The Disgorgement Juggernaut: Why the Supreme Court’s 9-0 Ruling Handing the SEC Broad Powers Shatters Defense Illusions

A Shock to the Defense Bar’s System

If you make your living defending corporate clients against the Securities and Exchange Commission, you have likely spent the last few years operating under a comforting assumption: the Supreme Court of the United States views the administrative state with deep suspicion, and the SEC’s enforcement arsenal is on borrowed time. But in a stunning departure from its recent trajectory of defanging federal agencies, the Supreme Court delivered a unanimous, 9-0 decision on June 5, 2026, backing a broad reading of the SEC’s disgorgement authority.

For securities litigators, this ruling is a massive systemic shock. It abruptly ends a nearly decade-long defense strategy of using the Supreme Court’s equitable jurisprudence to relentlessly whittle down the SEC’s financial demands during enforcement actions. By cementing an expansive interpretation of the SEC’s statutory power to claw back ill-gotten gains, the Court just handed the Enforcement Division its biggest stick back—and completely rewrote the playbook for negotiating resolutions.

The Long War Over Disgorgement

To understand why this unanimous ruling is so devastating to the defense bar, you have to look at the historical trap the SEC had found itself in. Historically, the SEC relied on the courts’ general equitable powers to seek disgorgement. But the Supreme Court began tightening the leash in Kokesh v. SEC, 137 S. Ct. 1635 (2017), holding that disgorgement operated as a "penalty" for statute of limitations purposes.

Three years later, the Court dealt what many thought was a crippling blow in Liu v. SEC, 140 S. Ct. 1936 (2020). In Liu, the Court held that while the SEC could seek disgorgement as equitable relief, it was strictly bound by traditional principles of equity. This meant the SEC generally had to deduct legitimate business expenses from the disgorgement amount (limiting it to "net profits") and award the recovered funds to the actual victims, rather than dumping them into the Treasury.

"Post-Liu, defense counsel had a reliable formula: drag the SEC into a grueling, line-by-line accounting battle over legitimate business expenses, and threaten an appeal if the agency demanded gross revenues."

Congress intervened in 2021 via the National Defense Authorization Act (NDAA), amending the Securities Exchange Act of 1934 to explicitly authorize the SEC to seek disgorgement in federal court. Under 15 U.S.C. § 78u(d)(7), the SEC was granted statutory authority to demand disgorgement of "any unjust enrichment by the person who received such unjust enrichment."

Since 2021, the critical question dividing lower courts has been whether this statutory grant was merely a codification of Liu’s strict equitable constraints, or a brand-new, muscular tool free from those historical limitations. On June 5, a unanimous Supreme Court answered that question definitively: the SEC’s statutory disgorgement power is broad, robust, and not easily boxed in by defense accounting tricks.

What Changes in Practice: The End of the "Equitable Haircut"

The immediate practical impact of this decision cannot be overstated. The June 5 ruling shifts the tectonic plates of SEC settlement negotiations in three distinct ways:

1. Settlement Leverage Returns to the Enforcement Division

In the post-Liu era, defense attorneys routinely used the threat of litigation over the disgorgement calculation as a wedge to drive down settlement figures in the Wells process. If the SEC demanded an aggressive clawback, counsel would simply point out that the agency couldn't legally sustain the demand without meticulously proving net profits. That leverage is now gone. With the Supreme Court backing a "broad reading" of the agency's authority, the SEC will feel emboldened to demand staggering disgorgement figures—knowing the highest court in the land has insulated them from granular, equity-based challenges.

2. The Expense Deduction Defense is Gutted

Practitioners must immediately recalibrate how they advise clients on financial exposure. If the SEC’s authority is no longer tethered to the strict "net profits" mandate of traditional equity, the agency has far more leeway to demand disgorgement closer to gross revenues in fraud cases. The days of hiring forensic accountants to shave 30% off an SEC demand by categorizing executive salaries and marketing costs as "legitimate business expenses" are effectively over. If your client commits a securities violation, they are on the hook for the full scope of the unjust enrichment, broadly defined.

3. D&O Insurance Complications

This ruling will also send ripples through the Directors & Officers (D&O) insurance market. Most D&O policies explicitly exclude coverage for "penalties" or the return of ill-gotten gains. When disgorgement was strictly categorized as an equitable return of net profits under Liu, insurers had a clear line to deny indemnification. Now that the Supreme Court has endorsed a broad, statutorily driven reading of the power—one that feels increasingly punitive in its application—expect aggressive litigation between corporate policyholders and carriers over whether these massive SEC disgorgement demands trigger policy exclusions.

The Takeaway for Corporate Counsel

The defense bar needs to wake up and smell the precedent. It is easy to look at the Roberts Court’s recent rulings on agency power and assume the SEC is fighting with one hand tied behind its back. But this 9-0 decision proves that when it comes to the explicit statutory text of the Exchange Act, the Court is perfectly willing to let the SEC empty a wrongdoer's pockets.

If you are representing a client facing an SEC investigation, you must adjust your reserves and manage client expectations immediately. The era of chipping away at SEC monetary remedies via Supreme Court appeals has been paused. The disgorgement juggernaut is fully operational, and it has the unanimous blessing of the Supreme Court.