^{Legal Alerts | July 22, 2026 12:00 am} Second Quarter 2026 Asset Management Regulatory Update

Table of Contents

• SEC Seeks Public Comment on Novel Exchange-Traded Funds
• Supreme Court Unanimously Upholds the SEC’s Ability to use “Disgorgement” In Sripetch V. SEC
• SEC Announces Enforcement Results for Fiscal Year 2025
• Supreme Court Decision in FS Credit Opportunities Corp. v. Saba
• SEC Publishes Draft Strategic Plan For FY 2026-2030
• SEC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions

SEC SEEKS PUBLIC COMMENT ON NOVEL EXCHANGE-TRADED FUNDS

On June 30, the U.S. Securities and Exchange Commission’s (“SEC” or “Commission”) issued a request for public comment (the “Request for Comment”) from funds, their advisers, investors and other market participants on exchange-traded funds (“ETFs”) seeking to invest in innovative asset classes or engage in novel investment strategies (“Novel ETFs”). The Request for Comment specifically seeks comments on ways to facilitate innovation in ETFs while still protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.

The Request for Comment noted that ETF sponsors have expressed interest in providing exposure markets, and facilitating capital formation, including crypto assets; commodity-focused instruments; single‑stock strategies; heightened leverage; blockchain-enabled opportunities; private assets; event contracts; and/or a combination of the aforementioned categories. The Request for Comment outlined questions that have been raised by market participants regarding Novel ETFs (for example, whether a Novel ETF would qualify as an “investment company” or operate pursuant to the requirements of Rule 6c-11 under the Investment Company Act of 1940 (the “1940 Act”).

Under Section 3 of the 1940 Act, “investment company” is defined as an issuer that (i) is or holds itself out as being engaged primarily , or proposes to engage primarily in the business of investing, reinvesting, or trading in securities (the “Subjective Test”), or (ii) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% or more of such issuer’s total assets (exclusive of Government securities and cash items), on an unconsolidated basis.  Among other questions, the Request for Comment asks whether a Novel ETF would meet the Subjective Test even if its principal investment strategy is to invest in securities that may not be securities.

With respect to Rule 6c-11 under the 1940 Act, the Request for Comment includes, for example, questions regarding portfolio-related conditions, including (i) whether the assets of Novel ETFs present any questions regarding the functioning of the ETF arbitrage mechanism and the supporting secondary trading activity, investor protection, the maintenance of fair, orderly, and efficient markets, or other structural or operational issues, and (ii) whether Rule 6c-11 should be amended to address these or other questions related to Novel ETFs.

Among other items, the Request for Comment also includes questions regarding automatic effectiveness of post-effective amendments filed pursuant to Rule 485 under the Securities Act of 1933, including whether the 75-day and 60-day automatic effectiveness periods should be extended for Novel ETFs.

Comments must be submitted to the Commission by August 31.

SUPREME COURT UNANIMOUSLY UPHOLDS THE SEC’S ABILITY TO USE “DISGORGEMENT” IN SRIPETCH V. SEC

On June 4, the United States Supreme Court (the “Court”) issued a unanimous decision in Sripetch v. Securities and Exchange Commission, No. 25-466, addressing what the SEC must show to obtain disgorgement from a defendant in federal court. The Supreme Court held that the SEC need not prove investor pecuniary loss to obtain disgorgement under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), so long as the remedy is directed to the defendant’s unjust gains and otherwise fits within the equitable framework assumed by the Court for purposes of the case. In doing so, the Court also resolved a circuit split: the First and Ninth Circuits did not require proof of investor pecuniary loss, while the Second Circuit did.

Sripetch arose against the backdrop of the SEC’s evolving authority to seek monetary remedies in federal securities enforcement actions. As explained in the Supreme Court’s decision, when Congress created the SEC in the 1930s, the SEC’s statutory enforcement toolkit did not include monetary awards and was limited principally to seeking injunctions against future violations of the federal securities laws. Congress later expanded the agency’s enforcement powers, including by authorizing monetary penalties in 1990. Beginning in the 1970s, however, courts began permitting the SEC to seek disgorgement as ancillary equitable relief in enforcement actions. In 2002, Congress enacted the Sarbanes-Oxley Act, which, among other things, provides that the SEC may seek “equitable relief” for the “benefit of investors” in civil actions under Section 21(d)(5) of the Exchange Act.

