The SEC’s disgorgement actions took back $10.8 billion from defendants last year. Now, the US Supreme Court has shored up the commission’s power of disgorgement. Ferdose al-Taie, Lindsay E. Ray and J. Tyler Wampler of Baker Donelson explore the history of the commission’s disgorgement powers and what the ruling means going forward.
In a unanimous decision June 4, the US Supreme Court ruled that the SEC may obtain disgorgement in enforcement actions without needing to prove investors suffered pecuniary loss.
Writing for the court, Justice Neil Gorsuch affirmed the 9th US Circuit Court of Appeal’s opinion that the SEC was not required to prove pecuniary harm to investors before seeking disgorgement from Sripetch, which had previously pleaded guilty to selling unregistered securities and operating fraudulent “pump and dump” schemes. The court also resolved a circuit split between the 1st and 9th circuits, on the one hand — which had held that the SEC may obtain disgorgement without proving investors have suffered pecuniary loss — and the 2nd Circuit, on the other hand — which had held the opposite. Notably, Justice Clarence Thomas filed a concurring opinion, raising the separate question of whether disgorgement under Title 15 of the US code is now a legal remedy that triggers the Seventh Amendment right to a jury trial.
Ultimately, the Sripetch decision has strong implications for defendants to SEC enforcement actions, as it eliminates a meaningful defense previously available within the 2nd Circuit and bolsters the SEC’s power to claw back ill-gotten gains through disgorgement. Defendants to enforcement actions cannot presume that they will avoid disgorgement merely because it cannot be shown that their conduct harmed a victim. The focus is now squarely on their gains from any misconduct proven or pleaded to.
Defendants should, therefore, focus their strategies on challenging the SEC’s calculation of the defendant’s net profits, the causal connection between the violation and the gains sought to be disgorged and whether the SEC has a plan to distribute any disgorgement to victims rather than retain it for the Treasury. The Seventh Amendment jury-trial argument articulated in Thomas’ concurrence should also be preserved in cases where disgorgement is sought.
The SEC’s evolving disgorgement authority
The SEC’s disgorgement powers have developed in stages over several decades. When Congress created the SEC in the 1930s, it did not authorize the commission to seek monetary awards for violations of federal securities laws; the only statutory remedy the SEC could pursue was a judicial injunction barring future violations. Beginning in the 1970s, however, the SEC persuaded lower courts to order those who had violated federal securities laws to disgorge their unlawfully earned gains as an exercise of the courts’ inherent equity power to grant relief ancillary to an injunction. Over time, the SEC began routinely seeking disgorgement awards that went beyond compensating victims by sending disgorged funds to the US Treasury, and the sums disgorged often exceeded the profits a defendant had in fact gained from the violation.
In Liu v. SEC, 591 U.S. 71 (2020), the Supreme Court held that the SEC’s authority to seek “any equitable relief that may be appropriate or necessary for the benefit of investors” under Title 15 encompassed disgorgement but only if the remedy adhered to traditional equitable principles. The court aimed to curb the kind of disgorgement that the SEC had frequently pursued in lower courts. Specifically, Liu imposed two key limitations on the disgorgement remedy: first, that any remedy must be limited to the defendant’s net profits causally tied to the violation; and second, that disgorgement must be “awarded for victims.”
Six months after Liu, Congress amended the Securities Exchange Act by adding a new section, which expressly authorizes the SEC to seek disgorgement in enforcement proceedings of “any unjust enrichment” a defendant received as a result of their securities-law violation. The Sripetch case was the first time since its passage that the Supreme Court evaluated the disgorgement powers under the new statute.
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Read moreDetailsSripetch and the circuit split
Ongkaruck Sripetch engaged in numerous fraudulent schemes involving at least 20 penny-stock companies, including “pump and dump” operations. In 2020, the SEC brought an enforcement action against Sripetch, charging him with six counts of securities fraud and one count of selling unregistered securities. Sripetch consented to the entry of judgment and agreed to disgorgement. However, in 2024, Sripetch objected when the SEC sought a $4.1 million disgorgement amount, arguing that the SEC’s request violated Liu because the commission lacked evidence that his schemes caused investors to suffer any financial losses. The district court rejected this argument, finding that the SEC had done enough to show that investors had suffered pecuniary loss, though the district court did not decide whether such a showing was required in the first place.
