SEC enforcement newsletter: Q3 2026

In the third quarter of 2026, the SEC’s enforcement program came into sharper focus in two respects. The Division of Enforcement (the Division) announced it was establishing a specialized unit devoted to financial reporting and accounting, and the Supreme Court declined to narrow the agency’s most consequential monetary remedy. This edition examines both developments – the new Financial Reporting and Accounting Unit and the Supreme Court’s decision in Sripetch v. SEC – and offers practical guidance for public companies, audit committees, and parties facing enforcement exposure.

A dedicated Financial Reporting and Accounting Unit

On August 5, 2026, the SEC announced the creation of a Financial Reporting and Accounting Unit within the Division, dedicated to accounting and financial reporting fraud and to misconduct in the accounting and auditing professions more generally. The unit will be staffed by both attorneys and accountants with specialized skills in financial reporting, accounting, and auditing, and will coordinate with staff across other divisions and offices. Enforcement Director David Woodcock framed it as an expansion of the Division’s efforts to “crack down on bad actors in the accounting and auditing profession.”

The unit will be led by Timothy Zimmerman, who joined the Division in May 2026 as a senior advisor to the director after 12 years at an international law firm and a stint as deputy general counsel at an international accounting and professional services firm. He reports to Principal Deputy Director Osman Nawaz, who oversees the Division’s specialized units. The structure reflects Woodcock’s own history: He began his career as an auditor and, during his earlier tenure at the Commission, created and chaired the Financial Reporting and Audit Task Force, the 2013 predecessor to this new unit. In his first remarks as director in May 2026, Woodcock placed financial reporting alongside offering fraud and private funds at the top of the Division’s agenda.

The announcement is a deliberate countersignal to the lower number of accounting and auditing enforcement actions in 2025. Public companies should no longer assume that lower aggregate filing numbers mean lower accounting risk; the more likely reading is that the Commission intends to occupy the ground that the Public Company Accounting Oversight Board and the Department of Justice have stepped back from, with fewer but more substantial cases.

Three categories of weakness are the most likely to draw the unit’s attention:

• Judgment-driven accounting. Revenue recognition – cut-off, bill-and-hold arrangements, channel stuffing, principal-versus-agent analysis, and variable consideration – together with reserves, impairments, and other period-end estimates that move reported results.
• Non-GAAP measures and KPIs. Adjusted EBITDA, adjusted EPS, core growth metrics, and operating statistics sit outside the audit and, in many companies, outside any formal control. Selective presentation, inconsistent period-to-period definitions, and undisclosed adjustments remain recurring charging theories.
• Controls and independence. Books-and-records and internal accounting controls charges require no-fraud finding and are the Division’s default tool where the accounting is aggressive but scienter is hard to prove. Auditor independence – non-audit services, fee arrangements, and employment relationships – is squarely within the unit’s mandate. 

Audit committees should treat the announcement as an occasion to refresh the basics before a staff inquiry arrives: the quality and contemporaneous documentation of management’s material accounting judgments, the SAB 99 materiality analysis supporting any revision or restatement decision under Item 4.02, the intake and escalation of internal accounting complaints, and the scope of controls over metrics that never reach the audited financial statements.

Sripetch v. SEC: The Supreme Court declines to narrow disgorgement

On June 4, 2026, a unanimous Court held in Sripetch v. SEC, No. 25-466, that the SEC need not prove investor pecuniary loss to obtain disgorgement under Exchange Act sections 21(d)(5) and 21(d)(7), resolving a split with the Second Circuit’s decision in SEC v. Govil, No. 22-1658 (2d Cir. 2023). Justice Gorsuch assumed without deciding that disgorgement remains equitable and subject to the limits set forth in Liu v. SEC, No. 18-52, 591 U.S. 71 (2020), and then held that equity has never required proof of loss: A victim is anyone whose legally protected interests were invaded, and the measure is the defendant’s gain. It again reserved whether disgorged funds may go to the Treasury when distribution is infeasible – the question that matters most in Foreign Corrupt Practices Act (FCPA) cases.

The effect is to remove an argument that carried real leverage in insider trading, offering fraud, manipulation, and FCPA cases where wronged investors are diffuse or unidentifiable. Expect the staff to anchor demands at the full measure of gain plus prejudgment interest. The remaining levers are computational: deduction of legitimate business expenses under Liu, tracing and causation, apportionment and joint-and-several liability, ability to pay, and the “legally protected interests” threshold that may bound disgorgement in regulatory and procedural cases.

Justice Thomas’s concurrence may prove more consequential. He would treat disgorgement under section 21(d)(7) as a legal remedy – pointing to a year in which the Commission obtained roughly $6.1 billion in orders and returned some $345 million to investors – which would carry a Seventh Amendment jury right. The circuits are already divided on the question (Hallam (5th Cir.) against Ahmed (2d Cir.)). That characterization would cut both ways, also freeing the SEC from the victim-distribution constraint; preserve the issue now.

Practical action items for in-house counsel and corporate leaders

These developments call for concrete steps in the near term:

• Pressure-test the judgment calls. Revisit revenue recognition, reserves, impairments, and other estimates that materially affect reported results, and confirm that the contemporaneous support for each judgment would read well to a skeptical reviewer two years from now.
• Extend controls to unaudited metrics. Bring non-GAAP measures and operating KPIs within the disclosure controls framework, confirm reconciliations and consistent definitions across periods, and document who reviews them before release. 
• Prepare the audit committee. Review complaint intake and escalation, the restatement and Item 4.02 decision protocol, and the auditor independence assessment – including non-audit services and fee arrangements – and confirm that the committee is positioned to direct an internal review if an accounting allegation surfaces. 
• Treat controls charges as stand-alone exposure. Internal accounting controls and books-and-records violations require no fraud finding and no restatement, and should be scoped as an independent risk in any accounting issue assessment. 
• Recalibrate remedies exposure. Retire the pecuniary loss defense from settlement modeling, build disgorgement estimates around net profits and prejudgment interest, and preserve Seventh Amendment and victim-distribution objections on the record in any contested matter.