The Supreme Court has resolved a lower-court split by holding that the SEC need not prove pecuniary loss to investors before obtaining disgorgement. In Sripetch v. SEC, No. 25-466, the Court clarified that the United States Securities and Exchange Commission (“SEC”) can obtain a court order requiring a defendant to disgorge ill-gotten gains even if investors did not lose money from the defendant’s conduct. This ruling clarifies that the SEC has broad authority to seek disgorgement, which far exceeds what investors could recover through private litigation. This is a stark warning to investment advisers, broker-dealers, and other securities industry participants that there is more at stake in an SEC investigation than meets the eye.
The case arose from the SEC’s civil enforcement action against Ongkaruck Sripetch for a “pump and dump” penny-stock scheme. The SEC sought disgorgement of more than $4.1 million in profits from the alleged scheme. Mr. Sripetch objected, arguing that the SEC could not obtain disgorgement because it did not prove that any investors suffered financial losses. The Ninth Circuit rejected that argument. The Supreme Court affirmed.
Writing for a unanimous Court, Justice Gorsuch began with two Exchange Act provisions. Congress enacted 15 U.S.C. §78u(d)(5) in 2002, allowing the SEC to seek “any equitable relief that may be appropriate or necessary for the benefit of investors.” The Court previously held in Liu v. SEC, 591 U.S. 71 (2020), that 15 U.S.C. § 78u(d)(5), permits disgorgement so long as the remedy adheres to “traditional equitable principles.” After Liu, Congress enacted 15 U.S.C. §78u(d)(7), which expressly allows the SEC to seek disgorgement in enforcement proceedings and permits recovery of “any unjust enrichment” a defendant “received as a result of” his securities-law violation. The Court assumed, without deciding, that disgorgement under §78u(d)(7) remains an equitable remedy subject to traditional equitable principles, including the rule that disgorgement must be awarded for victims.
The Court ultimately concluded that disgorgement of ill-gotten gains is the functional equivalent of the equitable remedy of restitution, which requires a wrongdoer to give up profits from improper activity. It also held that a person need not suffer financial harm to be a “victim” for disgorgement purposes. It drew a critical distinction: While damages represent the plaintiff’s loss, disgorgement represents the defendant’s gain. So under traditional equitable principles, a victim seeking disgorgement need not prove a “corresponding loss or, indeed, any loss.” The victim must show only that the defendant interfered with the victim’s “legally protected interests.” The Court cited a long line of cases ordering defendants to disgorge profits even where plaintiffs suffered no measurable financial harm.
Justice Thomas filed a concurring opinion joining the majority’s holding but raising a broader concern. He argued that Congress’s 2021 amendments to the Exchange Act – which separately listed disgorgement in §78u(d)(7), apart from equitable relief in §78u(d)(5) – mean courts should now treat disgorgement as a legal remedy, not an equitable one. If a future Court accepts that view, the Seventh Amendment would require a jury trial whenever the SEC seeks disgorgement, much as the Court held in SEC v. Jarkesy, 603 U.S. 109 (2024), with respect to civil penalties.[1]
The Sripetch decision resolved a split among the federal courts of appeals. The First and Ninth Circuits had held that the SEC could obtain disgorgement without proving pecuniary loss. But the Second Circuit, in SEC v. Govil, 86 F.4th 89 (2d Cir. 2023), took the opposite view – holding that an investor who suffered no pecuniary harm is not a “victim” for disgorgement purposes. Sripetch abrogates Govil and settles the issue in favor of the First and Ninth Circuits, and the SEC.
This is a victory for the SEC, by confirming that it has broad disgorgement power that exceeds what private parties can recover through private litigation. The SEC can now seek disgorgement based solely on a defendant’s unlawful gains, regardless of whether investors lost money. This will make it substantially easier for the SEC to obtain disgorgement in enforcement actions and will likely embolden the Commission to pursue cases where investor losses are difficult to quantify (or nonexistent). The SEC’s broad disgorgement power will serve as a major deterrent against wrongdoing, particularly in market manipulation and insider trading cases, where identifying an investor with losses can be difficult and the harm affects market integrity as a whole.
Sripetch is also a win for victims of financial fraud who are considering the SEC’s whistleblower program. The SEC will pay an award to an eligible whistleblower who voluntarily provides the SEC with original information that leads to the successful enforcement by the SEC of a federal-court or administration action in which the SEC obtains “monetary sanctions” totaling more than $1 million.[2] Because SEC disgorgement counts toward the $1 million “monetary sanctions” threshold,[3] Sripetch makes the threshold easier to satisfy in the Second Circuit, which previously required proof of investors’ pecuniary loss. In short, Sripetch increases the likelihood that whistleblowers will receive awards for reporting securities violations that lead to successful SEC enforcement actions.
At the same time, Sripetch is a loss and a warning for investment advisers, broker-dealers, and securities professionals that they can face severe financial disgorgement – even where investors suffer no losses. This means industry participants must recognize that SEC investigations carry a far greater financial risk than the total investor losses. After Sripetch, an SEC investigation can make or break your business – even if investors did well.
Sadis & Goldberg specializes in SEC enforcement actions and related civil litigation. If you have any questions about the Sripetch decision, an SEC enforcement action, the SEC whistleblower program, or any related issue, please contact Douglas Hirsch (dhirsch@sadis.com), Sam Lieberman (slieberman@sadis.com), Frank Restagno (frestagno@sadis.com), or James Ancone (jancone@sadis.com).