{"id":149,"date":"2026-06-05T14:16:19","date_gmt":"2026-06-05T14:16:19","guid":{"rendered":"https:\/\/americanservicereview.com\/?p=149"},"modified":"2026-06-05T14:16:19","modified_gmt":"2026-06-05T14:16:19","slug":"justices-validate-secs-use-of-disgorgement-in-securities-enforcement","status":"publish","type":"post","link":"https:\/\/americanservicereview.com\/?p=149","title":{"rendered":"Justices validate SEC\u2019s use of disgorgement in securities enforcement"},"content":{"rendered":"
\n

Thursday morning brought the first three decisions from the April argument session, with two of the three being unanimous. The first of those was Sripetch v SEC<\/em>, which did just what the argument suggested it would, validate the SEC\u2019s ability to use \u201cdisgorgement\u201d to force a wrongdoer to turn over its profits to the government without showing harm caused to the wrongdoer\u2019s customers.<\/p>\n

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Sripetch<\/em> is a case for which context is crucial, as the case is the third in a closely related series of disputes considering the SEC\u2019s use of disgorgement. This led Justice Neil Gorsuch, writing for a unanimous court, to start his with a lengthy summary of that context. As he sees it, \u201c[t]he SEC\u2019s disgorgement powers have a long and nuanced history.\u201d The first steps toward the modern usage of those powers, in his recitation, began \u201cin the 1970\u2019s, [when] the SEC persuaded lower courts to order those who had violated federal securities laws to disgorge their unlawfully earned gains\u201d not under any particular statute, but rather \u201cas an exercise of the courts\u2019 inherent equity power to grant relief.\u201d<\/p>\n

That was not problematic when the remedy was limited to providing \u201c\u2018restitution\u2019 to victims,\u201d but eventually \u201cthe SEC began routinely seeking and obtaining disgorgement awards that went \u2026 \u2018to the United States Treasury\u2019\u201d rather than the victims, and that, \u201coften \u2018exceeded the profits\u2019 the defendant had \u2018gained as a result of [the] violation.\u2019\u201d As Gorsuch recounts, the Supreme Court\u2019s decisions in Kokesh v. SEC<\/em> (in 2017) and Liu v. SEC<\/em> (in 2020) reined in those practices. Although Kokesh<\/em> involved a relatively narrow procedural matter, Liu<\/em> sharply constrained the SEC\u2019s use of disgorgement. The Liu<\/em> court did, as Gorsuch acknowledges, accept the SEC\u2019s argument that a statute authorizing it to seek \u201cequitable relief\u201d \u201cencompass[es] a disgorgement remedy.\u201d But Liu<\/em> also imposed what Gorsuch describes as \u201csome key limitations on the disgorgement remedy.\u201d The first, as he summarizes it, held \u201cthat any remedy must be limited to the defendant\u2019s net profits (not total revenues) derived from his securities-law violations.\u201d The second \u201cconcluded that any amounts the SEC secures must be \u2018awarded for victims\u2019\u201d rather than the general federal Treasury.<\/p>\n

Against that backdrop, Gorsuch turned to this case, which involves what he describes as \u201cclassic \u2018pump and dump\u2019 operations in which \u2026 Sripetch \u2026 obtained shares of penny-stock companies, promoted the companies to others, watched the share price rise, and then promptly sold.\u201d In the lower courts, the litigation fell into a dispute whether it was enough for the SEC to prevail to quantify Sripetch\u2019s profits \u2013 so that it could recover those profits \u2013 or if it also had to demonstrate the specific \u201cpecuniary loss\u201d that particular investors incurred. As Gorsuch explains, \u201cthe parties spill much ink debating\u201d whether the current statute (amended since Liu<\/em>) codifies or removes the equitable constraints the court discerned in Liu<\/em>.<\/p>\n

