In the upcoming week, the U.S. Supreme Court will revisit the Securities and Exchange Commission’s (SEC) authority to employ “disgorgement” in securities-related enforcement. This consideration forms part of the legal saga encapsulated in Sripetch v. SEC. The core issue the justices will examine is whether the SEC can mandate a wrongdoer to forfeit profits derived from illicit activities without proving direct harm to customers.
Ongkaruck Sripetch, convicted of selling unregistered securities and sentenced to 21 months in prison, faces an SEC demand to surrender over $6 million in profits garnered from these transactions. In confirming this award, the appeals court notably did not mandate the SEC to demonstrate any “pecuniary harm” caused to customers, presenting a stark variance with other appellate requirements for disgorgement.
Sripetch argues the case resembles prior rulings in which the Supreme Court curtailed the SEC’s extensive employment of disgorgement. He references the 2020 case Liu v. SEC, where the Court overturned a disgorgement that exceeded the wrongdoer’s profits. The argument hinges on the premise that disgorgement should aim to provide “fair compensation to the person wronged,” thus necessitating a “pecuniary harm” to victims.
Conversely, the government holds that “disgorgement” adheres to its traditional role as restitution, compelling the forfeiture of “ill-gotten gains.” They contend that the SEC’s enforcement is valid as long as it demonstrates profits from illegal conduct and confines recovery to those profits.
An amicus brief from numerous restitution scholars, including Professor Douglas Laycock, supports the government’s stance by emphasizing that traditional disgorgement centers on the wrongdoer’s profit, not the victim’s harm.
Nevertheless, some justices, including Clarence Thomas and Neil Gorsuch, have previously indicated skepticism toward the relaxed deployment of equitable remedies across various legal spheres. Their apprehension may impact their interpretation of the SEC’s consistent use of disgorgement post-Liu.
This proceeding will gauge the justices’ current perspectives as they deliberate this complex intersection of securities enforcement and equitable remedies. Further analysis on the implications of the Court’s decision can be found in the in-depth coverage by SCOTUSblog.