Over time, the SEC’s disgorgement practice became a significant enforcement remedy and, in some cases, produced awards that were deposited with the United States Treasury or exceeded the defendant’s own profits from the alleged violation. The Supreme Court previously addressed aspects of that practice by applying a five-year statute of limitations in Kokesh v. SEC, 581 U. S. 455 (2017), and by imposing two “traditional equitable principles” limits on its use: (1) remedies are limited to a defendant’s net profits, and (2) the award must go to victims rather than be imposed as a penalty where feasible, Liu v. SEC, 591 U.S. 71 (2020).

After Liu, Congress amended the Exchange Act in a way that made the SEC’s disgorgement authority more explicit but also generated new questions about the relationship between statutory disgorgement and equitable limits. Congress left intact Exchange Act Section 21(d)(5), which authorizes “equitable relief,” and added Section 21(d)(7), which expressly authorizes the SEC to seek disgorgement in enforcement proceedings. Congress also provided that federal district courts may require disgorgement of “any unjust enrichment” received as a result of a securities-law violation and added limitations provisions addressing both equitable relief and disgorgement. Unlike Section 21(d)(5), Section 21(d)(7) does not contain language requiring relief to be “for the benefit of investors,” which led to differing views about how Liu’s requirements apply after the statutory amendments and created the conflict that prompted Supreme Court review. The Second Circuit held that the disgorgement remedy under both Sections 21(d)(5) and 21(d)(7) is equitable and available only if it can be awarded to victims, which the court defined as those who have suffered “pecuniary harm.” In contrast, the First Circuit held that, because disgorgement’s purpose is to deprive wrongdoers of ill-gotten gains, a pecuniary harm showing is not required.

In Sripetch, the underlying dispute stemmed from a civil enforcement action against Ongkaruck Sripetch (“Sripetch”) and other defendants in the United States District Court for the Southern District of California, in which the SEC alleged securities-law violations arising from alleged classic “pump and dump” schemes involving at least 20 penny-stock companies. The SEC charged Sripetch with six counts of securities fraud and one count of selling unregistered securities, and it sought, among other remedies, disgorgement of more than $6.6 million in ill-gotten gains. Sripetch ultimately consented to entry of judgment and agreed that the District Court could order disgorgement, but when the SEC sought more than $4.1 million in disgorgement, Sripetch objected that the request was inconsistent with Liu v. SEC because the SEC had not shown that investors suffered financial losses and therefore had not identified “victims” for whom disgorgement could be awarded. The SEC responded that investors may qualify as victims even without proof of pecuniary loss and, in the alternative, that its evidence showed investor pecuniary harm in any event. The District Court for the Southern District of California accepted the SEC’s alternative evidentiary position, concluded that the SEC had made an adequate showing of pecuniary harm, and ordered disgorgement of $2,251,923.16 in net profits plus prejudgment interest without deciding whether such a showing was legally required.

On appeal, Sripetch again argued that disgorgement under Exchange Act Sections 21(d)(5) and 21(d)(7) requires proof that investors suffered pecuniary harm. The Ninth Circuit ruled against Sripetch, concluding that demonstrating pecuniary loss to investors is unnecessary to support a disgorgement order. The Ninth Circuit acknowledged Liu’s requirement that disgorgement be awarded for victims but rejected the argument that “victim” status turns on proof of measurable financial loss. In doing so, the Ninth Circuit aligned with the First Circuit and rejected the Second Circuit’s approach. The Supreme Court granted certiorari to decide the narrow question whether the SEC must prove that investors suffered pecuniary loss before obtaining disgorgement under Section 21(d)(5) or Section 21(d)(7) of the Exchange Act.

In a unanimous opinion by Justice Gorsuch, the Court affirmed the Ninth Circuit, holding that the SEC does not need to show financial harm to investors. The Court explained that traditional equitable principles do not require proof of pecuniary loss and that a person whose legally protected interests have been invaded may qualify as a victim for disgorgement purposes even without a measurable financial loss. Accordingly, the Supreme Court rejected Sripetch’s reading of Liu v. SEC because Liu required disgorgement to be “awarded for victims,” but did not make pecuniary loss a prerequisite to victim status. The Court also rejected Sripetch’s “status quo” argument, reasoning that, where a defendant is unjustly enriched without leaving the victim financially worse off, equity traditionally favors stripping the wrongdoer’s gain rather than allowing the wrongdoer to retain the benefit.

