SEC v. Govil

22-1658
SEC v. Govil
In the
United States Court of Appeals
FOR THE SECOND CIRCUIT
A UGUST TERM 2022
No. 22-1658
S ECURITIES AND E XCHANGE COMMISSION ,
Plaintiff-Appellee,
v.
A RON G OVIL,
Defendant-Appellant.
On Appeal from the United States District Court
for the Southern District of New York
A RGUED: JUNE 5, 2023
D ECIDED: O CTOBER 31, 2023
Before: C HIN and MENASHI, Circuit Judges, and KOMITEE , Judge.*
Defendant-Appellant Aron Govil engaged in several
fraudulent securities offerings through his company, Cemtrex.
Pursuant to a settlement agreement with Cemtrex, Govil agreed to
* Judge Eric R. Komitee of the United States District Court for the Eastern
District of New York, sitting by designation.

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pay back the proceeds of his fraud in part by surrendering his
Cemtrex securities to the company. The district court later granted a
motion by the SEC for additional disgorgement. The district court
concluded that disgorgement was authorized and that the value of
the securities Govil surrendered to Cemtrex should not offset the
disgorgement award. Govil argues that neither 15 U.S.C. § 78u(d)(5)
nor 15 U.S.C. § 78u(d)(7) authorize disgorgement here. We agree. Our
court recently held that the disgorgement remedies under § 78u(d)(5)
and § 78u(d)(7) are subject to the “traditional equitable limitations”
that the Supreme Court recognized in Liu v. SEC, 140 S. Ct. 1936
(2020). SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023). One of those
equitable limitations is that disgorgement must be “awarded for
victims.” Liu, 140 S. Ct. at 1940. A defrauded investor is not a “victim”
for equitable purposes if he suffers no pecuniary harm. Because the
district court did not find that the investors in this case suffered such
harm, the district court abused its discretion when it concluded that
disgorgement was authorized. We vacate the judgment of the district
court and remand with instructions to determine whether the
defrauded investors suffered pecuniary harm.
Additionally, Govil argues that the district court erred in
disregarding the surrendered securities. Again, we agree. A
wrongdoer makes a payment in satisfaction of a disgorgement
remedy when he returns property to a wronged party. Accordingly,
if on remand the district court decides that disgorgement is
authorized, it must value the surrendered securities and credit that
value against the overall disgorgement award.

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K ERRY J. D INGLE, Senior Appellate Counsel (Michael A.
Conley, Solicitor, on the brief), Securities and Exchange
Commission, Washington, DC, for Plaintiff-Appellee.
MATTHEW A ARON F ORD (Adam C. Ford, Stephen R.
Halpin III, on the brief), Ford O’Brien Landy LLP, New
York, NY, for Defendant-Appellant.
MENASHI, Circuit Judge:
More than twenty years ago, Defendant-Appellant Aron Govil
founded Cemtrex, Inc. (“Cemtrex” or the “Company”). He eventually
took Cemtrex public and saw its common shares listed on the
NASDAQ. In 2016 and 2017, however, Govil caused Cemtrex to
engage in three fraudulent securities offerings. In those offerings,
Govil represented to investors that the Company would use the
proceeds from the transactions to satisfy outstanding debts and for
general corporate purposes. Instead, he diverted over $7.3 million of
the offering proceeds to his own private accounts.
The SEC quickly caught on. In advance of an enforcement
action, Govil entered into two agreements—one with the SEC (the
“Consent Agreement”) and one with Cemtrex (the “Settlement”). In
the Consent Agreement, Govil agreed broadly not to challenge the
SEC’s civil enforcement action. The Consent Agreement left
unresolved whether there would be a disgorgement award relating to
the three fraudulent Cemtrex offerings. In the Settlement, Govil
agreed to surrender all Cemtrex securities in his control and to pay
the Company over $1.5 million in the form of a secured promissory
note. In exchange, Cemtrex released all private claims against Govil.

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After filing its complaint and securing a partial judgment
consistent with the Consent Agreement, the SEC moved for
additional disgorgement of approximately $7.3 million. Govil
opposed the motion, but the district court decided that disgorgement
was available. It credited the $1.5 million due under the secured
promissory note as a payment in satisfaction of disgorgement, but it
disregarded the securities that Govil surrendered to Cemtrex. The
district court ordered Govil to pay additional disgorgement of
approximately $5.8 million.
Govil raises two principal arguments on appeal. First, he
contends that disgorgement was not authorized under 15 U.S.C.
§ 78u(d)(5) or 15 U.S.C. § 78u(d)(7). We agree. Our court recently held
in SEC v. Ahmed that the disgorgement remedies available under
§ 78u(d)(5) and § 78u(d)(7) are limited by equitable principles. See
SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023) (“[W]e conclude that
disgorgement under § 78u(d)(7) must comport with traditional
equitable limitations as recognized in Liu [v. SEC, 140 S. Ct. 1936
(2020)].”). One of the equitable limitations identified in Liu is that
disgorgement must be “awarded for victims.” Liu, 140 S. Ct. at 1940.
Because a defrauded investor is not a “victim” for equitable purposes
if he suffered no pecuniary harm, the district court needed to
determine that the investors Govil defrauded suffered pecuniary
harm before awarding disgorgement. Even though Ahmed was
decided after the district court ruled in this case, the district court
abused its discretion in making the award without that predicate
determination.1 Accordingly, we vacate the judgment of the district
1 Cf. Garcia v. Garland, 64 F.4th 62, 69 (2d Cir. 2023) (“[T]he controlling
interpretation of federal law … must be given full retroactive effect in all
cases still open on direct review.”) (quoting Harper v. Va. Dep’t of Tax’n, 509
U.S. 86, 97 (1993)).

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court and remand with instructions to determine whether the
investors suffered pecuniary harm as a result of the fraud.
Second, Govil argues that the district court erred when it failed
to credit the value of his surrendered securities against the
disgorgement award. We agree. A defendant is “only required to give
back the proceeds of his securities fraud once.” SEC v. Palmisano, 135
F.3d 860, 863 (2d Cir. 1998). A wrongdoer makes a payment in
satisfaction of disgorgement when he returns property to a wronged
party. Govil did that by surrendering his securities to Cemtrex.
Accordingly, if the district court determines on remand that
disgorgement is authorized, the district court must value the
surrendered securities and credit that value against the overall
disgorgement award.
BACKGROUND
I
In 1998, Govil founded Cemtrex, a “diversified industrial and
technology company.” J. App’x 10. Even after Cemtrex went public,
Govil remained the controlling shareholder of the company, and he
served as chairman of the board, chief financial officer, and executive
director. Cemtrex’s common shares were and are listed on the
NASDAQ under the ticker “CETX.”
In addition to its common shares, Cemtrex had at all relevant
times three classes of preferred stock:
(1) Series A Preferred shares did not trade publicly and held
voting rights in proportion to the number of outstanding
common shares. As of February 2021, each Series A
Preferred share was entitled to 16.43 votes. Govil
represented in his deposition that the Series A Preferred

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shares paid no regular dividend. Cemtrex issued 1,000,000
shares of Series A Preferred to Govil in 2009 for
consideration, and he held the entire class of Series A
Preferred shares until the events underlying this appeal.
(2) Series C Preferred shares also do not trade publicly and
provide even more powerful voting rights in proportion to
the number of outstanding common shares. Assuming 20
million outstanding common shares and 100,000
outstanding Series C Preferred shares, each Series C
Preferred share would be entitled to about 2,000 votes in a
shareholder election. See J. App’x 294-95, 149. Govil also
represented that the Series C Preferred shares pay no
regular dividend. Cemtrex issued Govil 100,000 shares of
Series C Preferred in 2019 as part of his employment
agreement, and Govil transferred 50,000 shares to his son,
Saagar Govil, in July 2020.
(3) Series 1 Preferred shares trade publicly on the NASDAQ
under the symbol “CETXP.” Each Series 1 Preferred share is
entitled to two votes in a shareholder election. And each
share pays a “10% annual dividend in perpetuity either in
cash or in kind.” Id. at 295. At the time of the events
underlying this appeal, Govil held 469,949 Series 1 Preferred
shares.
Because of the outsized voting power of the Series A and Series C
Preferred shares, Govil had “control [of] all matters related to
Cemtrex,” including the “electing of officers and directors,
acquisitions [and] direction of business.” Id. at 294.
With that control, Govil caused Cemtrex to engage in three
fraudulent securities offerings in 2016 and 2017. It is undisputed that

