The Supreme Court appears poised to uphold the Securities and Exchange Commission’s (SEC) authority to employ disgorgement without demonstrating direct harm to investors. This was evident during recent oral arguments in Sripetch v. SEC, a case which scrutinizes whether the SEC can compel wrongdoers to surrender profits acquired through unlawful conduct. Ongkaruck Sripetch, the petitioner, had been ordered by lower courts to pay $6 million in disgorgement after pleading guilty to selling unregistered securities.
Despite Sripetch’s argument that the SEC’s order constitutes a penal measure rather than disgorgement, the Justices showed little support for this view. Justice Ketanji Brown Jackson and Justice Amy Coney Barrett both questioned how the recovery of ill-gotten gains could be considered punitive, asserting that disgorgement merely returns gains acquired unjustly. Meanwhile, the argument that traditional equitable principles require proof of pecuniary harm failed to gain traction, as noted by Jackson and Justice Sonia Sotomayor, the latter having authored the decision in the earlier case of Liu v. SEC.
Justice Neil Gorsuch vocalized concerns regarding due process, specifically the lack of a jury trial if the SEC opts to collect funds without distributing them to harmed parties. Still, he acknowledged that this due process issue seemed ancillary to the case’s central questions. The overall sentiment suggests that the Court is unlikely to overturn the SEC’s established practice of using disgorgement as an enforcement tool. While Justice Sotomayor might author the Court’s opinion, reflecting her previous engagement in similar cases, a majority ruling unfavorable to the SEC seems improbable.
For more details on the arguments and potential implications, you can refer to the full article on SCOTUSblog.