Supreme Court signals on SEC power
- The U.S. Supreme Court showed little appetite for broadly restricting the SEC’s disgorgement authority during recent arguments. - Legal analysts expect a nuanced decision about whether the SEC must prove investor harm to recoup illegal profits. - The likely maintenance of SEC tools reinforces the need for robust disclosure controls, documentation, and remediation evidence in finance functions (insurancejournal.com).
The Supreme Court signaled on April 20 that it is unlikely to broadly cut the Securities and Exchange Commission’s power to force wrongdoers to give up illegal profits. (scotusblog.com) The case is *Sripetch v. Securities and Exchange Commission*, argued April 20, 2026. The justices are weighing whether the agency must prove investors suffered financial harm before it can seek “disgorgement,” a remedy that strips profits from unlawful conduct. (law.cornell.edu) At argument, several justices treated the core question as a narrow one, not a referendum on whether disgorgement exists at all. Justice Ketanji Brown Jackson and Justice Amy Coney Barrett both pressed on why taking only “ill-gotten gains” should count as a punishment. (scotusblog.com) The dispute comes from a California enforcement case against Ongkaruck Sripetch, who pleaded guilty to selling unregistered securities. Lower courts ordered him to pay back about $6 million in profits, even though customer losses were difficult to pin down. (scotusblog.com) Disgorgement is the legal version of making someone hand back money they were not entitled to keep. In securities cases, the Securities and Exchange Commission uses it to recover gains from fraud, registration violations, insider trading, and other misconduct. (law.cornell.edu) This fight sits on top of two earlier Supreme Court rulings that already narrowed the tool. In *Kokesh v. SEC* in 2017, the court said disgorgement counts as a penalty for the five-year statute of limitations, and in *Liu v. SEC* in 2020, it said awards generally must be limited to net profits and aimed at victims. (supremecourt.gov 1) (supremecourt.gov 2) Congress responded after *Liu*. In late 2020, lawmakers added 15 U.S.C. § 78u(d)(7), which expressly authorizes the Securities and Exchange Commission to seek “disgorgement,” leaving courts to sort out how much of *Liu* still controls that newer text. (law.cornell.edu) The justices took this case because federal appeals courts split on the investor-harm question. The Ninth Circuit and First Circuit said the agency need not prove pecuniary harm first, while the Second Circuit took the opposite view. (bakerbotts.com) The stakes reach beyond one defendant because some securities violations produce obvious gains for the seller but diffuse or hard-to-measure losses for investors. Bloomberg Law reported the Securities and Exchange Commission obtained more than $6 billion in disgorgement orders in fiscal 2024 and nearly $11 billion in fiscal 2025. (news.bloomberglaw.com) Critics, including the Cato Institute, say the agency can turn disgorgement into an open-ended penalty when victim losses are unclear. Supporters, including former Securities and Exchange Commission adviser Corey Frayer, say removing the tool would let securities violators keep profits and weaken deterrence. (insurancejournal.com) A decision is expected by the end of the court’s current term, likely by late June 2026. If the argument is a guide, the ruling may preserve disgorgement while spelling out narrower limits on when and how the Securities and Exchange Commission can use it. (law.cornell.edu) (scotusblog.com)