Gorsuch concludes that \u201cwe need not resolve that dispute\u201d to decide Sripetch<\/em> because the remedy the SEC seeks conforms to those constraints.<\/em> As he sees it, the only question the court took this case was to resolve \u201cwhether the SEC must show that an investor suffered a pecuniary loss before it may secure a disgorgement remedy\u201d under the relevant statutes. On that question, Gorsuch explains, the justices \u201cconclude that a showing of pecuniary loss is not required.\u201d He explains that result by reference to \u201ctraditional equitable principles associated with disgorgement.\u201d Under those principles, \u201ccourts sitting in equity have long issued remedies designed to \u2018deprive wrongdoers of their net profits from unlawful activity,\u2019\u201d conditioned only on \u201ca showing that the defendant interfered with the plaintiff\u2019s legally protected rights.\u201d Recognizing that the remedy historically \u201cha[d] varying forms,\u201d Gorsuch focuses on \u201cone common feature\u201d they shared: \u201cGenerally, the final award \u2026 is not measured by the [victim\u2019s] loss but by the defendant\u2019s gain attributable to his wrongdoing.\u201d Quoting from the Restatement of Restitution, Gorsuch emphasizes that \u201cthe point of the remedy is for \u2018the defendant to give the plaintiff the amount by which he has been enriched\u2019 \u2026 not to compensate the plaintiff for a financial loss.\u201d<\/p>\n

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Gorsuch offers, \u201c[b]y way of illustration,\u201d an example from a 1940\u2019s dispute involving a coal mine. As he describes it, \u201ca company had acquired the right to mine coal from a tract of land, part of which was owned by the plaintiff. Along with that right, the company also received an easement to cross the land, but only \u2018for the purpose of \u2026 securing the coal from the tract in question.\u2019\u201d When \u201cthe company also used [the easement] to transport coal from other<\/em> tracts of land,\u201d a court \u201caward[ed] the plaintiff $500 \u2026 because it represented \u2018a fair value of the benefits\u2019 the company unjustly received.\u201d That was appropriate, the court concluded, even though the plaintiff \u201cadmitted that he had suffered no [substantial damage].\u201d Gorsuch\u2019s summary ties that ruling directly to this case: \u201cIn other words, the plaintiff whose legally protected interest had been invaded was entitled to the defendant\u2019s gain from that wrongful conduct even without showing pecuniary loss.\u201d Thus, he concludes, \u201c[w]hatever else traditional equitable principles demand, they do not require a showing of pecuniary loss before a court may issue an award of unjust profits.\u201d<\/p>\n

It is hard to say how important Sripetch<\/em> will be to the SEC\u2019s enforcement activity, as the last few pages of Gorsuch\u2019s opinion reject most of Sripetch\u2019s arguments with the refrain that they are not yet before the court. He emphasizes, for example, that the case does not authorize the SEC \u201cto depart from traditional equitable principles and attempt to use [the new statute] to secure penalties,\u201d as opposed to disgorgement, a course that \u201cwould raise questions about whether [the new statute] permits deviation from equitable principles.\u201d He also notes the problem that any deviation from those principles might \u201centitl[e] the defendant to a jury trial,\u201d a possibility that sparks a separate opinion by Justice Clarence Thomas, emphatically supporting that conclusion.<\/p>\n

The SEC surely will be relieved at this break in what has been a string of losses about disgorgement in the Supreme Court. I think it is quite likely, though, that there will be yet another chapter in the Supreme Court\u2019s examination of the area, and that it will not be long in coming.<\/p>\n

Read more Court rules against cell service providers over right to jury trial in FCC proceedings<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Thursday morning brought the first three decisions from the April argument session, with two of the three being unanimous. The first of those was Sripetch v SEC, which did just what the argument suggested it would, validate the SEC\u2019s ability to use \u201cdisgorgement\u201d to force a wrongdoer to turn over its profits to the government […]<\/p>\n","protected":false},"author":1,"featured_media":148,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-149","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-interesting"],"yoast_head":"\nJustices validate SEC\u2019s use of disgorgement in securities enforcement - American Service Review<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/americanservicereview.com\/?p=149\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Justices validate SEC\u2019s use of disgorgement in securities enforcement - American Service Review\" \/>\n<meta property=\"og:description\" content=\"Thursday morning brought the first three decisions from the April argument session, with two of the three being unanimous. 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