Second Circuit Reins In SEC Disgorgement Powers

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In Securities & Exchange Commission v. Govil, No. 22-1658, 2023 WL 7137291 (2d Cir. Oct. 31, 2023), the United States Court of Appeals for the Second Circuit dealt a setback to the enforcement agenda of the Securities and Exchange Commission ("SEC") by limiting its ability to seek disgorgement under 15 U.S.C. § 78u(d)(5) and (7) to situations in which the regulator can demonstrate investors have suffered pecuniary harm.

In Govil, the SEC alleged that the defendant caused his former company, Cemtrex, to issue securities under false pretenses, assuring investors that their $7.3 million in funds would go towards business expenses when, in reality, they were used to pay defendant's personal expenses and finance other business ventures. Defendant entered into a settlement with Cemtrex whereby he surrendered all of his securities in the Company, which the parties agreed were worth about $5.6 million, and paid the company an additional $1.5 million