How SEC Settlements Work: Jarkesy, Disgorgement, and Waivers

An SEC settlement is a negotiated deal that ends a Securities and Exchange Commission enforcement action without a trial. In exchange for closing the case, the person or company under investigation agrees to a defined package of consequences: returning illegal profits (disgorgement), paying civil penalties, accepting a cease-and-desist order, and often submitting to bars from serving as a public-company officer or from working in the securities industry. Understanding how SEC settlements work means understanding three things: how a case reaches the negotiating stage, what terms the Commission will insist on, and what a settling party gives up and gains by signing.

How a Case Reaches the Settlement Stage

Every SEC settlement grows out of an investigation run privately by the agency’s Division of Enforcement. Staff gather facts through informal inquiries, witness interviews, records review, and trading-data analysis. When the matter warrants it, the Commission issues a formal order of investigation, which gives staff subpoena power to compel testimony and documents.¹ Leads come from whistleblower tips, press reports, referrals from other regulators, self-reporting by companies, and the SEC’s own market surveillance.

If staff decide the evidence supports charges, they issue a Wells notice. The notice lays out the proposed charges and gives the target a chance to respond in writing (a Wells submission) explaining why the case should be dropped or narrowed.² Under reforms announced by Chairman Paul S. Atkins in October 2025, recipients now get at least four weeks to prepare that submission, doubled from the prior norm of two, and are entitled to meet with senior division leadership within four weeks after the submission is received.³

Settlement talks can start any time after the Wells notice. When staff and the target reach agreement, enforcement lawyers draft an Action Memorandum setting out the facts, the alleged violations, and the recommended terms. That memo circulates to other SEC divisions for input, then goes to the five Commissioners.⁴ The Commissioners review the package in a closed meeting and vote by majority to approve, reject, or modify it.⁵ No settlement is final without that vote.

What a Settlement Typically Requires

Settlements land in one of two forums. In an administrative proceeding handled inside the agency, the Commission issues a consent order. In a federal district court case, the settlement takes the form of a consent judgment (or consent decree) that a judge must review and approve.¹

Whichever forum applies, a settling party generally agrees to some combination of:

Disgorgement of profits earned from the misconduct, often with prejudgment interest. This is meant to strip the wrongdoer of gains rather than punish.
Civil monetary penalties. These are fines separate from disgorgement and are organized into three tiers based on severity, ranging from $7,500 per violation for minor infractions by an individual up to $775,000 per violation for the most egregious fraud by an entity.⁶
A cease-and-desist order requiring the party to stop the conduct and refrain from future violations of the relevant securities laws.
Officer and director bars prohibiting the person from serving in those roles at a public company, either for a set period or permanently.
Industry bars and suspensions restricting association with broker-dealers, investment advisers, or other regulated entities.¹
Undertakings, meaning specific remedial actions such as hiring an independent compliance consultant, overhauling internal controls, or running employee training.

By signing, the party also waives the right to a hearing and the right to appeal the order’s findings. The consent agreement becomes binding and enforceable.

Where the Case Gets Filed: The Jarkesy Effect

For years, the Dodd-Frank Act gave the SEC broad discretion to keep cases inside the agency before its own administrative law judges rather than filing in federal court. Administrative proceedings meant no jury, limited discovery, and a faster schedule; by fiscal year 2015, more than 80% of SEC settlements were filed that way.⁵

That changed on June 27, 2024. In SEC v. Jarkesy, the Supreme Court held 6–3 that the Seventh Amendment guarantees a jury trial when the SEC seeks civil penalties for securities fraud. The majority reasoned that SEC fraud claims resemble common law fraud, and that civil penalties are punitive, making them the kind of legal remedy juries historically decide.⁷ The ruling effectively removed the in-house option for fraud cases seeking civil penalties, pushing those cases into federal court where defendants can demand a jury.⁸ For a party negotiating a settlement, the forum matters: a federal-court consent judgment requires a judge’s sign-off, and the leverage of a jury option changes how staff price and structure a deal.

What Disgorgement Can and Can’t Do After Liu

Disgorgement was long the SEC’s single largest source of monetary recoveries, accounting for roughly 71% of the agency’s financial remedies in the five years before 2020. The Supreme Court’s June 2020 decision in Liu v. SEC, decided 8–1, limited the tool in two ways. Disgorgement is permissible only if it is capped at a wrongdoer’s net profits, meaning legitimate business expenses must be deducted, and only if the funds are directed toward compensating victims rather than simply deposited in the U.S. Treasury.⁹ The Court also cast doubt on joint-and-several disgorgement across multiple wrongdoers, noting that equity traditionally awards profits-based remedies against individuals for their own gains.

Congress enacted a new disgorgement statute in early 2021, and courts continue to debate whether it incorporates those equitable limits.¹⁰ The practical effect on settlements: the SEC must be more precise in calculating disgorgement, more attentive to expense deductions, and clearer about how the money will reach investors.

