What Are SEC Penalties?

What Are SEC Penalties?

The penalty is not the point. The penalty is what remains after the Securities and Exchange Commission has already accomplished its actual objective: the investigation, the subpoena, the eighteen months of document production that consumed your general counsel’s calendar and convinced your board that something had gone wrong whether or not it had. By the time the Commission announces a dollar figure, the reputational cost has already been absorbed, the legal fees already incurred, and the market has already priced in whatever it intends to price in. The monetary sanction arrives as a coda to a process that began, for most respondents, with a phone call they did not expect and a letter they could not ignore.

What follows is a description of the instruments the Commission wields. They are various, and they are not confined to the writing of checks.

The Three Tiers of Civil Monetary Penalties

Federal securities law organizes civil monetary penalties into three tiers, each calibrated to the severity of the underlying conduct. Tier one applies to any violation regardless of intent. The per violation maximums for individuals sit in the range of twelve thousand dollars, and for entities around one hundred twenty thousand, adjusted periodically for inflation. Tier two requires fraud, deceit, manipulation, or a deliberate disregard of regulatory requirements, and the caps rise accordingly. Tier three demands both the conduct of tier two and substantial investor losses, or a significant risk of the same, and permits penalties that can exceed a million dollars per violation for an entity.

The phrase “per violation” is where the arithmetic ceases to be academic. A single misstatement in a quarterly filing distributed to tens of thousands of shareholders can, at least in theory, be characterized as a separate violation for each recipient. The SEC does not always pursue that theory. But the statutory authority to do so gives the Commission a negotiating position that is, if we are being precise, less about punishment than about the architecture of leverage. Most settlements reflect an agreed figure well below the statutory maximum. The gap between what the Commission could seek and what it does seek constitutes the space in which negotiation occurs.

Whether the Commission exercises restraint out of principle or expedience is a question that has occupied enforcement attorneys for decades, and one I will not pretend to resolve here.

Disgorgement and Prejudgment Interest

Civil penalties represent only one category of monetary exposure. Disgorgement, the equitable remedy that compels a defendant to surrender profits obtained through unlawful conduct, has for decades constituted the larger portion of the SEC’s financial recoveries. The distinction between a penalty and a disgorgement order matters: penalties punish, while disgorgement, in theory, merely restores the status quo ante by removing ill gotten gains from the person who obtained them. In practice the two arrive in the same envelope.

The Supreme Court’s 2017 decision in Kokesh v. SEC characterized disgorgement as a penalty for statute of limitations purposes, which imposed a five year lookback period on the remedy. Three years later, the Court’s decision in Liu v. SEC preserved the Commission’s authority to seek disgorgement but imposed constraints: awards cannot exceed a defendant’s net profits and must be directed toward compensating victims rather than deposited into the Treasury. Congress responded in 2021 by extending the statute of limitations for disgorgement in fraud cases to ten years, restoring much of the ground that Kokesh had taken.

The circuits have since disagreed, openly and consequentially, about what Liu requires. The Second Circuit held in SEC v. Govil that the SEC must demonstrate pecuniary harm to investors before disgorgement may be awarded. The First and Ninth Circuits reached the opposite conclusion. In the Ninth Circuit’s September 2025 decision in SEC v. Sripetch, involving a defendant who orchestrated scalping schemes across penny stock companies, the court upheld a disgorgement order of approximately two and a quarter million dollars without requiring evidence that any investor had lost money. The court reasoned that a victim is anyone whose legal rights were violated by fraud, regardless of whether dollars disappeared from a brokerage account.

Whether the court intended this outcome or merely codified what the Commission has always assumed is a question the Supreme Court will now answer.

The Court granted certiorari in Sripetch in January of this year. Oral arguments are anticipated this spring, with a decision by summer. The outcome will determine whether the SEC must prove investor harm before stripping a defendant of profits, or whether the mere existence of unlawful gain suffices. For defendants in insider trading cases (where the connection between the defendant’s conduct and any particular investor’s loss is often attenuated, and where the SEC has relied on disgorgement as the primary financial remedy, sometimes seeking amounts that equal or exceed the civil penalty itself, a practice whose viability depends on whatever standard the Court adopts) the implications are considerable.

Prejudgment interest accrues on the disgorgement amount from the date of the violation to the date of the order. The Commission calculates it using the IRS underpayment rate, compounded quarterly. In cases involving conduct that spans years, the interest component alone can constitute a significant obligation.

