Supreme Court to Weigh in on the SEC’s Power to Recoup Ill-Gotten Gains
Summary: The Supreme Court agreed to hear Sripetch v. SEC to resolve a circuit split over the SEC’s disgorgement authority. Specifically, SCOTUS will decide if the Commission must show identifiable investor harm to seek disgorgement in enforcement proceedings. In 2020’s Liu v. SEC, the Court found that disgorgement was authorized where the money is returned to victims and the amount does not exceed the net profits the wrongdoer reaped in the alleged scheme. Following a statutory change to disgorgement authority in January 2021, the SEC argues that disgorgement is available to prohibit defendants from benefiting from misconduct rather than solely to compensate victims.
Takeaway: The power to require the return of “ill-gotten gains” has long been a key SEC enforcement tool. For the Commission—which obtained orders for more than $6.1 billion in disgorgement and prejudgment interest in 2024—and potential respondents, the stakes are high. The Court’s decision could further limit the SEC’s authority and curtail an important lever the Commission has relied on in settlement negotiations in enforcement matters.
Best Practice Tip: Stay tuned for updates on the parties’ oral arguments in April and the subsequent ruling, likely to be released in July.
Reforms to Regulation S-K on the Horizon
Summary: Chairman Atkins signaled an intent to revise Regulation S-K, the primary regulatory regime that outlines non-financial disclosure requirements for public issuers, by announcing that he has instructed the Division of Corporation Finance to engage in a comprehensive review of the regulation. Specifically, Chairman Atkins noted that the Staff is preparing recommendations to the Commission for revisions to Item 402, which concerns executive compensation. Chairman Atkins’s announcement emphasized the need to sharpen required disclosures to enable investors to “separate the wheat from the chaff when reviewing periodic reports and proxy statements.”
Takeaway: This announcement is another example of this Commission executing on its desire to reform the disclosure process and reduce public company reporting requirements. Though it may not happen this month or this year, reporting companies will likely have their obligations lessened under this Commission.
Best Practice Tip: Chairman Atkins invited engagement on potential reforms to Regulation S-K. Those with strong views on areas of reform or who would like to share industry-specific considerations, should consider submitting a comment letter or requesting a meeting with the Staff.
Commission Personnel Changes
Summary: January saw several notable personnel changes within the Commission, in both the Examinations and Enforcement Divisions. Most notably, Keith Cassidy was named Director of the Division of Examinations. Cassidy is a veteran regulator, having joined the Commission in 2017; he previously served as the Division’s Deputy Director and Acting Co-Director, and has held the role of Acting Director since May 2024.
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In addition, on January 12, the Commission announced that Paul Tzur and David Morrel would fill the roles of Deputy Directors in the Division of Enforcement. Tzur is set to oversee the agency’s enforcement program in the Chicago, Atlanta, and Miami offices, and Morrel will oversee the enforcement program in the northeast (New York, Boston, and Philadelphia offices). Both Tzur and Morrel return to the Government from private practice, where they focused on civil litigation and either white collar defense or government disputes, respectively.
Takeaway: The work of the Division of Examinations is likely to proceed on a business-as-usual basis given Director Cassidy’s long tenure on the Staff; registrants should therefore expect the 2026 examinations program to align with historical practices. In the Enforcement Division, Tzur and Morrel’s appointments reflect a restocking at senior levels.
Best Practice Tip: Coincident with permanent appointments across Exams and Enforcement, we are seeing an uptick in exam and enforcement activity. Following a year with historically low activity levels, registrants should prepare for greater Staff engagement.
FINRA Fines Member for Violating Communications Rule
Summary: FINRA announced a settlement with a member firm for violations of FINRA Rule 2210, which governs broker-dealer communications with the public, as well as other compliance and reporting failures. Between 2018 and 2024, the firm distributed retail communications related to private placements that projected investment performance and included target returns, in direct violation of the Rule’s prohibition on projected performance. During the same time period, the firm also sent numerous communications that included aggregated returns, i.e., combined or averaged Internal Rates of Return (IRRs) and Cash Multiple Values representing a subset of the sponsor’s prior closed deals. The settlement alleges that these practices violated the Rule’s prohibition on false or misleading statements.
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These violations relate to 2021 staff-issued FAQs on FINRA Rule 2210’s content standards, clarifying that (1) target returns are prohibited projections when presented in retail communications and (2) it is misleading for a communication to include metrics that combine or average the performance of only the individual realized holdings because such metrics may mask unequal or poor returns, and the results may not be representative of the ultimate performance of the program as a whole.
Takeaway: Retail communications are subject to the highest scrutiny under FINRA rules—even those communications that relate to private placements where investors must meet certain sophistication standards. Further, despite efforts to modernize FINRA Rule 2210, the settlement highlights two areas where the SEC Marketing Rule and FINRA Rule 2210 diverge. Under the SEC Marketing Rule, investment advisers are permitted to include projected performance and the aggregated performance of a subset of investments, in each case subject to certain compliance and disclosure requirements. By contrast, FINRA Rule 2210 flatly prohibits the inclusion of such performance metrics.
Best Practice Tip: FINRA Rule 2210’s prohibition on combined or average performance of only realized holdings is relatively lesser known than the Rule’s prohibition on projected performance. This settlement highlights that firms should be aware that any composite or aggregated performance may be scrutinized by FINRA staff when conducting an examination or reviewing a firm’s communications. Additionally, any dual-registrants or large financial institutions whose communications may be subject to both regimes should remain vigilant as to how the two different regulatory regimes might apply to the same types of communication.