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in connection with all three offerings, Govil, “through Cemtrex,
represented to investors that the offering proceeds would be used for
various corporate purposes, including new product development and
acquisitions, as well as repaying outstanding debt and other general
corporate purposes.” Id. at 11. That representation was fraudulent
because after the offerings Govil “knowingly misappropriated at least
$7,300,000 of offering proceeds” from Cemtrex by making “at least 21
transfers of offering proceeds from Cemtrex’s bank accounts to
accounts” in Govil’s personal control. Id. These diverted funds were
used “to pay for personal expenses and to finance [Govil’s] other
business ventures unrelated to Cemtrex.” Id. at 11-12.
II
By early 2021, it had become clear that Govil would be subject
both to an SEC enforcement action and to a civil suit by Cemtrex.
Govil therefore entered into agreements with both parties.
First, Govil and Cemtrex signed the Settlement in February
2021. By then, Govil had already resigned from the board, leaving
three remaining board members, including Govil’s son Saagar. An
email exchange indicates that the terms of the Settlement were
negotiated by board member Sunil Verma. According to the
Settlement, the “total amount of disputed transfers was
approximately $7,100,000.” Id. at 175.2 The Settlement specified that
Govil would return those funds through two transfers. In the first
2 That figure differs from the SEC complaint, which alleges that Govil
transferred a total of $7.3 million. See J. App’x 11. Govil’s Consent
Agreement states that he cannot challenge the facts alleged in the complaint
for purposes of the court’s evaluation of disgorgement. See Sp. App’x 12.
For purposes of this appeal we assume that Govil removed $7.3 million
from Cemtrex accounts to his own.

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transfer, Govil would surrender to the Company any “securities Govil
or entities controlled by Govil own in Cemtrex, including 1,000,000
shares of Series A Preferred Stock, 50,000 shares of Series C Preferred
Stock, [and] 469,949 shares of Series 1 Preferred Stock.” J. App’x 175.
Govil was also required to relinquish any options to purchase
common stock. Govil and Cemtrex agreed that the surrendered
securities would be “collectively valued at the amount of $5,566,720.”
Id. The second transfer was to repay the balance of the $7.1 million—
that is, $1,533,280—and would be “paid to Cemtrex by Govil issuing
to Cemtrex a secured promissory note.” Id.
In exchange for the surrendered securities and promissory
note, Cemtrex released Govil from all legal claims.3 On March 4,
2021, Govil surrendered the securities, which Cemtrex’s board of
directors voted to cancel.
Second, Govil entered into the Consent Agreement with the
SEC in April 2021. Govil neither admitted nor denied the allegations
in the complaint. But he did consent to the entry of judgment on all
counts of securities fraud and the entry of several permanent
injunctions and civil fines. See Sp. App’x 9-10.4 The only matters that
the Consent Agreement left unresolved were disgorgement,
prejudgment interest, and civil penalties with respect to the
fraudulent Cemtrex offerings. The Consent Agreement provided that
3 Cemtrex did not release Govil from any claims that might arise out of the
promissory note. J. App’x 176.
4 The SEC’s civil complaint states four counts. Only the first count concerns
Cemtrex’s fraudulent offerings from 2016 and 2017. The other counts
concern Govil fraudulently trading Cemtrex stock as well as securities
fraud in relation to another Govil company called Telidyne. See J. App’x 16-
19. Only the first count is relevant to this appeal.

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“the parties will either settle th[ose] amount[s]” or “if the parties
cannot agree they will have the Court decide whether Defendant shall
pay additional disgorgement, prejudgment interest and civil penalty
and the amount based on a motion by the [SEC].” Sp. App’x 10. Govil
agreed that “solely for purposes of such motion, the allegations of the
Complaint shall be accepted as and deemed true by the Court.” Id. at
12.
III
In July 2021, the SEC filed its civil complaint against Govil in
federal court. A week later, the district court entered a partial
judgment consistent with the Consent Agreement. The partial
judgment specified that “[u]pon motion of the Commission, the Court
shall determine whether it is appropriate to order additional
disgorgement of ill-gotten gains and/or a civil penalty” in connection
with the count alleging securities fraud arising from the Cemtrex
offerings. Id. at 6.
The SEC made such a motion in January 2022. Referencing
§ 78u(d)(5) and § 78u(d)(7) respectively, the SEC argued that
“Exchange Act Sections 21(d)(5) and 21(d)(7) authorize courts to order
disgorgement in Commission enforcement actions.” J. App’x 55. And
the SEC pointed out that for purposes of the disgorgement motion
Govil was precluded from contesting the allegation that he had
diverted approximately $7.3 million. See id. at 56. Finally, the SEC
represented that it would “make a distribution to harmed investors,
if feasible,” out of the disgorgement proceeds. Id. at 57.
Govil opposed the motion. He argued that the entire value of
the Settlement with Cemtrex—$7.1 million—should be credited
against any disgorgement award, leaving a maximum appropriate
disgorgement amount of about $200,000. Id. at 274-75.

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The district court resolved the SEC’s motion in May 2022.
Without specifically citing § 78u(d)(5) or § 78u(d)(7), the district court
observed that disgorgement is an equitable remedy, so the amount
disgorged “may not exceed the amount obtained through the
wrongdoing.” SEC v. Govil, No. 21-CV-6150, 2022 WL 1639467, at *1
(S.D.N.Y. May 24, 2022) (quoting SEC v. Wyly, 56 F. Supp. 3d 394, 403
(S.D.N.Y. 2014)). Were a court to order disgorgement in excess of that
amount, the district court explained, the order would amount to a
penalty and exceed the court’s equitable powers. Id.
The district court rejected the SEC’s argument that the
Settlement was “personal in nature” and for that reason should be
excluded from the disgorgement calculation. Id. at *2. The “relevant
question,” according to the district court, was “whether Govil’s
surrendering of stock and promise of additional payment to Cemtrex
rights the wrongs to the actual victim of his misconduct.” Id. In other
words, did the payments to Cemtrex already provide a disgorgement
remedy to “the person wronged”? Id. (quoting Tilghman v. Proctor, 125
U.S. 136, 146 (1888)).
The district court answered that question with a qualified yes.
The defrauded investors were the “victims of Govil’s misconduct”
because “[t]hey were promised that the proceeds of the offerings
would be used for various corporate purposes” but that promise was
a “lie.” Id. (internal quotation marks omitted). Even so, the district
court observed that the defrauded investors “may not have been
financially harmed as a result of Govil’s misconduct” because they
profited on the securities. Id. at *4. The promissory note—if paid—
would right Govil’s wrong because “the funds from the promissory
note will presumably be placed in the company’s account and used
for corporate expenses,” such that the “original promise” would be
“realized.” Id. at *3.