The Supreme Court’s decision in Sripetch further distinguished SEC enforcement actions from private securities-fraud suits, which do require a preliminary showing of the plaintiff’s economic loss. The Court, however, did not decide the full scope of the SEC’s post-Liu disgorgement authority, including whether Congress’s addition of Section 21(d)(7) displaced any traditional equitable limits on disgorgement. Justice Thomas concurred, agreeing with the result while stating that a future case should address whether SEC disgorgement under the amended Exchange Act is a legal remedy that implicates the Seventh Amendment right to a jury trial.

SEC ANNOUNCES ENFORCEMENT RESULTS FOR FISCAL YEAR 2025

On April 6, the Commission announced enforcement results for its fiscal year ended September 30, 2025 (“FY 2025”). During FY 2025, the Commission filed 456 enforcement actions comprised of 303 standalone actions and 69 follow on administrative proceedings that sought to bar or suspend individuals from certain securities market functions based on criminal convictions, civil injunctions, or other orders. The Commission obtained orders for monetary relief of $17.9 billion.

The press release announcing the enforcement results (the “Press Release”) included that, “[t]hese enforcement actions addressing a broad range of misconduct demonstrate the Commission’s prioritization of cases that directly harm investors and the integrity of the U.S. securities markets, including offering frauds, market manipulation, insider trading, issuer disclosure violations, and breaches of fiduciary duty by investment advisers.” The Press Release also noted that FY 2025 was a transition period for the enforcement division, noting its renewed focus on bringing actions that prevent investor harm and that moving forward, enforcement priorities and results would be linked to the Commission’s core mandate and focus on (i) standing up to fraud and market participants engaged in such misconduct; (ii) addressing fraudulent and manipulative conduct through appropriate remediation; and (iii) repaying investor losses when harmed.

SUPREME COURT DECISION IN FS CREDIT OPPORTUNITIES CORP. V. SABA

On June 11, the United States Supreme Court held in FS Credit Opportunities Corp. v. Saba Capital Master Fund, Ltd., No. 24-345, that Section 47(b) of the 1940 Act does not impliedly allow private parties to sue for rescission of contracts that allegedly violate the 1940 Act. The 6–3 decision reverses the prior decision by the Second Circuit and resolves a longstanding circuit split.

 Section 47(b) of the 1940 Act permits rescission of any contract that allegedly violates the 1940 Act as a remedy to parties to such a contract, provided that rescission would not produce a more inequitable result than performance. In recent years, litigants have argued that Section 47(b) implicitly creates a private right of action for rescission available not just to parties to the contract, but to any investor affected by it.

 The case arose from a dispute between investment companies that manage closed-end mutual funds (the “Funds”) and Saba Capital Master Fund, Ltd., and Saba Capital Management, L.P. (collectively, “Saba”), each an activist investor. The Funds were incorporated in Maryland and adopted resolutions opting into the Maryland Control Share Acquisition Act, which limits the voting rights of shareholders holding a disproportionate number of shares—such as activist investors—unless other shareholders approve. Saba sued the Funds, arguing that these resolutions violate the 1940 Act’s requirement that every share of stock be a voting stock with equal voting rights. Saba’s argument relied on Section 47(b), which provides that “a court may not deny rescission” of contracts violating the 1940 Act “at the instance of any party” unless certain equitable conditions are met.

 The Court’s reasoning focused on several arguments, including the following:

1. The Court concluded that Section 47(b)’s language stating “a court may not deny rescission at the instance of any party” is a directive to courts, not a grant of rights to individuals. This language assumes that parties are already before the court and merely directs how courts should exercise their remedial authority; it does not confer a standalone right to sue.
2. The Court noted that under longstanding contract-law principles, rescission is a remedy, not a cause of action in and of itself.
3. The Court observed that Congress created two express private rights of action elsewhere in the 1940 Act—for breach of fiduciary duty by investment advisers and for recovery of certain short-term profits. The existence of these express provisions demonstrates that when Congress wants to provide a private remedy, it does so expressly.
4. Saba relied heavily on the Court’s 1979 decision in Transamerica Mortgage Advisors, Inc. v. Lewis (“TAMA”), which found an implied right of action in a comparable “shall be void” provision of the Investment Advisers Act of 1940 (“Advisers Act”). However, the Court noted that Congress amended Section 47(b) in 1980 to delete the “shall be void” language on which TAMA relied and replaced it with language focused on a court’s remedial authority. In contrast, Congress retained “shall be void” language in other related provisions, suggesting the change was intentional and substantive rather than merely clarifying.

