Supreme Court leans toward SEC power

The Supreme Court signaled on April 20 that it is likely to preserve the Securities and Exchange Commission’s power to force defendants to give up illegal profits. (supremecourt.gov) The case is *Sripetch v. SEC*, argued Monday in Washington, and it asks whether the agency must prove investors lost money before a judge can order disgorgement. Ongkaruck Sripetch was ordered in California to pay about $2.25 million in disgorgement and more than $1 million in interest after a Securities and Exchange Commission fraud case. (oyez.org) (supremecourt.gov) Disgorgement is a profit-stripping remedy: the government asks a court to make a defendant surrender money gained through unlawful conduct. During the argument, several justices questioned why taking away “ill-gotten gains” should count as punishment if the defendant never had a right to the money. (usnews.com) (supremecourt.gov) Justice Amy Coney Barrett pressed Sripetch’s lawyer, Daniel Geyser, on that point, asking why the remedy looks punitive if it only recovers proceeds “the wrongdoer isn’t entitled to in the first place.” Justice Sonia Sotomayor also challenged the defense theory, asking why the government should have to “call every victim” and “prove every dollar of loss” before seeking disgorgement. (usnews.com) The fight is really about how much of the Securities and Exchange Commission’s enforcement toolkit survived two recent legal changes. In 2020, the Supreme Court said in *Liu v. SEC* that disgorgement could fit within “equitable relief” if it stayed within net profits and was awarded for victims; later that year, Congress added a separate statute expressly authorizing “disgorgement” for unjust enrichment. (venable.com) (oyez.org) Sripetch argues Congress used the word against the backdrop of *Liu*, so the agency still must tie the remedy to investor harm. The government says the newer statute, Section 78u(d)(7), authorizes disgorgement without that extra showing. (supremecourt.gov) (venable.com) The case reached the justices because federal appeals courts split. The Ninth Circuit backed the Securities and Exchange Commission’s broader view, while the Second Circuit had required proof that investors suffered pecuniary harm. (oyez.org) (venable.com) That dispute matters beyond classic insider-trading or pump-and-dump cases. The agency often seeks disgorgement in civil suits over disclosure failures, accounting problems, and internal-controls violations where tracing a specific investor loss can be difficult even when the government says a defendant profited. (sec.gov 1) (sec.gov 2) The underlying facts in *Sripetch* involve microcap stock schemes from 2013 to 2019, including stock scalping, unregistered sales, matched trades, wash trades, and pump-and-dump promotions in at least 20 penny-stock companies. In 2020, the Securities and Exchange Commission sued, and in 2023 Sripetch consented to a bifurcated judgment that accepted the agency’s allegations for purposes of remedies. (oyez.org) A decision is expected by late June or early July, and the argument suggested the court is not eager to add a new proof requirement before the Securities and Exchange Commission can claw back unlawful gains. (supremecourt.gov) (usnews.com)