SEC’s $3 Billion Enforcement Tool on Murky Path as Courts Split

Cemtrex Inc. founder Aron Govil, who settled charges he lied to shareholders, could save millions of dollars simply because securities regulators sued him in New York, rather than a place like Louisiana.

US appeals courts disagree about what the Securities and Exchange Commission needs to show to take back profits from alleged wrongdoers: Is it about the person making money from illegal activities, or investors losing money? A patchwork of different requirements is starting to develop, with courts in different parts of the country operating under different rules.

At stake is one of the SEC’s most potent tools for collecting ...