The Supreme Court has strengthened the ability of the Securities and Exchange Commission (SEC) to force securities‑law violators to give up their ill‑gotten gains. Previously, federal appeals courts were split on when a court could order repayment to the government as a form of equitable relief.
In Sripetch v. Securities and Exchange Commission, the U.S. Supreme Court held in favor of the SEC. The defendant, Ongkaruck Sripetch, pled guilty to securities law violations. The case came before the Supreme Court because Sripetch argued that a court could not order him to turn over millions of dollars in profits to the government at the SEC’s request.
Sripetch contended that he did not have to disgorge his profits because the SEC did not show evidence that those profits caused harm. He based his arguments on recent Supreme Court cases that narrowed some of the SEC’s authority, stemming from a centuries-old division between the types of powers that American courts can use: law and equity.
Nonetheless, in a unanimous opinion, the Supreme Court held that the SEC does have the authority to make Sripetch disgorge such profits. Writing for the Court, Justice Neil Gorsuch noted that the SEC could prevent a wrongdoer from profiting by his violations without showing that the violations caused economic harm.
Penny Stocks and a Fraudulent Scheme
During the 2010s, Ongkaruck Sripetch used new technology for an old-fashioned pump-and-dump scheme. He was one of several conspirators charged for artificially inflating the value of penny stock companies in the U.S. and Canada. According to the government, Sripetch maintained a website called “stockpalooza.com” to promote penny-stock companies that they would later dump on the market. In 2022, Sripetch pled guilty to one criminal count, receiving a prison sentence of 21 months for his securities law violation.
The SEC pursued a separate civil enforcement action against Sripetch. He consented to the entry of a civil judgment against him, accepting the truth of the allegations. But he challenged the SEC’s requested disgorgement order of more than $4.1 million, plus $1 million in prejudgment interest. Although the district court had reduced the amount, Sripetch appealed to the Ninth Circuit, arguing that the SEC could not order him to turn over that money without explaining exactly why.
When Does the SEC’s Disgorgement Power Apply?
"Disgorgement” is not the same as paying a fine; it is giving back unjustly earned profits. Thus, Sripetch asserted that the SEC could not order him to disgorge profits unless it could show that they resulted from harm to someone. Since the SEC did not show specific harm to anyone, how could it make him “disgorge” money to the government, rather than to the victims?
When a court orders a wrongdoer to disgorge money to its rightful owner, they are generally using the powers of equity — not of law — to provide “equitable relief” for that person’s loss. In 2020, the Supreme Court’s decision in Liu v. SEC confirmed that the SEC could seek disgorgement awards because Congress had given the agency authority to seek equitable relief. However, Liu recognized that disgorgement should “not exceed a wrongdoer’s net profits.”
Law and equity are powers that arise from different spheres of authority, even though the same court or agency may have both powers. Legal power comes from laws that the government passed and the court decisions that follow them. With equitable power, a court may compel a violator to surrender unjust gains tied to a violation, while legal powers traditionally cover penalties and damages awards. The hard question in SEC cases is where disgorgement fits on that spectrum, especially when money is paid to the government. The Supreme Court had already found that disgorgement operated as a “penalty” for procedural purposes in Kokesh v. SEC (2017).
That is why Sripetch asked the Supreme Court to find that the SEC did not have power in equity to order him to pay the government without showing specific harm. The Ninth Circuit rejected Sripetch’s arguments on appeal, but the Second Circuit had accepted similar arguments in another case on the SEC’s disgorgement power. Thus, the Supreme Court took Sripetch’s case to resolve the circuit split and decide the issue.
SCOTUS Takes the Side of Equitable Powers
The opinion in Sripetch notes that after the Kokesh and Liu decisions, Congress changed securities law to confirm the SEC’s authority to seek disgorgement from violators. The law states that the SEC can seek “any equitable relief that may be appropriate or necessary for the benefit of investors,” and it now separately authorizes courts to order disgorgement in SEC actions in 15 U.S.C. § 78u(d)(5) and (7).
In his opinion, Justice Gorsuch writes that the traditional goal of equity practice is not simply to make a plaintiff whole but to correct “the defendant’s gain attributable to his wrongdoing against the plaintiff.” On that understanding of equity, he concludes that the SEC does not have to show specific pecuniary harm before seeking disgorgement as an equitable remedy.
Justice Gorsuch cites several business equity cases in which defendants had to turn over a share of profits despite a lack of any apparent harm, since those profits were “attributable to [the] invasion of the plaintiff’s legally protected interests without requiring a showing of pecuniary loss.” Since Sripetch does not dispute that he committed violations, Gorsuch finds that the government can require his disgorgement as an equitable remedy.
Sripetch raised the concern that the SEC could use this as a back-door method for collecting penalties not set out in the law. Justice Gorsuch states that, however well-founded, this concern still does not require the SEC to show pecuniary harm to order a violator to disgorge profits.
However, Justice Thomas writes a separate concurrence to assert that Congress has now made the disgorgement power a legal remedy, not an equitable one, requiring a jury trial under the Seventh Amendment. As the balance of power shifts and new interests arise, the Court’s future approach to SEC enforcement remains to be seen.
