In a recent Supreme Court session, justices deliberated on a case critical to the Securities and Exchange Commission’s (SEC) authority to wield “disgorgement” as a remedial measure. The case in question, Sripetch v SEC, examines whether the SEC can compel a wrongdoer to surrender profits sans evidence of harm to consumers.
Ongkaruck Sripetch, who pleaded guilty to selling unregistered securities, finds himself at the center of this debate. Despite the ambiguity surrounding the actual losses suffered by his clients, it is clear that his illegal activity yielded $6 million in profits. Following a statute enacted for this purpose, lower courts mandated Sripetch to remit his ill-gotten gains to the SEC. Disgorgement, according to these justices, is well within the SEC’s statutory right, aligning with the plain meaning of stripping a wrongdoer of unjust profits.
During the arguments, Daniel Geyser, representing Sripetch, contended that such recovery should be classified as a “penalty” unless the SEC could demonstrate harm to consumers. However, justices, including Amy Coney Barrett and Ketanji Brown Jackson, seemed unconvinced, framing disgorgement solely within the context of retrieving profits not entitled to the wrongdoer at the outset.
Justice Sonia Sotomayor, noted for her opinion in Liu v SEC, argued that traditional equitable principles do not necessitate demonstrating pecuniary harm. Similarly, Justice Brett Kavanaugh invited Geyser to reflect on an amicus brief that challenges Geyser’s interpretation of common law principles.
Justice Neil Gorsuch raised a pertinent concern about the jury’s role in this context, particularly when the disgorged funds are not reverted to victims. Yet, he acknowledged that this concern seems extraneous to the heart of the present case.
The broader legal consensus seems to lean toward permitting the SEC’s use of disgorgement without needing to substantiate direct client harm, suggesting that a reversal of the SEC’s recovery is unlikely. For further insights into this pivotal court case, the full report is available on SCOTUSblog.