Justices validate SEC’s use of disgorgement in securities enforcement

The United States Supreme Court, in its unanimous decision in *Sripetch v. SEC*, has affirmed the Securities and Exchange Commission's (SEC) authority to seek disgorgement in enforcement actions without requiring proof that investors suffered pecuniary loss. This ruling resolves a significant circuit split, bolstering the SEC's power to strip wrongdoers of ill-gotten gains by reaffirming disgorgement as an equitable remedy focused on unjust enrichment rather than victim compensation. While strengthening the SEC's enforcement toolkit, the decision leaves open critical questions regarding whether disgorgement under the recently amended Securities Exchange Act is now a legal remedy, potentially implicating Seventh Amendment jury trial rights.

The landscape of securities enforcement in the United States has been significantly shaped by the Supreme Court's recent unanimous decision in *Sripetch v. Securities and Exchange Commission*, issued on June 4, 2026. This landmark ruling unequivocally validates the SEC's ability to obtain disgorgement from wrongdoers without the prerequisite of demonstrating that investors suffered direct financial harm. The decision marks a pivotal moment, strengthening the SEC's capacity to claw back illicit profits and deter market misconduct.

*Sripetch* is the third in a closely watched series of Supreme Court cases that have progressively clarified the contours of the SEC's disgorgement authority, following *Kokesh v. SEC* (2017) and *Liu v. SEC* (2020). The Court's latest pronouncement resolves a deep circuit split, particularly between the Second Circuit, which had required proof of pecuniary loss, and the First and Ninth Circuits, which did not. This article will delve into the historical evolution of the SEC's disgorgement powers, analyze the *Sripetch* decision's reasoning, and explore its practical implications for legal practitioners navigating the complexities of securities enforcement actions.

The Securities and Exchange Commission's power to seek disgorgement has evolved considerably since its inception. When Congress established the SEC in the 1930s, its statutory remedies were primarily limited to judicial injunctions barring future violations. However, beginning in the 1970s, federal courts, at the SEC's urging, began to order disgorgement as an exercise of their inherent equitable powers to prevent unjust enrichment.

This judicially created remedy faced its first significant Supreme Court challenge in *Kokesh v. SEC*, 581 U.S. 455 (2017). The Court unanimously held that SEC disgorgement, in the context of securities enforcement, functions as a "penalty" and is therefore subject to the five-year statute of limitations under 28 U.S.C. § 2462. While *Kokesh* limited the temporal reach of disgorgement, it expressly declined to rule on whether courts possessed the authority to order disgorgement at all, leaving a critical question unanswered.

The Supreme Court addressed this open question in *Liu v. SEC*, 591 U.S. 71 (2020). The Court affirmed that the SEC could indeed seek disgorgement as an equitable remedy under 15 U.S.C. § 78u(d)(5), but it imposed two crucial limitations: disgorgement awards must not exceed a wrongdoer's net profits, and they must be "awarded for victims." However, *Liu* left an ambiguity regarding whether the "awarded for victims" requirement necessitated proof of actual pecuniary loss to those victims. In response to *Liu* and to further clarify the SEC's powers, Congress amended the Securities Exchange Act of 1934 in 2021, adding Section 21(d)(7) (15 U.S.C. § 78u(d)(7)), which explicitly authorizes the SEC to seek disgorgement of "any unjust enrichment" resulting from a violation. This statutory amendment, however, did not resolve the lingering question of whether pecuniary harm to investors was a prerequisite for disgorgement, leading to a split among the circuit courts.

The Supreme Court's unanimous decision in *Sripetch v. SEC* directly confronts the question left open by *Liu* and the subsequent congressional amendment: whether the SEC must prove that investors suffered pecuniary loss to obtain a disgorgement award. The Court, in an opinion authored by Justice Gorsuch, definitively held that such a showing is not required. This ruling aligns with the positions previously adopted by the First and Ninth Circuits, while rejecting the Second Circuit's contrary view, which had required proof of pecuniary harm (e.g., *SEC v. Govil*).

The Court's reasoning in *Sripetch* is firmly rooted in traditional principles of equity. Justice Gorsuch emphasized that disgorgement, as an equitable remedy, is fundamentally designed to prevent unjust enrichment by stripping wrongdoers of their ill-gotten gains, rather than solely to compensate victims for their losses. The Court clarified that a plaintiff who has suffered an "invasion of a legally protected interest" is entitled to recover the defendant's wrongful gain, even if that invasion did not result in measurable pecuniary harm. Thus, *Liu*'s requirement that disgorgement be "awarded for victims" does not imply a need to quantify financial losses for those victims; rather, it acknowledges that a legally protected interest can be violated without a corresponding monetary loss.

Despite this significant clarification, the *Sripetch* decision leaves several important questions for future litigation. Notably, Justice Thomas filed a concurring opinion, raising the issue of whether Congress's 2021 amendments to the Securities Exchange Act, particularly the addition of Section 21(d)(7), have effectively transformed disgorgement into a "legal" remedy. If disgorgement is deemed a legal remedy, it could trigger the Seventh Amendment right to a jury trial, a right not typically afforded for equitable claims. This issue is already a point of contention, with a split emerging between the Second and Fifth Circuits. Furthermore, the Court acknowledged the ongoing concern that, without a strict pecuniary loss requirement, disgorgement could risk becoming a punitive measure, effectively serving as a fine payable to the U.S. Treasury rather than a restitutionary remedy for victims. While the Court found this concern insufficient to impose a pecuniary-loss requirement, it signals that the line between permissible disgorgement and an impermissible penalty may continue to be litigated.

The Supreme Court's decision in *Sripetch v. SEC* represents a substantial victory for the SEC, solidifying its ability to pursue disgorgement as a potent enforcement tool against securities law violators. For practicing attorneys, this ruling means that defendants in SEC enforcement actions can no longer rely on the absence of quantifiable investor harm as a defense against disgorgement. The focus of defense strategies will likely shift towards challenging the SEC's calculation of a defendant's net profits, establishing the causal connection between the alleged violation and the gains sought, and scrutinizing the SEC's plans for distributing disgorged funds to victims.

Looking ahead, practitioners should closely monitor the unresolved questions highlighted by *Sripetch*, particularly the debate over whether statutory disgorgement now constitutes a legal remedy, potentially implicating the Seventh Amendment right to a jury trial. The interplay between disgorgement and civil penalties, and the precise boundaries distinguishing the two, will also remain a fertile ground for litigation. Attorneys advising clients in the securities industry must be acutely aware of this expanded scope of SEC enforcement power and proactively counsel on compliance and litigation strategies in light of the Court's reaffirmed commitment to stripping wrongdoers of their unjust enrichment, irrespective of direct investor loss.