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But the district court concluded that this argument did not
apply to the surrendered securities. “[A]fter transferring his control
stock to Cemtrex, Govil’s son obtained sole voting control over the
company, Govil was released from liability, and Cemtrex
shareholders received nothing. Only Govil and his son benefitted
from Govil’s surrender of stock, a result that runs counter to the
purposes of disgorgement.” Id. For that reason, the district court
decided that the value of the surrendered stock should not count as a
payment satisfying disgorgement.5 The district court ordered Govil
to pay approximately $5.8 million in disgorgement—the total amount
requested by the SEC less the face value of the promissory note.6
Govil appealed.
STANDARD OF REVIEW
“Once the district court has found federal securities law
violations, it has broad equitable power to fashion appropriate
remedies and its choice of remedies is reviewable for abuse of
discretion.” SEC v. Sourlis, 851 F.3d 139, 146 (2d Cir. 2016) (internal
quotation marks and citation omitted); see also SEC v. Razmilovic, 738
F.3d 14, 32 (2d Cir. 2013) (“We review a district court’s disgorgement
order, and its ancillary findings, for abuse of discretion.”). “A district
court has abused its discretion if it based its ruling on an erroneous
view of the law or on a clearly erroneous assessment of the evidence
5 Given that conclusion, the district court did not reach the question of
whether the valuation of the surrendered securities to which the parties
agreed in the Settlement was accurate. Govil, 2022 WL 1639467, at *3 n.1.
6 The district court awarded prejudgment interest based on the
disgorgement amount. See Govil, 2022 WL 1639467, at *3. The district court
also ordered Govil to pay a civil penalty of approximately $600,000. See id.
at *4. Govil did not appeal the penalty, so that decision is not before us.

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or rendered a decision that cannot be located within the range of
permissible decisions.” In re Sims, 534 F.3d 117, 132 (2d Cir. 2008)
(internal quotation marks, alteration, and citation omitted).
DISCUSSION
Govil raises two principal issues on appeal: (1) whether
disgorgement was authorized under § 78u(d)(5) or § 78u(d)(7), and
(2) if disgorgement was authorized, whether the district court erred
by failing to credit the value of the surrendered securities against the
total disgorgement award. We conclude that the district court abused
its discretion when it concluded that disgorgement was authorized
without finding that the defrauded investors suffered pecuniary
harm. We therefore vacate the judgment and remand with
instructions to make that predicate finding. Moreover, we conclude
that the district court erred when it disregarded the surrendered
securities. Thus, if the district court determines on remand that
Govil’s fraud caused pecuniary harm, the district court must value
those securities and reduce the disgorgement award by that value.
I
Govil’s first argument is that disgorgement is not authorized
by the Exchange Act because the disgorgement provisions in that
statute “require[] a showing that investors have been harmed, and the
court did not find that the SEC had made such a showing.”
Appellant’s Br. 31.7 We agree. As we held in Ahmed, both § 78u(d)(5)
7 Govil separately argues that the disgorgement award was invalid under
§ 78u(d)(5) because the final judgment directs the SEC to forward the
disgorgement proceeds to the Treasury, which appears to contradict the
Supreme Court’s decision in Liu. See Appellant’s Br. 39; 140 S. Ct. at 1948
(“It is an open question whether, and to what extent, that practice [of

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and § 78u(d)(7) “must comport with traditional equitable limitations
as recognized in Liu.” Ahmed, 72 F.4th at 396. One of those equitable
limitations is that disgorgement must be “awarded for victims.” Liu,
140 S. Ct. at 1940. An investor who suffered no pecuniary harm as a
result of the fraud is not a victim. The district court did not find that
the investors suffered pecuniary harm. It therefore abused its
discretion in concluding that the investors were victims for purposes
of disgorgement. Accordingly, we vacate and remand with
instructions to make that predicate factual determination.8
depositing disgorgement funds with the Treasury] nevertheless … is
consistent with the limitations of § 78u(d)(5).”). The SEC agrees that the
final judgment needs to be corrected. But it says that is because the
language in the final judgment is a “clerical error” that arose when the
“Commission inadvertently used as a template a proposed final judgment
that was created before Liu was decided.” Appellee’s Br. 29-30. In support
of that conclusion, the SEC notes that the district court’s opinion suggests
that it wished disgorgement funds to be directed to investors. See Govil,
2022 WL 1639467, at *3 (“The SEC has represented that it is feasible to
identify the victims of the fraud. However, if it later determines that
distribution to investors is infeasible, it must update the Court to permit
consideration of whether directing such proceeds to the Treasury is
permissible.”). Thus, the parties agree that the judgment must be vacated
to the extent that it directs the proceeds of disgorgement to the Treasury.
Because we vacate the judgment on another ground, we need not decide
whether the language in the final judgment was a clerical error.
8 Govil argued in the district court that Cemtrex was the victim of his
misconduct. See Govil, 2022 WL 1639467, at *2. The district court concluded
that “the investors are the real victims of Govil’s misconduct,” id. at *3, but
it did not directly address the status of Cemtrex. We rely here on the district
court’s finding with respect to the investors. The district court may also
consider whether Cemtrex qualifies as a victim on remand.

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A
At the outset, we note that Govil’s argument that disgorgement
is not authorized by the Exchange Act has two parts. He argues first
that disgorgement is not authorized under § 78u(d)(5) because that
provision authorizes “equitable relief,” and Liu construed that term
to require that disgorgement be disbursed to “victims.” He argues
second that the district court did not evaluate disgorgement under
§ 78u(d)(7) and that we should vacate and remand for the district
court to perform that analysis in the first instance. These two
arguments converge in light of our recent decision in Ahmed. See 72
F.4th at 395-96. To explain, some background on the development of
the disgorgement remedy is necessary.
Disgorgement is a remedy first devised in the 1970s and rooted
in the equity power. See SEC v. Tex. Gulf Sulphur Co., 446 F.2d 1301,
1307-08 (2d Cir. 1971) (“[T]he SEC may seek other than injunctive
relief in order to effectuate the purposes of the [Exchange] Act, so long
as such relief is remedial relief and is not a penalty assessment.”); SEC
v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1104 (2d Cir. 1972)
(“[R]equiring the disgorging of proceeds received in connection with
the … offering was a proper exercise of the district court’s equity
powers.”); Liu, 140 S. Ct. at 1951 (Thomas, J., dissenting) (noting that
disgorgement is a “20th-century invention”).
Despite its roots in the equity power, however, the
disgorgement remedy as it developed in the courts prior to Liu
“cross[ed] the bounds of traditional equity practice.” Liu, 140 S. Ct. at
1947. So disgorgement prior to Liu was not an entirely equitable
remedy, even if it had originated as one. See also id. at 1950 (Thomas,
J., dissenting) (“[D]isgorgement is not a traditional equitable
remedy.”).

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In 2002, Congress enacted § 78u(d)(5). The statute formally
gave the SEC the power to request—and federal courts the power to
grant—“any equitable relief” in an enforcement action so long as that
relief was “appropriate or necessary for the benefit of investors.”
15 U.S.C. § 78u(d)(5). Confusion emerged fifteen years later when the
Supreme Court decided Kokesh v. SEC, 581 U.S. 455 (2017). That case
presented the question of whether disgorgement generally qualifies
as a “penalty” for purposes of the statute of limitations found in
28 U.S.C. § 2462. The Court said yes, but in so holding clouded the
legal basis for disgorgement in SEC enforcement actions. “Nothing in
this opinion,” the Court said, “should be interpreted as an opinion on
whether courts possess authority to order disgorgement in SEC
enforcement proceedings or on whether courts have properly applied
disgorgement principles in this context.” Id. at 461 n.3. The Court
assumed—but did not decide—that our disgorgement jurisprudence
dating back to Texas Gulf Sulphur was sound. Id. at 464.
The Court resolved the confusion three years later in Liu. That
case presented the question of whether the SEC may seek and federal
courts may order “‘disgorgement’ in the first instance through [the
court’s] power to award ‘equitable relief’ under 15 U.S.C.
§ 78u(d)(5).” Liu, 140 S. Ct. at 1940. Construing the phrase “equitable
relief,” the Court held that “a disgorgement award that [1] does not
exceed a wrongdoer’s net profits and [2] is awarded for victims”
constitutes “equitable relief permissible under § 78u(d)(5).” Id. The
Liu Court observed that the disgorgement jurisprudence of the federal
courts of appeals had “test[ed]” the bounds of equity by, among other
things, “ordering the proceeds of fraud to be deposited in Treasury
funds instead of disbursing them to victims.” Id. at 1946.
Six months after Liu, Congress enacted several amendments to
§ 78u(d) (hereinafter the “2021 Amendments”) as part of the William

