Supreme Court Upholds SEC's Disgorgement Power in Landmark Ruling
The U.S. Supreme Court upheld the Securities and Exchange Commission's authority to recover illegal profits through disgorgement in a recent 9-0 ruling. The case involved a defendant named Ongkaruck Sripetch, who was ordered to repay over $3 million in ill-gotten gains and interest related to a financial fraud case in California. The court's decision affirmed the SEC's broad use of disgorgement power, which has long been recognized by courts and enshrined in federal law.
The challenge to the SEC's disgorgement power centered on whether the agency needed to demonstrate economic harm to victims before seeking the surrender of illegal profits. The Justice Department argued that the SEC was not required to prove pecuniary harm to pursue repayment through the courts. Justice Neil Gorsuch, writing for the unanimous court, concluded that investors could qualify as victims entitled to compensation without a showing of pecuniary loss.
Under the Trump administration, the SEC obtained around $1.4 billion through disgorgement in fiscal 2025, excluding certain sums. In the prior year under President Joe Biden, the SEC secured $6.1 billion through disgorgement, representing a significant portion of its total financial penalties. The agency sought disgorgement from Sripetch for illicit proceeds obtained through fraudulent activities, including a pump-and-dump scheme involving penny stocks.
Sripetch admitted to violating securities laws and was sentenced to 21 months in prison in a related criminal case. He challenged the SEC's disgorgement order, arguing that the agency failed to prove his actions caused financial harm to investors. However, a federal judge in California and the 9th U.S. Circuit Court of Appeals upheld the SEC's interpretation of its disgorgement power.
In addition to disgorgement, the SEC can impose fines, sanctions, and other penalties on offenders. The Supreme Court's 2024 ruling also addressed the SEC's in-house enforcement of laws against securities fraud, finding that agency proceedings seeking penalties for fraud handled internally violated the Seventh Amendment right to a jury trial.
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