What You Can Say Publicly: The End of “Neither Admit Nor Deny”

For more than 50 years, SEC settlements carried a distinctive feature. The settling party agreed not to admit the SEC’s allegations, but was also prohibited from publicly denying them. That “no-deny” policy, codified as Rule 202.5(e) in the early 1970s, was meant to stop defendants from banking the benefits of a settlement while telling the public the charges were baseless.¹¹ Courts repeatedly upheld it, including the Second Circuit in SEC v. Romeril in 2021, which found that defendants can voluntarily waive their First Amendment rights as part of a bargained-for settlement.¹²

Even so, the Commission rescinded the policy itself. On May 18, 2026, the SEC formally repealed Rule 202.5(e), effective May 21, 2026. Chairman Atkins stated that “speech critical of the government is an important part of the American tradition” and that the rescission ends the prohibition on such criticism by settling defendants.¹³ The Commission cited four reasons: it had never actually sought to vacate a settlement or reopen a case over a violation of the clause; social media had made the policy hard to enforce; most other federal agencies settle cases without such restrictions; and removing the requirement gives the SEC more flexibility to resolve cases efficiently.¹¹

The change is retroactive: the SEC will not enforce existing no-deny provisions in older settlements. It does not, however, affect the agency’s authority to negotiate for explicit admissions of wrongdoing in egregious cases. A settling party can now decline to admit the charges and, separately, speak publicly against them; a party who agrees to admit specific facts is still bound by that admission.

How Cooperation Moves the Numbers

How a company or individual responds once misconduct surfaces can meaningfully shift the terms of a settlement. The SEC evaluates cooperation under two formal frameworks: the Seaboard Report for entities, established in 2001, and a Policy Statement on Individual Cooperation issued in 2010. Both look at a common set of behaviors: whether compliance systems existed before the misconduct, how quickly and thoroughly the party reported the problem, what remedial steps were taken, and how helpful the party was during the investigation.¹⁴

Beyond simply reducing fines within a standard settlement, cooperation opens the door to formal alternatives:

Cooperation agreements, used when a party provides substantial assistance such as truthful testimony and full disclosure of relevant information.
Deferred prosecution agreements, in which the SEC defers enforcement in exchange for full cooperation and compliance with specific conditions. If the party meets the terms, no charges are filed.
Non-prosecution agreements, in which the SEC agrees outright not to pursue an enforcement action in limited circumstances.¹⁴

Recent cases show the range. In March 2026, the accounting firm EisnerAmper LLP received a censure with no civil penalty after prompt remediation and cooperation. Firms that failed to self-report in the SEC’s off-channel communications sweep, by contrast, paid penalties as high as $50 million.¹⁵ The Enforcement Manual, revised in February 2026, formalizes guidance on cooperation credit and states that the Division may recommend forgoing civil penalties entirely based on cooperation factors.¹⁶

Collateral Consequences and Waivers

Signing a consent order can trigger a second layer of consequences that operate automatically under the securities laws. A company may lose well-known seasoned issuer (WKSI) status, which streamlines its securities offerings. It may be disqualified from using private offering exemptions under Regulations A, D, and Crowdfunding. It may lose the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act. Individuals may be barred from certain roles under the Investment Company Act.¹⁷

Because those disqualifications can dwarf the direct penalties, settling parties often ask the Commission to waive them. In September 2025, Chairman Atkins restored the practice of considering settlement offers and waiver requests at the same time, reversing a 2021 policy that had separated them. A party can now make its settlement offer contingent on receiving the waiver. If the Commission accepts the settlement but denies the waiver, the party has five business days to decide whether to proceed anyway.¹⁷

Settlements also carry weight in private litigation. Plaintiffs in securities class actions routinely cite SEC administrative orders to support their complaints, even when the orders contain no admission of liability. Courts have allowed SEC findings for limited purposes, such as establishing a company’s awareness of problems, though the orders are generally inadmissible as direct evidence of liability.¹⁸

How Settlement Money Reaches Harmed Investors

The Sarbanes-Oxley Act of 2002 created the Fair Fund provision, which lets the SEC combine disgorgement and civil penalties into a single fund for distribution to investors harmed by the violation. The process runs through a fund administrator, a distribution plan opened to public comment, and then disbursement after the Commission approves the plan.¹⁹ The SEC has aimed for distributions to be completed within 24 months of the administrator’s appointment, though delays are common because eligible investors can be hard to identify and legal disputes can slow the process.²⁰

Some of the largest Fair Funds have returned hundreds of millions of dollars, including over $800 million from the AIG fund, more than $670 million from the WorldCom fund, and over $350 million from the Fannie Mae fund.²⁰ When identifying individual investors is impossible or distribution would cost more than the fund holds, the money goes to the U.S. Treasury instead.

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