginning in the 1970s, courts regularly ordered disgorgement in SEC enforcement actions to “deprive … defendants of their profits in order to remove any monetary reward for violating” securities laws and to “protect the investing public by providing an effective deterrent to future violations.” Kokesh v. S.E.C., 581 U.S. 455, 459 (2017); see also Liu v. SEC, 140 S. Ct. 1936, 1942 (2020) (tracing the historical development of disgorgement).The Ninth Circuit followed this trend, stating in SEC v. Clark, 915 F.2d 439, 453 (9th Cir. 1990), that the SEC’s authority to obtain injunctive relief “had been broadly read to include disgorgement of profits realized from violations of the securities laws.”

The legal basis for SEC disgorgement was further strengthened in 2002, when Congress enacted the Sarbanes-Oxley Act, granting the Commission explicit authority to seek “any equitable relief” in civil enforcement actions. See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 305, 116 Stat. 745, 779 (2002).

Following these developments, two distinct circuit splits have emerged regarding the proper scope of disgorgement under the Securities Exchange Act. The first disagreement concerns whether all disgorgement must follow the limits the Supreme Court outlined in Liu v. SEC, which said that such remedies must align with traditional equitable principles — like returning money to harmed investors and avoiding punitive awards. Some courts, like the Second Circuit, apply those limits broadly to both of the Securities Act’s disgorgement provisions, §§ 78u(d)(5) and 78u(d)(7), while others, including the Fifth Circuit, hold that the newer § 78u(d)(7) permits more expansive disgorgement, similar to what courts allowed before Liu. See SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023); SEC v. Hallam, 42 F.4th 316, 339 (5th Cir. 2022).

The second split—at the heart of Sripetch—is whether disgorgement requires proof that investors actually lost money. In Sripetch, the defendant, a stock trader accused of running a “scalping” scheme involving multiple penny stock companies, argued that the SEC could not obtain disgorgement without proving that investors suffered pecuniary (financial) harm. The Ninth Circuit disagreed, reasoning that the purpose of disgorgement is to prevent unjust enrichment — not necessarily to compensate victims for losses.

By doing so, the court explicitly sided with the First Circuit’s 2024 decision in SEC v. Navellier & Associates, Inc. and rejected the Second Circuit’s contrary ruling in SEC v. Govil (2023), which required proof of investor harm. The Ninth Circuit acknowledged that disgorgement presupposes a “victim,” but clarified that the term does not necessarily refer to someone who experienced financial loss, but rather someone whose protected interests have been violated. This divergence sets up a clear doctrinal conflict for Supreme Court resolution.

Implications of the Decision for Businesses Across the Ninth Circuit

For companies and advisors operating within the Ninth Circuit — which includes Arizona, California, Nevada, Idaho, and Washington — this ruling carries significant implications.

• Expanded Enforcement Authority: The SEC now has greater latitude to pursue disgorgement even when investor losses are speculative or unquantified.
• Increased Litigation Risk: Publicly traded companies, investment advisors, and executives may face monetary remedies untethered to investor losses, heightening potential liability in enforcement actions. Entities that previously relied on a lack of quantifiable harm as a defense may find themselves facing substantial monetary exposure.
• Urgency for Proactive Governance: Companies should review internal controls, disclosure procedures, and risk-management programs to ensure they align with this expanded enforcement posture. Particular attention should be paid to promotional activity, investor communications, and securities offerings.

The decision signals a more assertive regulatory environment wherein the SEC can seek profit-based remedies without proving that anyone was financially harmed — a marked shift from prior practice.

For the businesses and investors across the Western United States, this development reflects a stronger enforcement stance designed to deter misconduct. While this may bolster investor protection and market integrity, it could also increase compliance costs and create uncertainty for companies raising capital, venture funds, and local financial advisors.

Practical Guidance

Given this expanded enforcement authority, organizations and clients doing business in the Ninth Circuit should consider the following steps:

• Conduct periodic compliance audits focused on securities-law obligations. Focus especially on areas with revenue tied to public communications, promotional campaigns, or capital-raising events.
• Budget for potential SEC investigations or disgorgement exposure, even where investor loss is minimal or disputed.
• Revisit disclosure and governance policies to ensure transparency in public statements and offering materials. Update risk factors to reflect this shift in enforcement posture.
• Engage counsel early if facing SEC inquiry or subpoena activity. Lack of investor harm is no longer a viable early-exit strategy.

With this decision, the Ninth Circuit aligns with the First Circuit and deepens a circuit split with the Second Circuit. A petition for certiorari is already docketed, and the U.S. Supreme Court may soon resolve whether disgorgement truly requires investor harm. Until the Supreme Court resolves this question, companies within the Ninth Circuit should anticipate an active SEC eager to test the boundaries of the disgorgement remedies available to it in enforcement actions.

Kristen Iteen is an associate attorney in Fennemore’s Business Litigation group. She has valuable experience assisting clients with litigation, corporate, and compliance matters. Prior to joining the firm, Kristen served as a judicial clerk for the Honorable Judge Samuel Thumma of the Arizona Court of Appeals, Division One. She can be reached at kiteen@fennemorelaw.com. 

Bill Klain represents his clients in a broad range of business disputes and in the formation and governance of corporations, partnerships, and limited liability companies. A distinguished figure in the fields of Arizona commercial litigation and corporate law, Bill helps his clients successfully navigate and resolve their disputes involving business divorces and dissolutions, fiduciary breaches, business torts, sales contracts, buy-sell agreements, non-compete, non-solicitation, and non-disclosure agreements, civil appeals, and a variety of other complex civil legal matters. He can be reached at bklain@fennemorelaw.com.