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M. (Mac) Thornberry National Defense Authorization Act for Fiscal
Year 2021 (“NDAA”), Pub. L. No. 116-283, § 6501(a)-(b), 134 Stat.
3388, 4625-26 (codified at 15 U.S.C. § 78u(d)(3), (7)-(8)). See SEC v.
Hallam, 43 F.4th 316, 334-35 (5th Cir. 2022). Most relevant here,
Congress enacted § 78u(d)(7), which gives the SEC the power to
“seek” and federal courts the power to “order” the remedy of
“disgorgement.” 15 U.S.C. § 78u(d)(7).
In Ahmed, we considered whether § 78u(d)(7) restored our
disgorgement framework as it stood prior to Liu or instead authorized
a remedy consistent with the limitations described in Liu. We decided
that it did the latter. We held that “Liu’s equitable limitations on
disgorgement survive the NDAA” and therefore “[w]e read
‘disgorgement’ in § 78u(d)(7) to refer to equitable disgorgement as
recognized in Liu.” Ahmed, 72 F.4th at 395. In short, “disgorgement
under § 78u(d)(7) must comport with traditional equitable limitations
as recognized in Liu.” Id. at 396. Based on our precedent,
disgorgement under both § 78u(d)(5) and § 78u(d)(7) are constrained
by Liu. For that reason, Govil’s suggestion that § 78u(d)(7) might
separately authorize disgorgement is foreclosed. “The express
addition of ‘disgorgement’ as a remedy specified under § 78u(d)(7) is
… a ‘belt and suspenders’ clarification that equitable disgorgement is
available under the Exchange Act.” Id. If disgorgement is invalid
under one, it is invalid under the other.9
9 Section 78u(d)(5) specifies that relief must be “appropriate or necessary
for the benefit of investors.” 15 U.S.C. § 78u(d)(5). But § 78u(d)(7) contains
no such language. Liu did not squarely address the meaning of
“appropriate or necessary for the benefit of investors” in § 78u(d)(5)
because it focused on the meaning of “equitable relief.” While this language
might allow § 78u(d)(5) and § 78u(d)(7) to diverge to some extent, any

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In announcing the holding in Ahmed, we expressly disagreed
with the Fifth Circuit’s holding in Hallam. See 72 F.4th at 395 n.7 (“We
decline to follow the Fifth Circuit’s approach.”) (citing Hallam, 42
F.4th at 341, 343). Hallam held that § 78u(d)(7) “authorizes
disgorgement in a legal—not equitable—sense,” meaning that
disgorgement under § 78u(d)(7) is not limited by the equitable
principles recognized in Liu but follows the standards the federal
courts developed before Liu. 42 F.4th at 338.
The Fifth Circuit reached that conclusion based on several
familiar principles of statutory interpretation. First, “Congress
generally acts intentionally when it uses particular language in one
section of a statute but omits it in another.” DHS v. MacLean, 574 U.S.
383, 391 (2015); see also Russello v. United States, 464 U.S. 16, 23 (1983)
(“Where Congress includes particular language in one section of a
statute but omits it in another section … it is generally presumed that
Congress acts intentionally and purposely in the disparate inclusion
or exclusion.”) (alteration omitted) (quoting United States v. Wong Kim
Bo, 472 F.2d 720, 722 (5th Cir. 1972)). Here, § 78u(d)(5) refers to
“equitable relief.” 15 U.S.C. § 78u(d)(5). But § 78u(d)(7) contains no
such language. Moreover, § 78u(d)(7) references the remedy of
“disgorgement” by name. Id. at § 78u(d)(7). Yet § 78u(d)(5) does not
mention disgorgement, instead subsuming it under the category of
“equitable relief.” Id. at § 78u(d)(5). Because Liu construed the phrase
“equitable relief,” which does not appear in § 78u(d)(7), the Fifth
Circuit concluded that § 78u(d)(7) did not codify Liu. See Hallam, 42
F.4th at 339.
divergence, as we explained in Ahmed, is circumscribed by the equitable
principles announced in Liu.

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18
Second, the canon against surplusage requires that we be
“hesitant to adopt an interpretation of a congressional enactment
which renders superfluous another portion of that same law.”
Republic of Sudan v. Harrison, 139 S. Ct. 1048, 1058 (2019) (quoting
Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 837
(1988)). Liu was a case about § 78u(d)(5). If § 78u(d)(7) codified Liu,
then § 78u(d)(7) duplicates one of § 78u(d)(5)’s applications,
rendering § 78u(d)(7) superfluous. See Hallam, 42 F.4th at 337 (noting
that such a reading would “render nearly each new word redundant
with the unaltered Section 78u(d)(5)—which had just been held to
permit relief going by the same name as the name assigned to the
newly added … statutory language”).
Third and relatedly, § 78u(d)(7) is a statutory amendment while
§ 78u(d)(5) is not. “When Congress acts to amend a statute, we
presume it intends its amendment to have real and substantial effect.”
N.Y. Legal Assistance Grp. v. BIA, 987 F.3d 207, 221 (2d Cir. 2021)
(quoting Stone v. INS, 514 U.S. 386, 397 (1995)); see also BNSF Ry. Co. v.
Loos, 139 S. Ct. 893, 906 (2019) (Gorsuch, J., dissenting) (“[T]he record
of enacted changes Congress made to the relevant statutory text over
time [is] the sort of textual evidence everyone agrees can sometimes
shed light on meaning.”). If § 78u(d)(7) codified Liu, it would mean
that Congress amended § 78u(d) in several ways yet did not “alter[]
the requirements for the remedy that was the subject of all th[e]
revisions.” Hallam, 42 F.4th at 337.
Fourth, the “structure of the law itself” indicates that
§ 78u(d)(7) did not merely codify Liu. United States v. Montague, 67
F.4th 520, 533 (2d Cir. 2023) (quoting Food Mktg. Inst. v. Argus Leader
Media, 139 S. Ct. 2356, 2364 (2019)). As amended, the structure of
§ 78u(d) distinguishes between disgorgement and equitable
remedies. For example, the 2021 Amendments include a new

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provision, § 78u(d)(8), which outlines several limitations periods for
SEC actions. 10 That new provision imposes different limitations
periods when the SEC “bring[s] a claim for disgorgement under
[§ 78u(d)(7)],” on the one hand, and when the SEC “seek[s] a claim for
any equitable remedy,” referencing § 78u(d)(5), on the other. Compare
15 U.S.C. § 78u(d)(8)(A), with id. § 78u(d)(8)(B). That distinction in
§ 78u(d)(8) indicates that “disgorgement” as authorized in § 78u(d)(7)
is not an equitable remedy.
Fifth, we “generally assume[] that, when Congress enacts
statutes, it is aware of [the Supreme] Court’s relevant precedents.”
Ysleta Del Sur Pueblo v. Texas, 142 S. Ct. 1929, 1940 (2022). The 2021
Amendments became law less than seven months after the Supreme
Court decided Liu.11 “Such swift, expansive action is more consistent
with a desire to curtail” Liu than to codify it. Hallam, 42 F.4th at 341.
That is because the Liu Court sought to enforce the “limitations
embedded in” § 78u(d)(5)’s reference to the equity power, Liu, 140
S. Ct at 1947, yet the 2021 Amendments conspicuously distinguish
between disgorgement and equity.
In Ahmed, however, our court concluded that § 78u(d)(7)’s use
of the word disgorgement—along with a cross reference to “unjust
enrichment” in § 78u(d)(3)(A)(ii)—refers to a “remedy grounded in
equity” and so must “be deemed to contain the limitations upon its
10 In Ahmed, we explained that the statute of limitations rubric in
§ 78u(d)(8) “expressly overrul[ed] Kokesh’s five-year statute of limitations
as to certain securities violations.” Ahmed, 72 F.4th at 396.
11 Liu was decided on June 22, 2020. See 140 S. Ct. at 1936. The NDAA was
adopted on January 1, 2021, when Congress overrode the President’s veto.

