Supreme Court Holds SEC Need Not Prove Investor Losses to Obtain Disgorgement—But Key Limits Remain

Background

The Sripetch case concerned a civil enforcement action the SEC brought against Ongkaruck Sripetch in connection with a series of allegedly fraudulent penny-stock pump-and-dump schemes involving at least 20 companies. Sripetch consented to a judgment on liability. The district court ordered disgorgement and the Ninth Circuit affirmed, holding that the SEC was not required to establish pecuniary harm to investors as a precondition to relief. That decision deepened an existing circuit split with the Second Circuit's contrary holding in SEC v. Govil, 86 F.4th 89 (2d Cir. 2023).

In a unanimous decision written by Justice Gorsuch, the Court affirmed the Ninth Circuit. The Court observed that courts have "long issued remedies designed to 'deprive wrongdoers of their net profits from unlawful activity.'" Slip op. at 8. Under that framework, it is sufficient that the defendant profited from illegal transactions and that investors suffered an interference with their legally protected interests. Investors need not demonstrate out-of-pocket loss to qualify as "victims" for disgorgement purposes. The Court also held that Govil was inconsistent with Liu, which had confirmed the SEC's disgorgement authority while imposing key constraints on its scope.

The Court rejected the argument that eliminating a pecuniary-loss requirement was inconsistent with Liu's description of disgorgement as a remedy designed to restore the "status quo." When a defendant unjustly enriches himself without leaving investors financially worse off, the Court explained, two status quos are possible: strip the defendant of his gains, or let him keep them because the plaintiff's financial position has not changed. Equity, the Court held, has always preferred that the wrongdoer return his gains.

Justice Thomas wrote separately to urge the Court to address in a future case whether—following Congress's codification of disgorgement as an express statutory remedy in 15 U.S.C. §78u(d)(7)—disgorgement should now be treated as a legal remedy triggering the Seventh Amendment right to a jury trial. See Slip op. at 1 (Thomas, J., concurring). In his view, once Congress separated disgorgement from the equitable remedies listed elsewhere in the statute, it could no longer be treated as equitable in character. The majority did not resolve that question.

What Remains Unchanged: The Limits Liu Imposed

Sripetch resolved only one contested question—whether the SEC must show that specific investors suffered a monetary loss to obtain disgorgement. The constraints Liu established remain fully in force and continue to provide defendants with meaningful avenues to limit disgorgement claims:

• Net profits only. Disgorgement must be limited to the defendant's net profits causally connected to the securities law violation—not gross revenues, not total proceeds, and not gains attributable to legitimate activity or independent market forces.
• Causal connection required. The SEC must still tie the disgorgement figure to the defendant's net profits from the violation charged. Gains attributable to uncharged conduct, time-barred periods, or the independent actions of third parties are not properly included.
• Victims may be required. Disgorgement must still be "awarded for victims." While holding that monetary loss was not a requirement, the Court did not fully resolve what constitutes a victim for disgorgement purposes. The Court expressly noted that it was not deciding the case of a defendant who could argue that no investor's legally protected interests were interfered with at all. Where that argument is available, it remains viable.

But Significant Open Questions Remain

Beyond the limits imposed by Liu, the Sripetch decision leaves two significant and related questions unresolved—each with substantial implications for defendants.

The majority assumed without deciding that §78u(d)(7) disgorgement—expressly codified by Congress after Liu—remains an equitable remedy subject to traditional equitable constraints, including the requirement that awards go to victims rather than the Treasury. That assumption is contestable. If disgorgement under §78u(d)(7) is instead a legal remedy, disgorgement directed to the Treasury rather than to identifiable investors would be susceptible to challenge as a penalty, with significant implications for the availability of the remedy and the procedural rights attending it.

In addition, if §78u(d)(7) disgorgement is a legal remedy, defendants would have arguments that they have a constitutional right to have a jury determine both liability and the disgorgement amount. That would fundamentally alter the economics and dynamics of SEC civil enforcement, and potentially give defendants opportunities to raise arguments that—while unpersuasive to a judge—may resonate with jurors. Defendants should therefore consider preserving this argument, particularly in cases with large disgorgement claims and limited, diffuse, or difficult-to-quantify investor harm.

Conclusion

Sripetch reinforces that disgorgement is a valuable tool in the SEC's arsenal and forecloses arguments that the SEC cannot obtain disgorgement unless it can identify specific victims who suffered pecuniary harm. At the same time, the decision does not eliminate the disgorgement defense: it refocuses the arguments that may be most viable in challenging it. For example, the most productive terrain for defendants going forward may be to focus on the calculation of net profits (as opposed to gross proceeds), the causal nexus between the charged conduct and the profits sought, and the identification and scope of covered victims. In addition, Justice Thomas's concurrence provides a roadmap for future litigants to continue to challenge whether disgorgement is a legal remedy—and thus whether a right to a jury attaches.