In the United States Court of Appeals FOR THE SECOND CIRCUIT

AUGUST TERM 2022 No. 22-1658

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,

v.

ARON GOVIL, Defendant-Appellant.

On Appeal from the United States District Court for the Southern District of New York

ARGUED: JUNE 5, 2023 DECIDED: OCTOBER 31, 2023

Before: CHIN 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. 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.

2 KERRY J. DINGLE, Senior Appellate Counsel (Michael A. Conley, Solicitor, on the brief), Securities and Exchange Commission, Washington, DC, for Plaintiff-Appellee.

MATTHEW AARON FORD (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 broadl