In a recent hearing, the United States Supreme Court appeared poised to affirm the Securities and Exchange Commission’s (SEC) use of disgorgement as a valid enforcement tool in the ongoing case of Sripetch v SEC. The central issue of the case revolves around whether the SEC can mandate that wrongdoers turn over profits made from illegal activities, without demonstrating direct harm to customers.
The case involves Ongkaruck Sripetch, who admitted to selling unregistered securities, resulting in approximately $6 million in profits. The lower courts ruled that these profits must be paid to the SEC, applying the disgorgement provision under a recently enacted statute.
During oral arguments, a majority of the justices seemed to lean towards the SEC’s position that disgorgement simply entails reclaiming ill-gotten gains rather than imposing a penalty. Justice Ketanji Brown Jackson and Justice Amy Coney Barrett voiced skepticism regarding the interpretation of disgorgement as a penalty, emphasizing that the remedy merely recoups profits wrongfully obtained by the defendant.
Legal representatives for Sripetch contended that such recovery without proof of customer harm should be deemed a penalty. However, this argument saw minimal support among the justices, with Justice Sonia Sotomayor referencing her concurrence in Liu v SEC, questioning if traditional equitable principles of disgorgement necessitate demonstrating pecuniary harm.
While Justice Neil Gorsuch expressed reservations concerning the absence of a jury trial when distributing collected funds to victims, he acknowledged it was not a pivotal issue in the current case framework. It remains to be seen who will author the court’s opinion, yet a reversal of the SEC’s recovery appears improbable given the court’s inclination during the proceedings.
For a comprehensive analysis of the proceedings, consult the original report on SCOTUSblog.