On appeal, the 9th Circuit held that “a finding of pecuniary harm is not required” before a court orders disgorgement, reasoning that, under common-law principles, a claimant seeking disgorgement need only show “an actionable interference by the defendant with the claimant’s legally protected interests.” The 9th Circuit’s decision deepened a split among the circuit courts: while the 1st and 9th circuits held that the SEC may obtain disgorgement without proving pecuniary loss, the 2nd Circuit had taken the opposite view in SEC v. Govil, 86 F.4th 89 (2d Cir. 2023).
Damages vs. disgorgement
In the Sripetch decision, the Supreme Court unanimously held that “a showing of pecuniary loss to investors is not required before the SEC may obtain a disgorgement award.” The court distinguished between the legal remedy of damages, which is measured by the plaintiff’s loss, and the equitable remedy of disgorgement, which is measured by the defendant’s gain attributable to wrongdoing against the plaintiff. Under traditional equitable principles, a victim seeking disgorgement “does not need to prove he has ‘suffered a corresponding loss or, indeed, any loss.'” Rather, when a victim “has suffered an interference with protected interests,” he may be entitled to “restitution of [the defendant’s] wrongful gain” even when he has no measurable loss whatsoever.
The point of the remedy is for the defendant to give to the plaintiff the amount by which he has been enriched from the wrongful invasion of the plaintiff’s legally protected interests, not to compensate the plaintiff for a financial loss. The court illustrated this principle through common-law cases, including Raven Red Ash Coal Co. v. Ball, 185 Va. 534 (1946) (ordering disgorgement of profits from unauthorized easement use despite plaintiff only being inconvenienced by the violation), Edwards v. Lee’s Adm’r, 265 Ky. 418 (1936) (requiring cave exhibitor to turn over one-third of tourist profits to neighboring landowner despite no financial harm) and Olwell v. Nye & Nissen Co., 26 Wash. 2d 282 (1946) (ordering payment of profits from unauthorized use of an egg-washing machine that did not harm plaintiff).
The court further rejected Sripetch’s contention that Liu had already announced a rule requiring proof of pecuniary loss. While Liu held that disgorgement must be awarded for victims, it drew this requirement from traditional equitable principles that have never demanded a showing of pecuniary loss before a person qualifies as a “victim.” The court also rejected the argument that its holding was inconsistent with Liu’s description of disgorgement as a remedy designed to restore the status quo. In some instances, a defendant can unjustly enrich himself even without leaving a plaintiff worse off financially. In those cases, equity prefers stripping a defendant of his unjust gains rather than allowing him to benefit from misconduct.
Thomas concurred, urging the court in the future to address whether disgorgement is a legal remedy that requires a jury trial. In his view, Congress’s decision to enumerate disgorgement separately from “equitable relief” and to impose a distinct statute of limitations for disgorgement actions strongly suggests that disgorgement is now a legal remedy. Thomas also noted that, in 2024, the SEC obtained orders to disgorge $6.1 billion while returning only $345 million to victims, a practice he characterized as “difficult to see … as anything other than a fines regime.”
Reaffirmation of SEC disgorgement powers
Sripetch is a significant win for the SEC’s profitable enforcement program. The decision preserves disgorgement as a potent enforcement remedy, eliminates the “no harm, no remedy” defense in enforcement actions and resolves the circuit split in the SEC’s favor. Enforcement defendants outside of the 1st and 9th circuits can no longer defeat disgorgement actions simply by demonstrating a lack of proof that investors lost money. Instead, the SEC need only establish that the defendant interfered with investors’ legally protected interests, a lower threshold than proving pecuniary harm.
Disgorgement remains a central feature of the SEC’s enforcement strategy. Last year, of the $18 billion obtained by the SEC in orders for monetary relief, $10.8 billion was composed of disgorged funds and prejudgment interest. The availability of a disgorgement remedy in cases without provable financial losses ensures that the SEC can continue to pursue disgorgement in cases where investor financial harm may be difficult to quantify.
Ferdose al-Taie
Lindsay E. Ray
J. Tyler Wampler
