The decision, written by Justice Gorsuch, affirms the Ninth Circuit and resolves a split among the Courts of Appeals over the reach of one of the agency’s most important enforcement tools.
The case arose from the SEC’s civil enforcement action against Ongkaruck Sripetch, who orchestrated numerous fraudulent schemes involving at least twenty penny-stock companies, including classic “pump and dump” operations. Sripetch consented to judgment and agreed that the court could order disgorgement, but he objected when the Commission sought more than $4.1 million. Relying on Liu v. SEC, 591 U.S. 71 (2020), he argued that because the SEC lacked evidence his schemes caused investors any financial loss, there were no “victims” for whom disgorgement could be awarded.
The Court disagreed. Drawing on traditional equitable principles, it explained that a remedy designed to deprive wrongdoers of their net profits is measured by the defendant’s gain, not the plaintiff’s loss. As the Court put it, a party whose legally protected interests have been invaded may recover the wrongdoer’s unjust gains even where he has suffered “no measurable loss whatsoever.” The Court rejected the contention that Liu required any showing of pecuniary harm, reasoning that nothing in that decision or in equity practice imposes such a condition before a person qualifies as a “victim” entitled to the wrongdoer’s profits. The Court did, however, leave for another day the question of whether the SEC may use the disgorgement remedy to collect funds for the Treasury rather than to compensate investors, noting that such a practice could push the remedy beyond the bounds of equity.
That open question is the focus of Justice Thomas’s concurrence, which signals where the next fight is likely to occur. In his view, Congress’s 2021 addition of Section 78u(d)(7), which expressly enumerated disgorgement as a remedy and gave it its own limitations period separate from the statute’s provision for equitable relief, transformed disgorgement into a legal remedy rather than an equitable one. If that view prevails in a future case, the consequence would be significant: under the Court’s 2024 decision in SEC v. Jarkesy, 603 U.S. 109, a defendant facing a legal remedy is entitled to a jury trial under the Seventh Amendment.
For now, Sripetch confirms that the SEC’s authority to seek disgorgement remains broad and does not turn on proof of investor losses. Going forward, parties defending against SEC enforcement actions should watch closely for the constitutional question Justice Thomas flagged, as well as for renewed scrutiny of how the Commission distributes the funds it collects. We will continue to monitor these developments and their implications for clients facing securities enforcement matters.