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availability that equity typically imposes.” Ahmed, 72 F.4th at 396
(quoting Liu, 140 S. Ct. at 1947).12
We also said that § 78u(d)(7) should be read to enact Liu
because that reading “clarifie[s] some aspects of th[e] uncertainty”
about the statute. Ahmed, 72 F.4th at 396. We explained that it had
been uncertain before Liu and the 2021 Amendments whether
disgorgement qualified as equitable relief under § 78u(d)(5). Id. We
further explained that “the applicable statute of limitations” was
uncertain before Kokesh. Id. “[T]he authorization of a ten-year statute
of limitations under § 78u(d)(8)(A)(ii) is best understood as expressly
overruling Kokesh’s five-year statute of limitations as to certain
securities violations. So we conclude that disgorgement under
§ 78u(d)(7) must comport with traditional equitable limitations as
recognized in Liu.” Id.
We are bound to apply Ahmed in this case. See Glob. Reinsurance
Corp. of Am. v. Century Indem. Co., 22 F.4th 83, 100-01 (2d Cir. 2021)
(“[G]enerally a decision of a panel of this Court is binding unless and
until it is overruled by the Court en banc or by the Supreme Court.”)
(internal quotation marks omitted). 13 Under Ahmed, the
12 Whether disgorgement is an equitable remedy is debatable. As noted
above, disgorgement as it had developed prior to Liu “cross[ed] the bounds
of traditional equity practice.” Liu, 140 S. Ct. at 1947; see also id. at 1950
(Thomas, J., dissenting). Whatever the disgorgement remedy entailed, the
general rule is that “[w]hen a statutory term is obviously transplanted from
another legal source, it brings the old soil with it.” Taggart v. Lorenzen, 139
S. Ct. 1795, 1801 (2019) (internal quotation marks omitted). Here, that
would mean the soil that the Liu Court described as crossing the “bounds”
of equity.
13 We note, however, that the circuit split has implications here. Under the
Hallam rule, § 78u(d)(7) might authorize disgorgement in this case.

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21
disgorgement analysis under § 78u(d)(5) and § 78u(d)(7) are the same
in that both depend on Liu.
B
Liu does not authorize disgorgement on these facts, so we
vacate the judgment of the district court. Govil’s argument proceeds
in three steps. First, he says that disgorgement under § 78u(d)(5) must
be “equitable relief.” That premise is not disputed. Second, the Court
in Liu explained that disgorgement is “equitable relief” when it “does
not exceed a wrongdoer’s net profits” and “is awarded for victims.”
140 S. Ct. at 1940. This premise, too, is undisputed. Third, the district
court’s opinion in this case indicated that the proceeds of his
disgorgement would be directed to the investors defrauded in the
three Cemtrex offerings, Govil, 2022 WL 1639467, at *3, yet the district
court did not find that those investors suffered pecuniary harm. That
means that the investors might not be victims. See Appellant’s Br. 36.
Only this third step is disputed. We agree with Govil’s argument and
hold that a “victim” for purposes of § 78u(d)(5) is one who suffers
pecuniary harm from the securities fraud.
The Supreme Court’s opinion in Liu did not explain
straightforwardly what a “victim” is for the purpose of awarding
“equitable relief.” But the Court provided guiding principles. For
example, the Court explained that a remedy resides in the “heartland
of equity” when it “restores the status quo.” Liu, 140 S. Ct. at 1943
Disgorgement understood as a legal remedy would not be limited by the
equitable constraints identified in Liu. Hallam, 42 F.4th at 338. Liu
established that disgorgement must be “awarded for victims” to qualify as
equitable relief. Liu, 140 S. Ct. at 1940. That is our basis for vacating the
district court’s judgment under § 78u(d)(5). See infra Part I.B. That reasoning
might not apply to § 78u(d)(7) under the Hallam approach.

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(alteration omitted) (quoting Tull v. United States, 481 U.S. 412, 424
(1987)). If we were to understand “victim” as including defrauded
investors who suffered no pecuniary harm—and thus to allow those
investors to receive the proceeds of disgorgement—we would not be
restoring the status quo for those investors. We would be conferring
a windfall on those who received the benefit of the bargain.14
That is why the Liu Court emphasized that such an equitable
remedy is about “return[ing] the funds to victims.” Id. at 1948
(emphasis added). The return of funds presupposes pecuniary harm.15
Funds cannot be returned if there was no deprivation in the first place.
We again see the centrality of pecuniary harm to victimhood
when we consider the other profit-stripping remedies that the Liu
Court discussed: constructive trust and accounting. The Court
14 Disgorgement will rarely reside within the “heartland of equity” as the
Court described it. The disgorgement remedy “is not available primarily to
compensate victims” but “to prevent wrongdoers from unjustly enriching
themselves through violations.” SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir.
2006). Accordingly, disgorgement is calculated by reference to “the amount
by which [the defendant] was unjustly enriched.” SEC v. Contorinis, 743
F.3d 296, 301 (2d Cir. 2014) (quoting FTC v. Bronson Partners, 654 F.3d 359,
372 (2d Cir. 2011)). In some cases, the fraudster’s ill-gotten gains will be less
than the harm done to victims, meaning the status quo cannot be restored.
In other cases, the ill-gotten gains will exceed the harm, and the victim may
recover his loss and more. But by requiring that disgorgement under
§ 78u(d)(5) be awarded for “victims,” the Liu Court sought to bring
disgorgement within equitable bounds. When disgorgement is awarded to
an investor who suffered no pecuniary harm, the remedy does not aim to
restore the status quo at all.
15 See also Restatement (Third) of Restitution & Unjust Enrichment § 1
reporter’s note d (explaining that the second element of an unjust
enrichment claim is “impoverishment” by the plaintiff and the third
element is “a relation between the enrichment and the impoverishment”).

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23
explained that the constructive trust remedy “converted the
wrongdoer, who in many cases was an infringer, into a trustee, as to
those profits, for the owner of the [property] which he infringes.” Liu,
140 S. Ct. at 1944. For example, a patent holder has a legal claim to the
profits derived from the patent. When the infringer misappropriates
those profits, “compensation [is] due from the infringer to the
patentee.” Id. (quoting Packet Co. v. Sickles, 19 Wall. 611, 617-18 (1874)).
Prior to bringing an action in equity, the patent holder was deprived
of compensation and thereby suffered pecuniary harm.
Similarly, the Liu Court noted that an accounting is an
“equitable remedy for the violation of strictly legal primary rights,”
id. at 1943 (citing 1 John Norton Pomeroy, A Treatise on Equity
Jurisprudence § 101 (4th ed. 1918)), that “holds the defendant liable
for his profits,” id. (quoting 1 Dan B. Dobbs, Law of Remedies § 4.3(5)
(1993)); see also Samuel L. Bray, Fiduciary Remedies, in The Oxford
Handbook of Fiduciary Law 449, 452 (Evan J. Criddle et al. eds., 2019)
(noting that an accounting “culminates in an award to the plaintiff of
the defendant fiduciary’s profits”). The plaintiff in an accounting
action is entitled to profits as a “beneficiar[y] who [is] entitled to
share” in the trust controlled by the fiduciary. Liu, 140 S. Ct. at 1944
(quoting Clews v. Jamieson, 182 U.S. 461, 480 (1901)). As a beneficiary
of the entity controlled by the trustee, the plaintiff has suffered
pecuniary harm as a result of the fiduciary’s conduct. See Bray, supra,
at 454 (“The profits in question will usually be those generated by the
trust, or by whatever resources of the beneficiary are held by the
fiduciary.”).
The district court concluded that the defrauded investors were
victims because “[t]hey were promised that the proceeds of the
offerings would be used for various corporate purposes,” but this
promise was a “lie.” Govil, 2022 WL 1639467, at *2 (internal quotation

