Sripetch v. SEC
Ruling lets the SEC seek disgorgement without proving investors suffered financial loss, making it easier for regulators to recover fraudsters’ ill-gotten profits in securities cases.
Holding
A showing of pecuniary loss to investors is not required before the SEC may obtain a disgorgement award.
Real-world impact
- Allows SEC to recover wrongdoers’ net profits without proving investor losses.
- Resolves split in appeals courts on disgorgement loss requirement.
- Leaves open questions about distribution and whether disgorgement is legal remedy.
Topics
Summary
Background
Ongkaruck Sripetch ran fraudulent schemes involving at least 20 penny-stock companies. The Securities and Exchange Commission (the government regulator) sued him, charging six counts of securities fraud and one count of selling unregistered securities. Sripetch consented to a judgment that allowed the court to order disgorgement, but he objected when the SEC sought more than $4.1 million, arguing that this Court’s Liu decision required proof that investors suffered financial losses.
Reasoning
The Court framed the question as whether the SEC must show pecuniary loss to secure disgorgement and examined 15 U.S.C. §§78u(d)(5) and (7). Assuming disgorgement remains an equitable remedy, the Court concluded traditional equitable principles do not require proof of investor monetary loss. Disgorgement aims to strip wrongdoers of unjust gains, and equity has historically awarded a defendant’s wrongful profit to victims even when plaintiffs show no measurable financial loss. The Court affirmed the Ninth Circuit and declined to decide other statutory questions about distribution or limits.
Real world impact
The ruling makes it easier for the SEC to recover a wrongdoer’s net profits in enforcement cases without proving investor losses, affecting fraud enforcement and defendants in securities cases. It resolves a split among appeals courts on this point. The Court emphasized other safeguards and left some questions—like whether disgorgement remains equitable and how returned funds must be distributed—unresolved.
Dissents or concurrances
Justice Thomas agreed with the outcome but warned that Congress’s addition of disgorgement may make it a legal remedy, potentially entitling defendants to jury trials under the Seventh Amendment and calling for future review of that issue.
Questions, answered
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