Second Circuit Narrows SEC Disgorgement Powers And Deepens Circuit Split

In a significant recent decision, Securities and Exchange Commission v. Govil,¹the Second Circuit substantially narrowed the scope of the Securities and Exchange Commission's (SEC) disgorgement powers to cases in which the SEC can demonstrate that investors suffered a pecuniary harm. The decision may curtail the SEC's ability to seek disgorgement as a remedy for a wide range of regulatory violations. The court's opinion also deepens a split with the Fifth Circuit Court of Appeals, raising the potential for forum shopping and increasing the likelihood that the Supreme Court may be asked to clarify the scope of the SEC's disgorgement powers.

Litigation Background

The underlying action dates back to 2021, when the SEC brought an enforcement action alleging that Aron Govil, a controlling shareholder of Cemtrex, used his position to cause the company to engage in three fraudulent securities offerings. The SEC alleged that Govil represented to investors that Cemtrex