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24
marks omitted). It explained that “[i]t can hardly be said that an
individual who invests in a company because he believes his
investments are being used to help that company, but whose
investment is then used to pay for unrelated expenses, is not the
victim of said scheme.” Id.
On the contrary, we think it can be said. The district court’s
understanding of the term “victim” may comport with some general
dictionary definitions. See Victim, Webster’s Third New International
Dictionary (2002) (noting that a victim is “someone tricked, duped, or
subjected to hardship”). But the word has a settled legal meaning. A
victim is a “person harmed by a crime, tort, or other wrong.” Victim,
Black’s Law Dictionary (11th ed. 2019). The question is whether a
fraud that does not cause pecuniary harm nevertheless causes harm
of some other relevant type.16
16 The district court may have presumed that the investors suffered
economic harm by definition when capital that they invested in the
company for corporate purposes was looted by an insider. But whether the
investors actually suffered pecuniary harm would depend on the type of
securities held, the terms of those securities, and when those securities were
sold. The record before us does not contain the terms of the securities issued
in each of the three fraudulent offerings. However, Govil represented in an
affidavit before the district court that the first and third fraudulent offerings
involved notes that “could be converted into Cemtrex common shares six
months after the notes were issued.” J. App’x 295. These convertible notes
carried “very high interest rates and an original issue discount,” making the
notes potentially valuable even before conversion into Cemtrex common
shares. Id. at 295-96. Moreover, Govil represented in his affidavit that “it is
likely” that the institutional investor from the first offering “converted this
note into shares in several tranches over a period of time, and sold those
shares the day they were converted. If the institutional investor did that,
then [the investor] would have earned an approximate profit of $284,061 on

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25
In the securities fraud context, it does not. For example, a
private damages action for securities fraud under § 10(b) of the
Exchange Act and Rule 10b-5 requires that the investor have suffered
“economic loss.” Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342 (2005);
see also In re Flag Telecom Holdings, Ltd. Secs. Lit., 574 F.3d 29, 35 (2d
Cir. 2009). Under common-law deceit and misrepresentation—causes
of action that “resemble” a private securities fraud claim, Dura, 544
U.S. at 343—pecuniary harm is an element of the claim. See
Restatement (Second) of Torts § 525 (1977) (explaining that a
misrepresentation defendant is “subject to liability to the other in
deceit for pecuniary loss caused”). In line with these principles, the
investors whom Govil defrauded could not pursue individual fraud
claims against him without showing a pecuniary loss. Were we to call
those investors “victims” without a similar showing, we would allow
the SEC to forward proceeds of disgorgement to such investors and
circumvent the limitations on private claims under § 10(b) and the
common law.
The Supreme Court has also recently cast doubt—albeit in a
different context—on the proposition that mere deception without
harm to property rights is sufficient to state a federal fraud claim. In
Ciminelli v. United States, the Court considered our circuit’s “right-to-
control” theory of wire-fraud, according to which “the Government
can establish wire fraud by showing that the defendant schemed to
deprive a victim of potentially valuable economic information
its initial investment of $500,000.” Id. at 296. Govil provides similar
calculations for the second and third fraudulent offerings. See id. at 296-97.
In other words, Govil provides some evidence that the investors in the three
fraudulent offerings received the benefit of the bargain. The district court
did not engage with this evidence before concluding that the investors
qualified as victims.

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necessary to make discretionary economic decisions.” 143 S. Ct. 1121,
1125 (2023). The Court rejected the right-to-control theory. It
reiterated the rule that “the federal fraud statutes … are ‘limited in
scope to the protection of property rights.’” Id. at 1127 (quoting
McNally v. United States, 483 U.S. 350, 360 (1987)). And it explained
that the “‘right to control’ is not an interest that had ‘long been
recognized as property,’” and so was insufficient to establish wire
fraud. Id. (quoting Carpenter v. United States, 484 U.S. 19, 26 (1987)).
In this case, the district court’s argument for concluding that
the investors were victims is not far from the theory rejected in
Ciminelli. The district court reasoned that it was sufficient that the
investors were told a “lie.” Govil, 2022 WL 1639467, at *2. The
investors were thus denied the right to make an informed decision
when considering whether to make the investment. But “the right to
make informed decisions about the dispositions of one’s assets” is not
a property interest and offending that right does not result in
pecuniary harm. Ciminelli, 143 S. Ct. at 1128. The district court did not
determine whether the defrauded investors suffered pecuniary harm.
In fact, it acknowledged that the defrauded investors “may not have
been financially harmed as a result of Govil’s misconduct” because
the investors received the return on the investment contemplated at
the outset. Govil, 2022 WL 1639467, at *4. Because the district court
found the investors were victims without determining whether those
investors suffered pecuniary harm, the district court “based its ruling
on an erroneous view of the law” and thereby abused its discretion.
United States v. Zhong, 26 F.4th 536, 551 (2d Cir. 2022).
C
The SEC’s counterarguments are unavailing. First, the SEC
argues that pecuniary harm is not a prerequisite for disgorgement

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under § 78u(d)(5) because there is no requirement to “quantify the
dollar value of the harm to particular investors in order to obtain
disgorgement.” Appellee’s Br. 19. The SEC explains that this is
because disgorgement is “measured by” the wrongful gain obtained
by the defendant rather than by the loss to the investor. That correctly
describes how to calculate disgorgement. But this description does
not address the separate question of when disgorgement qualifies as
“equitable relief” and is authorized by § 78u(d)(5) and § 78u(d)(7) in
the first place. As the Supreme Court explained in Liu, whether
disgorgement is equitable relief turns in part on whether it is
“awarded for victims.” 140 S. Ct. at 1940. Whether an investor has
suffered pecuniary harm—bringing the investor into the category of
victims—is a different issue from how to quantify the ill-gotten gains.
Second, the SEC contends that the investors need not have
suffered pecuniary harm because the relevant limitation in § 78u(d)(5)
is that relief be awarded as “appropriate or necessary for the benefit
of investors.” 15 U.S.C. § 78u(d)(5); see Appellee’s Br. 19. The best
argument for that position is that Part III.A. of the opinion in Liu does
not clearly distinguish between the victims of a securities fraud and
the investors defrauded, so it might be assumed that a defrauded
investor is ipso facto a victim of the fraud—whether or not the investor
suffered pecuniary harm as a result of the fraud. But that assumption
would be inconsistent with the substance of Liu. Section 78u(d)(5)
imposes two requirements on remedies: the remedy must be
“equitable relief” and it must be “appropriate or necessary for the
benefit of investors.” 15 U.S.C. § 78u(d)(5). Liu construed the
“equitable relief” requirement and said that the requirement is
satisfied, as relevant here, when disgorgement is “awarded for
victims.” Liu, 140 S. Ct. at 1940. That means the question of who is a
“victim” is distinct from the question of what is “appropriate or

