The Disgorgement Dream is Dead: Why the Supreme Court’s SEC Ruling Forces a Hard Pivot in White-Collar Defense

On June 4, 2026, the U.S. Supreme Court slammed the door on one of the white-collar defense bar’s favorite parlor games: trying to strip the Securities and Exchange Commission of its disgorgement powers. By formally upholding the SEC’s authority to demand the surrender of ill-gotten gains, the Court reinforced the agency’s most devastating financial weapon and ended a decade of existential legal challenges.

For corporate litigators, the takeaway is absolute. The era of challenging the existence of the SEC’s disgorgement power is over. It is time to pivot from constitutional broadsides to trench warfare over forensic accounting.

The End of a Decade-Long War

To understand the gravity of the June 4 ruling, you have to look at the blood drawn over the last ten years. For a while, it looked like the defense bar was actually going to kill SEC disgorgement.

The assault began in earnest with Kokesh v. SEC, 137 S. Ct. 1635 (2017), where the Supreme Court classified disgorgement as a "penalty" subject to a five-year statute of limitations. The momentum accelerated with Liu v. SEC, 140 S. Ct. 1936, 1940 (2020). In Liu, the Court allowed the SEC to continue seeking disgorgement as "equitable relief" under 15 U.S.C. § 78u(d)(5), but severely kneecapped the remedy. The Court held that equitable disgorgement could not exceed a defendant's net profits, required the deduction of legitimate business expenses, and—crucially—demanded that the recovered funds be returned to harmed investors rather than simply deposited into the Treasury.

Panic ensued at the SEC. Congress threw the agency a lifeline via the National Defense Authorization Act for Fiscal Year 2021, explicitly amending the Securities Exchange Act to grant the SEC express statutory authority to seek disgorgement in federal court. See 15 U.S.C. § 78u(d)(7). But defense lawyers refused to concede, arguing that this new statutory grant was either constitutionally defective or still implicitly bound by the strict equitable tracing rules of Liu.

The June 4 decision extinguishes that hope. By upholding the disgorgement authority outright, the Supreme Court has validated the statutory framework, cementing disgorgement not as a fragile equitable workaround, but as a permanent, ironclad pillar of federal securities enforcement.

The FCPA Enforcement Engine Roars Back to Life

The most immediate and profound impact of this ruling will be felt in Foreign Corrupt Practices Act (FCPA) enforcement.

Under the Liu regime's "equitable" framework, disgorgement was tethered to the principle of returning funds to harmed investors. But in FCPA cases—where a company bribes a foreign official to win a contract—who is the harmed investor? The SEC was frequently forced into logical gymnastics to justify disgorging hundreds of millions of dollars in foreign bribery cases where the primary "harm" was to the integrity of a foreign state's procurement process, not directly to U.S. retail shareholders.

The Supreme Court has effectively green-lit massive FCPA disgorgement actions, stripping away the equitable ball-and-chain of victim-tracing that defense counsel previously used to leverage favorable settlements.

With the Court now backing the SEC's statutory power, the agency is freed from the most restrictive equitable constraints of Liu in cases where identifying individual victims is practically impossible. Expect the SEC's FCPA unit to become significantly more aggressive in its settlement demands, knowing the threat of a disgorgement wipeout in federal court is fully armed and operational.

The New Defense Playbook: From Law to Accounting

If the SEC has the unquestioned right to disgorge ill-gotten gains, the defense bar must fundamentally change its strategy. Lawyers need to stop drafting quixotic motions to dismiss based on agency overreach and start hiring better forensic accountants.

The battlefield now shifts entirely to the mechanics of calculation. The statute may grant the power, but the SEC still has the burden of proving what constitutes unjust enrichment. This requires a rigorous, two-pronged defense.

First, Aggressive Expense Deduction: Defense counsel must ruthlessly audit the SEC's math. If a company generated $50 million in tainted revenue but spent $30 million on legitimate manufacturing and distribution costs, the fight over deducting those expenses is where the case will be won or lost. The defense must force the SEC to recognize the economic realities of the business rather than accepting gross revenue as the baseline.

Second, Strict Causation and Tracing: The SEC cannot simply point to a company's general revenue increase. Litigators must force the agency to prove a strict causal nexus between the specific fraudulent act and the specific dollars being targeted. If the fraud only affected one product line or one regional subsidiary, defense teams must ring-fence the rest of the company's profits immediately, challenging any attempt by the SEC to conflate legitimate corporate growth with ill-gotten gains.

The Supreme Court’s June 4 ruling is a bitter pill for the white-collar defense bar, but clarity brings strategy. The dream of defanging the SEC’s most potent financial weapon is dead. It is time to roll up our sleeves, dive into the ledgers, and fight for every dollar on the margins.