The ongoing scrutiny of the Securities and Exchange Commission’s (SEC) enforcement strategies continues as the U.S. Supreme Court prepares to hear Sripetch v SEC. This case marks yet another occasion for the court to address the bounds of the SEC’s use of disgorgement, a remedy that compels violators to relinquish any profits from illicit activities, even if the direct harm to victims is not clearly demonstrated.
Ongkaruck Sripetch, the defendant in this matter, previously admitted guilt for selling unregistered securities, resulting in a 21-month prison sentence. The SEC is now pursuing a separate civil action to recoup over $6 million in profits from these transactions. Notably, the appellate court chose not to deliberate on whether Sripetch’s actions resulted in “pecuniary harm” to any customers, diverging from other appellate viewpoints that insist on showing such harm when implementing disgorgement.
Representing Sripetch, legal counsel points to previous Supreme Court rulings that have curtailed the SEC’s expansive application of remedies, particularly the 2020 decision in Liu v SEC, which invalidated the SEC’s use of disgorgement when it demanded funds exceeding the profits derived from the illegal conduct. Echoing the language in Liu, Sripetch’s legal team argues that disgorgement must correlate closely with “fair compensation to the person wronged,” necessitating demonstrable victim harm.
The SEC maintains, however, that disgorgement aligns with its historical role as a restitution mechanism to ensure offenders surrender their “ill-gotten gains.” By restricting recovery to profits explicitly tied to illegal activity and affirming that these profits were made, the SEC contends the measure is consistent with traditional disgorgement principles.
In support of the government’s position, an amicus brief filed by distinguished scholars in the fields of remedies and restitution emphasizes that disgorgement traditionally targets the wrongdoer’s profits without necessarily considering victim harm. Such academic endorsements may bolster the SEC’s argument, particularly if they resonate with justices focused on upholding the remedial purpose of disgorgement.