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necessary for the benefit of investors” and must be separately
answered.
In sum, § 78u(d)(5) and § 78u(d)(7) authorize disgorgement
that is “equitable relief.” 15 U.S.C. § 78u(d)(5). “Equitable relief”
requires that the relief be “awarded for victims,” Liu, 140 S. Ct. at
1940, and that in turn requires a finding of pecuniary harm. The
district court did not make that predicate finding and therefore
abused its discretion. We vacate the judgment and remand with
instructions to make a factual determination as to pecuniary harm.
II
Govil’s second argument on appeal is that the district court
erred in calculating the disgorgement award. He contends that—even
accepting that $7.3 million is the correct amount of disgorgement
overall—he already “returned a substantial value to Cemtrex when
he relinquished all of his shares in the company.” Appellant’s Br. 47.
In other words, Govil maintains that he has already been divested of
some amount of his ill-gotten gains and the disgorgement order
should be correspondingly reduced. We agree. As a result, if on
remand the district court determines that disgorgement is authorized,
the district court must undertake a valuation of the surrendered
securities and offset the disgorgement award by that amount.
A
The remedy of disgorgement aims to “force a defendant to give
up the amount by which he was unjustly enriched.” Contorinis, 743
F.3d at 301 (alteration omitted) (quoting Bronson Partners, 654 F.3d at
372); see also Cavanagh, 445 F.3d at 117 (explaining that the purpose of
disgorgement is not “to compensate victims” but “to prevent
wrongdoers from unjustly enriching themselves through violations”).
For that reason, a defendant need not return more than the amount

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by which he was unjustly enriched. See, e.g., Manor Nursing Ctrs., 458
F.2d at 1104 (holding that the disgorgement remedy does not reach
income derived from the ill-gotten gains because such a remedy
would constitute a penalty).
A corollary of that proposition is that each payment in
satisfaction of disgorgement offsets the overall disgorgement amount.
In other words, “funds returned … are not unjust gains.” Bronson
Partners, 654 F.3d at 369. We have applied this principle in several
cases.
For example, in SEC v. Palmisano, 135 F.3d 860 (2d Cir. 1998),
we confronted circumstances in which a securities fraud produced
parallel civil and criminal cases. The civil case resulted in a
disgorgement award, and the criminal case resulted in a restitution
order. The SEC acknowledged that “payments by [the defendant] to
his victims pursuant to the restitution order in the criminal case
should be credited toward the disgorgement” because a defendant is
“only required to give back the proceeds of his securities fraud once.”
Id. at 863. We endorsed the SEC’s position and amended the
judgment.
We have also applied the principle when the defendant
returned funds prior to litigation. In FTC v. Verity Int’l, Ltd., 443 F.3d
48 (2d Cir. 2006), we considered a fraudulent telephone service
scheme. We explained that the government had not provided a
reasonable approximation of the ill-gotten gains because, among
other things, one of the companies “gave a one-time credit to any
caller who complained … about the [fraudulent] charges” and no
evidence “indicate[d] that [the company] refused to provide a credit
or refund.” Id. at 69. The sum fraudulently collected by the telephone

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company from customers could not serve as an estimate of the ill-
gotten gains because some funds were returned.
We confronted a different set of facts in Razmilovic and
concluded that the same principle controlled. In that case, we
recognized that although a court cannot order disgorgement of
income derived from the ill-gotten proceeds, it may “award
prejudgment interest on the disgorgement amount for the period
during which a defendant had the use of his illegal profits.” 738 F.3d
at 36 (citing SEC v. First Jersey, 101 F.3d 1450, 1474-77 (2d Cir. 1996)).
But some of the ill-gotten assets in that case had been “frozen at the
behest of the government in connection with the enforcement action,”
so the fraudster was unable to use those assets, at least for a time. Id.
We said that “the remedial purpose of prejudgment interest would
already have been served with respect to the period of the freeze; to
require the defendant to pay prejudgment interest on the entire
disgorgement amount including the earlier frozen amount would, for
the freeze period, deprive him twice of interest on the portion of the
disgorgement award that is satisfied by the frozen assets.” Id. at 37.
We cited Palmisano for the proposition that the defendant need pay
back the proceeds of his fraud only “once.” Id.
The principle underlying these cases is that forcing a defendant
to pay disgorgement twice amounts to a penalty. See also SEC v.
Fowler, 440 F. Supp. 3d 284, 296 (S.D.N.Y. 2020) (“[C]ourts should
deduct any money that a defendant returns or has returned to her or
his victims.”); SEC v. Amerindo Inv. Advisors Inc., No. 05-CV-5231, 2014
WL 2112032, at *5 (S.D.N.Y. May 6, 2014) (same). The Supreme Court
recognized that proposition in Liu. It explained that a wrongdoer
“should not profit by his own wrong” but also “should not be
punished by paying more than a fair compensation to the person
wronged.” Liu, 140 S. Ct. at 1943 (emphasis added) (internal quotation

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marks and alteration omitted). Pursuant to this principle, returning
value to a wronged party satisfies disgorgement dollar-for-dollar.
In the circumstances of this case, we hold that a wrongdoer
returns “value” for the purpose of disgorgement whenever he returns
property that holds value in his own hands. That is consistent with
our repeated statement that “[d]isgorgement serves to remedy
securities law violations by depriving violators of the fruits of their
illegal conduct.” Contorinis, 743 F.3d at 301; Razmilovic, 738 F.3d at 36
(“[T]he primary purpose of disgorgement as a remedy for violation
of the securities laws is to deprive violators of their ill-gotten gains,
thereby effectuating the deterrence objectives of those laws.”); First
Jersey, 101 F.3d at 1474 (same). Because disgorgement aims to divest
profits, not to “compensate victims,” Cavanagh, 445 F.3d at 117, it does
not matter whether the property lacks value in the victim’s hands.
B
The district court rightly explained that the “relevant question”
with respect to the Settlement is “whether Govil’s surrendering of
stock and promise of additional payment to Cemtrex rights the
wrongs to the actual victim of his misconduct.” Govil, 2022 WL
1639467, at *2. The district court erred, however, when it concluded
that the securities surrendered to Cemtrex as part of the Settlement
did not constitute “fair compensation” to a wronged party. Id.
(quoting Tilghman, 125 U.S. at 146).
The securities surrendered were such compensation. Although
some of the shares were of uncertain value, those shares certainly had
value in Govil’s hands. As part of the Settlement, Govil tendered to
Cemtrex 469,949 shares of Series 1 Preferred Stock. As all parties
admit, Series 1 Preferred shares trade publicly and are relatively
liquid. In principle Govil could have sold his Series 1 Preferred shares

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on the open market and tendered the proceeds to Cemtrex, which
everyone agrees would be “fair compensation” for the purpose of
disgorgement.17 It is true that, had Govil sold that volume of shares
on the market at once, the price would have declined. But the relevant
inquiry at this point is not the value of the shares; it is whether the
shares had value at all.
That Govil returned property of value in the form of Series 1
Preferred shares is bolstered by the observation that the shares had
value even in Cemtrex’s hands. The Cemtrex board canceled those
shares, but it did not need to do so. Cemtrex could have traded the
shares for consideration. And even if Cemtrex simply held or
canceled the shares, Cemtrex still would have received value because
the 10 percent dividend on the Series 1 Preferred shares would not be
payable when the shares were no longer outstanding. In sum, the
Series 1 Preferred shares had value even in Cemtrex’s hands. That
supports the conclusion Govil was stripped of ill-gotten gains when
he relinquished his interest in the Series 1 Preferred shares.
The Settlement also specified that Govil would return his Series
A Preferred and Series C Preferred shares. While those shares did not
trade publicly or pay a regular dividend, the shares nevertheless had
value in Govil’s hands. The principal benefit of the Series A Preferred
and Series C Preferred shares is that the shares enabled the holder to
control Cemtrex. Control of a company—even without a claim to the
company’s retained earnings—has value. That is why a “control
17 At the time Govil negotiated the Settlement with Verma, Series 1
Preferred shares traded at around $1.80 per share on the NASDAQ. Using
that figure, Govil’s interest in the Series 1 Preferred shares could have
generated about $850,000—a substantial amount by which the
disgorgement award could have been reduced.