I am less certain about the trajectory of disgorgement under the current administration than the preceding paragraphs might suggest. Chairman Atkins has criticized the imposition of large corporate penalties, and the fiscal year 2025 disgorgement figures fell considerably from recent highs. Whether that decline reflects a philosophical commitment to restraint or the transitional turbulence of a reorganized enforcement division is something the next twelve months will clarify.

Non-Monetary Remedies

The SEC’s enforcement authority extends well beyond the imposition of financial obligations. Cease and desist orders prohibit future violations of the securities laws, a remedy that sounds prosaic until one considers its procedural consequence: any subsequent violation, even a technical one, can be treated as contempt of a prior order rather than a standalone infraction. The escalation this permits is considerable.

Officer and director bars remove individuals from positions of authority at publicly traded companies. The Sarbanes-Oxley Act of 2002 granted the Commission authority to impose these bars through its own administrative proceedings, without recourse to the federal courts, in cases where the individual’s conduct demonstrates unfitness to serve. The bars may be temporary or permanent. In practice, the Commission has sought them in cases ranging from accounting fraud to disclosure failures to the kind of insider trading that begins with a whispered conversation at a conference and ends with a trading pattern that no compliance algorithm could miss. The bar against Elizabeth Holmes ran ten years.

Injunctive relief, obtained through federal court, can require a corporation to appoint independent monitors, adopt compliance programs, or restructure its governance. These undertakings amount to a form of supervised probation. A company operating under an SEC undertaking is a company operating under observation, and the observation itself changes behavior in ways that the balance sheet does not record.

And then there are associational bars, which function similarly to officer and director bars but apply to the securities industry specifically. An individual barred from association with a broker dealer or investment adviser is an individual removed from the profession altogether. The Commission secures these against hundreds of individuals in a typical fiscal year, though the precise number varies and the Commission does not always announce them with ceremony.

The distinction between monetary and non-monetary remedies matters less than the labels imply. A bar that prevents a portfolio manager from practicing for a decade is, in its economic effect, a sanction exceeding whatever civil fine the Commission might have imposed. The label “non-monetary” obscures the vocational reality.

The Current Enforcement Climate

In fiscal year 2025, under the leadership of Chairman Paul Atkins, the SEC filed the fewest new enforcement actions in a decade. Total monetary settlements declined substantially. The Commission retreated from the prior administration’s focus on cryptocurrency enforcement, terminated the SolarWinds cybersecurity litigation, and closed investigations it characterized as regulatory overreach. Four actions against public companies were initiated during the fiscal year. Four.

The signal is selective enforcement. The Commission has stated a preference for charging individuals rather than imposing corporate penalties, on the theory that penalizing a corporation penalizes its shareholders, who are often the same people the enforcement action was meant to protect. Insider trading remains a priority, particularly in biotech. A new Cross-Border Task Force suggests that foreign issuers listed on United States exchanges will receive scrutiny.

For businesses and individuals subject to SEC oversight, the practical calculus has shifted. Fewer cases, but with an emphasis on individual liability. The Commission brings less, but what it brings, it brings against persons.

Timing and Procedural Requirements

The statute of limitations for most SEC enforcement actions is five years from the date of the violation. For disgorgement actions involving fraud, the 2021 amendments extended that period to ten years. These are the outer boundaries. The internal timeline operates on a different schedule.

A Wells notice, the formal communication that the enforcement staff intends to recommend action, precedes most cases. The notice provides an opportunity to submit a written response before the Commission votes on whether to authorize the proceeding. The quality of the Wells submission matters, though its influence is difficult to quantify with any honesty. I have observed responses that appeared to shift the staff’s position and responses that appeared to accomplish nothing whatsoever, and the difference between them was not always a function of the argument’s strength.

The SEC may proceed administratively, through its own judges, or in federal district court. Administrative proceedings tend to move faster and afford fewer procedural protections to respondents. The choice of forum belongs to the Commission, and the forum selected often reveals something about confidence in the evidence.

One should understand the following sequence, which applies in most enforcement matters:

1. The investigation opens, often without the target’s knowledge.
2. The target receives a subpoena or a request for voluntary production.
3. The Wells notice arrives, and a response period begins.
4. The Commission votes to authorize the action, or declines to do so.
5. The complaint or order is filed, and the matter becomes public.

Between the second step and the fifth, months pass. Sometimes a year. In that interval, the trajectory of a case is often determined by the quality of counsel and the willingness of the respondent to engage before positions harden.

A consultation is where that engagement begins. The first conversation costs nothing and presumes nothing; it is the diagnostic step, the attempt to understand where exposure exists before the Commission arrives at the same conclusion on its own.