The Court’s decision significantly narrows the ability of private parties (including activist investors) to bring implied private suits under the 1940 Act to challenge fund governance decisions. The decision also reinforces the principle that the SEC, as the 1940 Act’s primary enforcer, is the principal avenue for addressing alleged 1940 Act violations, and private enforcement must be grounded in an express statutory grant.

SEC PUBLISHES DRAFT STRATEGIC PLAN FOR FY 2026-2030

On June 2, the SEC published its Draft Strategic Plan (the “Draft Strategic Plan”) for Fiscal Years 2026-2030 and opened the plan for public comment through July 2, 2026. The Draft Strategic Plan provides a roadmap for the agency’s direction and the initiatives SEC Chairman Paul Atkins intends to advance.

The Draft Strategic Plan indicates that the SEC is focusing on three primary goals as part of its strategy over the next four years:

• Goal 1: Modernize regulation. The SEC plans to update its regulatory approach to better support innovation, capital formation, market efficiency, and investor protection, including by addressing digital assets, distributed ledger technology, and alternative trading platforms. In particular, the Draft Strategic Plan emphasizes easier access to public and private capital markets, modernized early-stage fundraising rules, streamlined disclosure, updated shelf registration, and improvements to Regulation A for smaller issuers.
• Goal 2: Change regulatory practices. The SEC plans to increase engagement with stakeholders, make compliance easier for market participants, and shift enforcement back toward clear violations of established law, especially fraud and manipulation. The Draft Strategic Plan specifically identifies possible retrospective review of rules involving foreign private issuers, quarterly and private fund reporting, executive compensation, alternative trading systems, and market structure.
• Goal 3: Improve internal operations. The SEC plans to reorganize, modernize technology, improve performance management, and use internal reporting to track accountability, resource use, and program success.

The Draft Strategic Plan indicates that the SEC seeks to regulate in a way that is more innovation-friendly, more predictable for market participants, more focused on fraud and manipulation, and more efficient internally.

Compared with the strategic plan adopted under former Chairman Gary Gensler for Fiscal Years 2022-2026, the Draft Strategic Plan retains the same mission statement, and both plans emphasize technology, data, and the need to keep pace with changing markets. Under SEC Chairman Paul Atkins’ Draft Strategic Plan, however, the order of priorities has shifted. For instance, the SEC’s plan for Fiscal Years 2022-2026 emphasized keeping pace with emerging risks through enforcement measures. By contrast, the Draft Strategic Plan states that enforcement should focus on established legal violations and should not be used as a substitute for policymaking. Accordingly, the plan signals a likely push toward clearer, more formal rules rather than regulation primarily through enforcement.

Going forward, market participants should watch for the final Strategic Plan, along with any additional SEC rulemaking or guidance, to evaluate how these activities correspond with the SEC’s stated strategic priorities in the draft Strategic Plan.

SEC RESCINDS POLICY REGARDING DENIALS OF SETTLEMENTS IN ENFORCEMENT ACTIONS

Historically, pursuant to Rule 202.5(e) of the SEC’s informal rules of procedure, defendants or respondents settling enforcement actions were required to agree not to publicly deny the allegations made in an SEC complaint or administrative order. On May 18, the SEC rescinded this informal rule. As a result, defendants settling SEC enforcement actions are no longer required to comply with no-deny restrictions as a condition of settlement. Such defendants will now be able to freely comment on and contest such allegations made in enforcement actions.

The SEC gave four reasons for the rescission of the informal rule:

1. The Commission noted that it is not aware of any instance in which an action was reopened following a violation of the no-deny provision.
2. Given the prevalence of social media, implementation of the rule has become more difficult and the line between public and private statements has become less clear.
3. Rescinding this rule aligns the SEC with the majority of federal agencies that do not have a similar rule.
4. Rescinding the rule gives the Commission additional flexibility in settling enforcement actions. The SEC noted that the rule will no longer “preclude settlements with defendants who do not wish to waive their rights by signing a no-deny provision that imposes a contractual obligation regarding denials that continues into the future beyond the time of settlement.”

Going forward, the SEC has stated that it will no longer enforce no-deny restrictions that have previously been agreed to in settlements.

UPCOMING CONFERENCES

*Host Organization Key: Mutual Fund Directors Forum (“MFDF”), Independent Directors Council (“IDC”), and Investment Company Institute (“ICI”)

© 2026, Davis Graham & Stubbs LLP. All rights reserved. This newsletter does not constitute legal advice. The views expressed in this newsletter are the views of the authors and not necessarily the views of the firm. Please consult with your legal counsel for specific advice and/or information.