CLAWING BACK FRAUDULENT PROFITS—INVESTOR PROTECTION OR REGULATORY OVERREACH: THE DISGORGEMENT DILEMMA IN SECURITIES LAW

Authors

• Jessica Sun

Document Type

Comment

Abstract

This comment explores the legal complexities surrounding the Securities and Exchange Commission’s (SEC) use of disgorgement as an enforcement tool, specifically addressing the tension between investor protection and regulatory overreach. Sun examines the evolution of disgorgement from a court-created equitable remedy to a power formally codified by the National Defense Authorization Act of 2021, while highlighting the significant limitations imposed by Supreme Court rulings in Kokesh v. SEC and Liu v. SEC. The comment centers on a current circuit split between the Second Circuit’s decision in SEC v. Govil—which requires a showing of "pecuniary harm" to victims before awarding disgorgement—and the Fifth Circuit’s decision in SEC v. Hallam, which maintains that the SEC need not prove specific investor loss. By analyzing these conflicting interpretations of statutory language and equitable principles, Sun argues that the requirement of pecuniary harm threatens the SEC’s ability to deter financial misconduct and calls for a uniform standard that balances the need to strip "ill-gotten gains" from wrongdoers with the rights of defendants.

First Page

213

Last Page

254

Recommended Citation

Jessica Sun, CLAWING BACK FRAUDULENT PROFITS—INVESTOR PROTECTION OR REGULATORY OVERREACH: THE DISGORGEMENT DILEMMA IN SECURITIES LAW, 19 J. Bus. Entrepreneurship & L. 213 (2026)
Available at: https://digitalcommons.pepperdine.edu/jbel/vol19/iss1/7