Supreme Court eyes disgorgement limits
- On April 20, the Supreme Court heard Sripetch v. SEC, a case testing whether the SEC can force wrongdoers to surrender profits without proving investor losses. - The dispute centers on a $2.25 million disgorgement order, and several justices sounded unconvinced that “for victims” means victims must show pecuniary harm. - A ruling by late June or July could preserve a core SEC remedy — or narrow it sharply in no-loss enforcement cases.
The fight here is about one of the SEC’s favorite tools — disgorgement, or forcing defendants to give up profits tied to securities violations. That matters because disgorgement is often how the agency gets real money out of enforcement cases, even when proving investor-by-investor losses would be messy or impossible. The unresolved gap is whether that remedy still counts as “equitable” when nobody can show direct financial harm. On April 20, the Supreme Court heard arguments in *Sripetch v. SEC*, and the justices seemed more open to preserving the SEC’s authority than to cutting it back hard. ### What is disgorgement, exactly? Disgorgement is not classic damages. The idea is simpler: if someone made money through unlawful conduct, a court can make that person hand over the net profits. The Supreme Court already narrowed that power once in *Liu v. SEC* in 2020, saying the award cannot exceed net profits and must be awarded “for victims.” The whole new case turns on what that last phrase really means. (supremecourt.gov) ### Why is this back at the Court? Because lower courts split after *Liu*. The Second Circuit, in *SEC v. Govil*, read “for victims” to mean the SEC must show investors suffered pecuniary harm before disgorgement is allowed. The Ninth Circuit went the other way in Sripetch’s case and said investors can still count as victims even without provable out-of-pocket loss. That split matters because the Second and Ninth Circuits are major venues for SEC enforcement. (supremecourt.gov) ### What happened in Sripetch’s case? The Ninth Circuit upheld a district court order requiring Ongkaruck Sripetch to disgorge $2,251,923.16 in net profits, plus prejudgment interest. Sripetch argued that the SEC never showed investors actually lost money, so disgorgement should have been off the table. That cleanly teed up the legal question the justices took: is investor loss a prerequisite, or not? (supremecourt.gov) ### Why did the justices seem skeptical? At argument, the pushback mostly landed on Sripetch’s attempt to turn “for victims” into a strict loss requirement. The basic problem for that theory is that disgorgement is about stripping gains, not measuring damages. Several recaps of the hearing describe the Court as unreceptive to the idea that every SEC disgorgement case needs a showing of pecuniary harm first. That does not guarantee an SEC win, but it does suggest the narrowest reading may not have five votes. (cdn.ca9.uscourts.gov) ### So is the SEC likely to win? Probably on the core question — but maybe not without caveats. The justices can reject a strict investor-harm rule while still reminding courts that disgorgement has limits: net profits only, real connection to victims, and no turning the remedy into a disguised penalty. Basically, the Court may preserve the tool while keeping it on a shorter leash. That would fit the Court’s pattern since *Kokesh* and *Liu*. (scotusblog.com) ### Why does Wall Street care? Because this is not some technical footnote. Disgorgement is a huge share of the SEC’s money remedies. One recent analysis pegged fiscal 2024 disgorgement plus prejudgment interest at more than $6 billion, roughly three-quarters of the agency’s total financial remedies. If the Court imposed a hard investor-loss test, plenty of cases would get harder to bring and cheaper to settle. (foley.com) ### What is the real catch? Even if the SEC wins, collecting money and returning money are different things. Some cases involve unlawful gains without a neat roster of harmed investors or a clean formula for distribution. So the practical question is not just whether disgorgement survives. It is how far courts let the SEC use it when harm is diffuse, indirect, or hard to quantify. (news.bloomberglaw.com) ### Bottom line? This case now looks less like a Supreme Court ambush of the SEC and more like another trimming exercise. The most likely outcome is not “disgorgement dies.” It is “disgorgement stays, but the Court keeps policing the edges.” A decision is expected by late June or July 2026. (foley.com) (news.bloomberglaw.com)
