U.S. Supreme Court Ruling in Sripetch v. SEC on Disgorgement Authority

Overview of the Decision

On June 4, 2026, the U.S. Supreme Court issued a unanimous decision in Sripetch v. Securities and Exchange Commission, ruling that the Securities and Exchange Commission (SEC) is not required to prove that investors suffered actual financial loss to obtain a disgorgement award in civil enforcement actions. Authored by Justice Neil Gorsuch, the opinion resolves an ongoing circuit split regarding the scope of the agency's enforcement powers:

  • The Second Circuit had previously ruled in SEC v. Govil that the SEC could only pursue disgorgement if it demonstrated that victims suffered quantifiable pecuniary harm.
  • The First and Ninth Circuits had concluded that proof of financial loss was unnecessary, a position the Supreme Court has now affirmed.

Factual Background and Case History

The underlying dispute originated when the SEC filed a civil enforcement action against Ongkaruck Sripetch and fourteen co-defendants, alleging securities fraud and the sale of unregistered securities stemming from fraudulent penny-stock operations, including "pump and dump" market manipulation schemes. Sripetch initially consented to the entry of judgment and agreed that the court could order disgorgement of ill-gotten gains.

However, when the Commission subsequently sought over $4.1 million in disgorgement, Sripetch objected, arguing under the Supreme Court's 2020 precedent in Liu v. SEC that disgorgement is an equitable remedy that requires identifying victims who experienced measurable pecuniary losses. The district court rejected this limitation and ordered disgorgement of more than $3 million, a ruling the Ninth Circuit and ultimately the Supreme Court affirmed.

Core Legal Principles

Grounding its analysis in longstanding principles of equity and the statutory provisions of the Securities Exchange Act of 1934, the Supreme Court emphasized the following key legal realities:

  • Focus on the Wrongdoer: Traditional equitable principles permit courts to deprive wrongdoers of their net profits to prevent unjust enrichment without requiring proof that victims suffered pecuniary loss.
  • Disgorgement vs. Private Claims: Unlike private securities-fraud litigation, which mandates a preliminary showing of economic loss under the statute, an equitable claim for disgorgement is measured by the defendant's illicit gains rather than the victim's losses.
  • Clarification of Liu: The Court explained that Liu's statement that disgorgement should be "awarded for victims" did not require proof that those victims sustained measurable pecuniary loss.


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Considerations for Compliance Officers

This ruling has significant practical implications for legal, regulatory, and compliance professionals evaluating organizational exposure and defense strategies:

  • Elimination of "No-Harm" Defenses: The decision forecloses an effective defense previously available within the Second Circuit, where respondents could argue that the absence of provable investor pecuniary loss, standing alone, bars disgorgement.
  • Expanded Enforcement Reach: The decision confirms that the SEC may continue seeking disgorgement in appropriate enforcement actions even where investor losses cannot be quantified or are absent, provided the remedy otherwise satisfies the statutory and equitable limitations recognized in prior cases. The Court emphasized that its decision does not disturb the equitable limitations recognized in Liu, including the requirement that disgorgement generally be limited to a defendant's net profits rather than operate as a punitive sanction.
  • Critical Importance of Net Profit Accounting: Because an award is calculated based on the defendant's net gain, accounting assessments performed at the outset of an internal or regulatory investigation remain critical in determining the scope of potential disgorgement liability.

Open Statutory and Constitutional Questions

While the decision preserves a core enforcement tool for the SEC, the Court explicitly left several legal questions open for future litigation:

  • The Treasury Problem: The Court expressly declined to decide whether disgorgement that cannot practicably be returned to investors and instead is paid to the Treasury remains equitable relief under the Exchange Act, or whether it functions as a statutory penalty.
  • Jury-Trial Rights: A separate concurring opinion by Justice Clarence Thomas suggested that statutory disgorgement may have evolved into a legal remedy rather than an equitable one, a distinction that could entitle future defendants to Seventh Amendment jury-trial rights and invite further challenges to the Commission's procedures.

Disclaimer: This article does not constitute legal advice. Readers should seek legal or tax advice from their professional advisers regarding their specific regulatory and legal obligations.

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