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premium” is often added to the valuation of shares that control a
company. See Lippe v. Bairnco Corp., 99 F. App’x 274, 278 (2d Cir. 2004)
(“[T]he addition of control premiums is a standard valuation
technique.”). Indeed, the appraiser in this case added a control
premium when valuing the Series A Preferred and Series C Preferred
shares. See J. App’x 245-46. While the accuracy of that valuation is a
matter for the district court on remand, see infra note 19, we cannot
say based on the record before us that the control that came along
with Govil’s interest in those preferred shares was without value. We
conclude that Govil gave compensation as part of the Settlement.
The only remaining question is whether surrender of the
securities to Cemtrex constitutes a return to the “person wronged.”
Tilghman, 125 U.S. at 146. The district court concluded that “the
investors [were] victims of Govil’s misconduct.” Govil, 2022 WL
1639467, at *2. It declined to say whether Cemtrex itself was a
wronged party. The district court explained that the stock surrender
did not provide value to the investors, so the stock surrender should
not count against Govil’s disgorgement amount. That conclusion was
erroneous.
Even if the district court were correct that only the investors—
not Cemtrex—were harmed, 18 the Settlement nevertheless
constituted compensation to the wronged party. As we have
explained, the surrendered securities had value. When Govil
surrendered the securities, the value of the securities was transferred
to Cemtrex and thereby benefited Cemtrex investors. The district
court embraced this theory as it applied to the promissory note and
18 Because the investors were harmed by the company being deprived of
the benefit of the investment funds, see Govil, 2022 WL 1639467, at *2, it is
difficult to see how the investors but not the company were harmed.

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credited the note’s value against the overall disgorgement amount. In
so doing, the district court explained that “the funds from the
promissory note will presumably be placed in [Cemtrex’s] account
and used for corporate expenses, [so] the original promise to the
purchasers of the offerings will, in fact, be realized.” Govil, 2022 WL
1639467, at *3. That argument applies with equal force to the
surrendered securities. The defrauded investors enjoyed the benefit
of value transferred to the company in the same way that they enjoyed
the benefit of the funds promised by the note.
We conclude that the district court erred in deciding not to
offset the disgorgement award by the value of the surrendered
securities. If the district court determines that the defrauded investors
suffered pecuniary harm, which would mean that disgorgement is
authorized, the district court must value the surrendered securities
and credit the value against the disgorgement award.19
C
The SEC makes three counterarguments, but we are not
persuaded.
First, the SEC argues that the stock surrender “did not provide
capital to Cemtrex that could be used to pay corporate expenses” as
opposed to the promissory note, which did provide capital.
Appellee’s Br. 25. We see no reason for requiring that disgorgement
be satisfied in cash. To the contrary, our case law appears to recognize
that disgorgement may be satisfied through the transfer of non-cash
19 Because the district court declined to recognize the securities surrender
at all, it did not address the value of the securities. See Govil, 2022 WL
1639467, at *3 n.1 (noting that the district court “declines to address the
SEC’s argument that the valuation of the preferred stock is not credible”).
The district court should address that issue in the first instance.

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assets.20 In any event, disgorgement aims to divest the wrongdoer of
ill-gotten gains; it is “unlike an award of damages” that aims to
compensate a victim, so it is irrelevant that the wronged party receives
value in an illiquid or disfavored form. First Jersey, 101 F.3d at 1475.
What matters is that the wrongdoer returns the unjustly obtained
value.
Second, the SEC maintains that the surrender should not offset
the disgorgement award because “a defendant is not entitled to a
deduction simply because he has already dissipated his ill-gotten
gains for his own benefit.” Appellee’s Br. 24. This repeats an
argument that the SEC made before the district court: The Settlement
should not offset the disgorgement award because it is a personal
expense, not a business expense. 21 The argument fails because it
confuses deductions for business expenses (as opposed to personal
expenses) with payments in satisfaction of disgorgement.
Disgorgement is limited to a defendant’s “net gains.” Restatement
(Third) of Restitution and Unjust Enrichment § 51 cmt. h. In
20 See SEC v. Levine, 881 F.2d 1165, 1173 (2d Cir. 1989) (“[V]irtually all of the
disgorged assets were earmarked for defrauded investors.”); Bronson
Partners, 654 F.3d at 371 (“[A] court confronted with a private, equitable
claim sounding in unjust enrichment may ordinarily award only a
constructive trust or an equitable lien, because only those remedies require
the district court to find that the defendant holds specific property that is
traceable to the proceeds of his wrongdoing.”); Contorinis, 743 F.3d at 305
(discussing the “well-established principle in disgorgement law” that “the
court may only exercise its equitable power only over property causally
related to the wrongdoing”).
21 See Govil, 2022 WL 1639467, at *2 (“The SEC first argues that the
disgorgement should not be reduced … because the payments via the
Settlement Agreement were ‘personal in nature’ and should not be treated
as business expenses that can be deducted from the disgorgement.”).

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calculating this gain, a defendant is “entitled to a deduction for all
marginal costs incurred in producing the revenues that are subject to
disgorgement,” id., which does not include personal expenses. But a
deduction made to calculate the net gains subject to disgorgement is
not the same thing as a deduction to offset a payment already made
in satisfaction of disgorgement. We agree with the district court both
that the Settlement cannot be considered “strictly ‘personal in nature’
simply because Cemtrex released Govil from liability in exchange for
the repayment” and that the “relevant question” is not the business
character of the payment but “whether Govil’s surrendering of stock
and promise of additional payment to Cemtrex rights the wrongs to
the actual victim of his misconduct.” Govil, 2022 WL 1639467, at *2.
Third, the SEC argues that only Govil and his son “received
significant benefits in return for his relinquishment of shares because
[Govil] was able to transfer control of the company to his son while
obtaining a release from liability.” Appellee’s Br. 26; see also Govil,
2022 WL 1639467, at *3 (“[A]fter transferring his control stock to
Cemtrex, Govil’s son obtained sole voting control over the company,
Govil was released from liability, and Cemtrex shareholders received
nothing.”). The SEC encourages us to make an exception to the
general rule about returning value to harmed parties because
“[p]ermitting Govil to claim that value as a deduction would allow
him to circumvent the SEC’s power to recapture fraud proceeds, by
the simple procedure of giving the proceeds to friends and relatives.”
Appellee’s Br. 26 (internal quotation marks and alteration omitted).
We are not persuaded. Although disgorgement amounts are
neither “foreclosed nor confined by” a settlement agreement, we have
held that “[a] settlement payment may properly … be taken into
account by the court in calculating the amount to be disgorged.” First
Jersey, 101 F.3d at 1475. All settlements confer a benefit on the parties,

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so our statement in First Jersey indicates that such benefits do not
preclude a settlement payment from satisfying disgorgement.
Moreover, Govil’s son gained control only because he was a
shareholder in his own right. And that result does not change the fact
that the surrendered securities have value and that wronged parties
benefited from the surrender.22 We do not agree with the SEC that
the normal rules applicable to disgorgement should recede based on
an evaluation of the personal relationships between defendants and
the shareholders who end up in control of the company.
CONCLUSION
The district court abused its discretion by ordering
disgorgement without finding that the defrauded investors suffered
pecuniary harm. We vacate the judgment of the district court and
remand with instructions to make that factual determination. If the
district court concludes that the fraud caused pecuniary harm such
that disgorgement is authorized, the district court must value the
surrendered securities and credit that value against the overall
disgorgement award.
22 Govil’s son controls Cemtrex because he holds all of the currently
outstanding Series C Preferred shares. Govil’s son obtained those shares as
a gift from Govil. See J. App’x 149. The SEC’s argument that Govil is
“circumvent[ing] the SEC’s power to recapture fraud proceeds, by the
simple procedure of giving the proceeds to friends and relatives” would
have force if Govil had sought to deduct the value of the shares given to his
son. Appellee’s Br. 26. But Govil has not made that argument. Nor could
he. Such a transfer would be valuable, but it would not be value returned
to a wronged party—and for that reason it would not warrant an offset of
the disgorgement award.

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