Supreme Court and SEC

The Supreme Court looked likely on April 20 to preserve a key Securities and Exchange Commission power: forcing defendants to give up profits tied to securities-law violations. (usnews.com) The case is *Sripetch v. Securities and Exchange Commission*, argued Monday in Washington, and it asks whether the agency must prove investors suffered financial harm before a court can order disgorgement. Chief Justice John Roberts opened arguments shortly after 10 a.m. in Case No. 25-466. (supremecourt.gov) Disgorgement is the money a defendant is ordered to surrender after allegedly unlawful gains; it is separate from a civil penalty, which is meant to punish. Petitioner Ongkaruck Sripetch told the justices that the Securities Exchange Act does not let the agency seek disgorgement “without showing an investor suffered economic harm.” (supremecourt.gov) The justices’ questions suggested more comfort with keeping the remedy than with wiping it out. Reuters reported that several justices appeared receptive to the government’s position while still pressing the agency on whether the money must be tied to identifiable victims and where recovered funds ultimately go. (usnews.com) (law.com) That question matters because the Supreme Court has already narrowed the remedy twice in the last decade. In *Kokesh v. SEC* in 2017, the court held disgorgement counts as a “penalty” for the five-year statute of limitations, and in *Liu v. SEC* in 2020, it said disgorgement is allowed only when it does not exceed net profits and is awarded for victims. (supremecourt.gov 1) (supremecourt.gov 2) Congress then amended the securities laws in 2021 to expressly authorize the Securities and Exchange Commission to seek disgorgement, but courts split on what that authorization requires. The Ninth Circuit, whose ruling is under review here, said the agency did not have to prove pecuniary harm to investors, while the Second Circuit has taken the opposite view. (law.cornell.edu) (venable.com) The stakes are practical as well as legal. The Securities and Exchange Commission said its fiscal 2024 enforcement actions produced $8.2 billion in financial remedies, including $6.1 billion in disgorgement and prejudgment interest and $2.1 billion in civil penalties. (sec.gov) A ruling that requires proof of investor loss would hit cases where victims are hard to identify or losses are difficult to measure, including some insider-trading, recordkeeping, and reporting cases. A ruling for the agency would leave disgorgement in place but still allow the court to draw a tighter line around how the money is calculated and distributed. (bloomberglaw.com) (akingump.com) The court usually finishes argued cases by late June, so the next marker is the opinion, not another hearing. When it arrives, the decision will show whether the justices see disgorgement mainly as compensation for victims, or as a broader tool for stripping unlawful gains from the market. (supremecourt.gov) (scotusblog.com)