Securities Regulation Daily Wrap Up, ENFORCEMENT—U.S.: Cert petitions call joint-and-several disgorgement a return to pre-Liu principles, (Sep 24, 2026)

By Anne Sherry, J.D.

The district court based joint-and-several liability on the participants’ “concerted wrongdoing.”

A group of defendants held joint-and-severally liable for disgorgement are appealing that judgment to the Supreme Court. The petitioners assert that the SEC had not shown that they received any funds at all from the alleged pump-and-dump scheme. To impose joint-and-several disgorgement based only on “concerted wrongdoing” conflicts with the principles espoused in Liu v. SEC, the petitioners argue (Petition for a Writ of Certiorari, Sexton v. SEC, No. 26-402 (Aug. 31, 2026)).

Petitioners. The petitioners are among the alleged participants in a pump-and-dump scheme orchestrated by Frederick Sharp. The lead petition was submitted by Paul Sexton, Mike K. Veldhuis, and Jackson T. Friesen. A companion petition filed by Courtney Kelln adopts their position.

As explained by the First Circuit, Kelln was a Sharp Group employee who collected, allocated, and distributed shares of penny stocks under the Sharp Group's common control to nominee entities to keep the ownership of record under 5 percent. The three lead appellants were Sharp Group clients who operated together as a group for the purposes of acquiring, holding, and dumping shares of at least 14 different stocks. (SEC v. Gasarch, No. 24-1770 (1st Cir. Feb. 19, 2026)).

Joint-and-several liability. The petitions for writ of certiorari challenge the First Circuit opinion as “the first post-Liu appellate decision to impose joint-and-several disgorgement on multiple defendants who are not related and who did not commingle, share, or even receive the relevant funds, solely by virtue of their joint participation as co-defendants in the offense conduct.” The SEC did not attempt to prove that funds were actually received by the defendants, instead requesting disgorgement in amounts reflected in Sharp’s internal accounting system, known as Q.

The lead petition stresses that the case falls squarely under the default rule against joint-and-several disgorgement. In Liu, the Court wrote that making a wrongdoer liable to disgorge benefits that accrued to his affiliates violates the notion of individual liability for wrongful profits and threatens to “transform any equitable profits-focused remedy into a penalty.” The First Circuit misconstrued the principle, incorrectly inferring that the default rule is limited to cases where a defendant did not participate in the misconduct. While Liu left open the possibility of joint-and-several disgorgement in certain circumstances, the First Circuit did not apply these factors, the petitioners argue.

The petition allows that Liu and the appellate decision below both use the term “partners engaged in concerted wrongdoing.” However, this was in discussing a case involving two defendants who fraudulently secured patents from which both defendants profited. Imposing joint responsibility for the value of a single asset that was jointly misappropriated “is a far cry from ordering joint-and-several disgorgement against multiple defendants involved in disparate activities involving multiple securities in a course of conduct in which they each played different roles and allegedly received different compensation,” say the petitioners.

Indeed, they continue, the Supreme Court has never suggested that this concept stands alone to justify joint-and-several disgorgement. The Liu factors would be unnecessary if “concerted wrongdoing” were enough.

At a minimum, the petitions argue, the district court should not have acted sua sponte when the SEC itself did not seek joint-and-several disgorgement and attempted to abandon the remedy on appeal. The petitioners took umbrage at the First Circuit’s characterization of the joint-and-several remedy as something that “could only benefit appellants to the extent Sharp picks up any balance left on the remedial tab.” The only judgment that remains against Sharp is an individual default judgment, which will not aid the petitioners even if paid.

Circuit split. The lead petitioners say that the case creates a circuit split and “reinforces the need for guardrails against excesses in SEC disgorgement.”

The petitioners submit that the First Circuit split from a sister circuit. In an unpublished opinion based on Liu, the Fifth Circuit rejected holding a defendant liable for funds that have only accrued to others and declined to impose joint-and-several liability when the SEC abandoned the request.

The case also offers the Supreme Court an opportunity to explore the question, not before it in Liu, of when an equitable profits remedy might be punitive when applied to multiple individuals.

The case is No. 26-402.

Attorneys: Robert Scott Silverblatt (K&L Gates LLP) for Paul Sexton, Jackson T. Friesen, and Mike K. Veldhuis. D. John Sauer, U.S. Department of Justice, for the SEC.

Companies: Sharp Group

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