Supreme Court Holds SEC May Obtain Disgorgement Without Proof of Investor Financial Loss
On June 4, 2026, the U.S. Supreme Court unanimously held that the Securities and Exchange Commission (SEC) is not required to prove investors suffered pecuniary loss before seeking disgorgement of ill-gotten gains. The decision in Sripetch v. Securities & Exchange Commission, 146 S. Ct. 1403 (2026) resolves a circuit split regarding the scope of the SEC's disgorgement authority and preserves disgorgement as key remedy in the SEC's enforcement toolkit
Background and Procedural History
The case is the Court's latest chapter in a trilogy addressing the SEC's disgorgement authority. In Liu v. SEC (2020), the Court held that 15 U.S.C. § 78u(d)(5), which permits the SEC to seek "any equitable relief that may be appropriate or necessary for the benefit of investors," authorizes disgorgement, subject to traditional equitable principles, including that awards be limited to net profits and be "awarded for victims." Shortly thereafter, Congress codified § 78u(d)(7), expressly adding "disgorgement" to the SEC's statutory enforcement tools.
The SEC alleged that Ongkaruck Sripetch engaged in fraudulent penny-stock schemes involving at least 20 companies, including classic "pump-and-dump" operations. Sripetch consented to a district court order finding that he engaged in fraudulent schemes netting more than $6.6 million in illicit proceeds but objected when the SEC sought over $4.1 million in disgorgement.
Sripetch argued that, because the SEC lacked evidence that investors suffered any financial harm, there were no "victims" for whom disgorgement could be awarded under Liu. The SEC disagreed, arguing that investors who did not lose money could still be considered "victims" under Liu and separately contended that its evidence sufficiently demonstrated that investors had suffered financial harm as a result of Sripetch's wrongdoing. The district court sided with the SEC without deciding whether proving investors suffered financial harm is required as a prerequisite.
On appeal, the Ninth Circuit held that a finding of pecuniary harm is now required before a court orders disgorgement, joining the First Circuit and deepening a split with the Second Circuit, which had required a showing of pecuniary harm. The Supreme Court granted certiorari to resolve the further deepened circuit split.
The Court's Holding and Key Reasoning
The Court unanimously sided with the First and Ninth Circuits, holding that the SEC is not required to prove investor pecuniary harm to obtain disgorgement. Without deciding whether Congress's addition of § 78u(d)(7) altered the nature of the SEC's disgorgement remedy, the Court assumed that disgorgement remains an equitable remedy subject to traditional equitable constraints. The Court concluded that traditional equitable principles do not require a showing of pecuniary loss and that a "victim" under Liu is any person whose legally protected interests were invaded, not just those who suffered measurable financial harm.
The reasoning rests on a fundamental distinction between legal damages and equitable disgorgement. Damages are measured by a plaintiff's loss, whereas disgorgement is measured by a defendant's gain. Under traditional equitable principles, a person whose legally protected interests have been invaded may recover the wrongdoer's profits from that invasion, even without "any loss." The Court surveyed historical cases illustrating this principle, including disputes over unauthorized use of easements, property, and personal chattels where courts stripped defendants of profits despite the plaintiff suffering no measurable financial harm.
Justice Thomas's Concurrence
Justice Thomas joined the majority's holding but wrote separately to urge that, in a future case, the Court should recognize that disgorgement under § 78u(d)(7) is a legal remedy subject to the Seventh Amendment right to a jury trial. He argued that Congress's decision to enumerate disgorgement in a separate subsection, assign it a distinct statute of limitations and separate it from "equitable relief" all suggest a legislative reclassification. He further noted that in 2024, the SEC obtained $6.1 billion in disgorgement orders while returning only $345 million to victims, a disparity he characterized as resembling a fines regime rather than equitable relief.
Practical Implications
- The "no-loss" defense is gone. Defendants can no longer rely on the absence of investor financial harm as a complete bar to disgorgement where the alleged conduct invaded legally protected investor interests and generated unjust gains. This is particularly significant in insider trading, market manipulation, nondisclosure and registration-failure matters, situations in which investor losses are often difficult to quantify or hard to trace.
- The focus shifts to other limitations. Defendants should now concentrate on whether the SEC can establish (1) the amount of net profits attributable to the violation; (2) a causal link between the wrongdoing and the gains sought; and (3) compliance with victim-distribution requirements.
- Evaluate the SEC's distribution plans. The Court cautioned that if the SEC uses disgorgement as a vehicle to collect penalties for the U.S. Treasury rather than compensate victims, that would depart from what § 78u(d)(5) permits. Defendants should scrutinize whether the SEC's proposed use of disgorged funds crosses the line from compensation into penalty territory.
- Jury trial demands to the forefront. Justice Thomas's concurrence suggests that the Seventh Amendment question will reach the Court. Defendants in litigated cases should assess the risks and benefits of demanding a jury trial, particularly where the SEC seeks disgorgement without simultaneously seeking civil penalties (in which case a jury right already attaches under SEC v. Jarkesy).
Takeaway
Sripetch enhances the SEC's ability to enforce disgorgement actions. Following Sripetch, the SEC is not required to prove that investors suffered measurable financial harm but demonstrate only that a defendant obtained gains through conduct that infringed investors' legally protected interests. With the Seventh Amendment question now firmly teed up, SEC disgorgement litigation in the near term could look materially different.
For more information on the SEC's disgorgement authority following the Supreme Court's decision in Sripetch v. Securities & Exchange Commission, please contact Scott Gootee, Andrew Arbuckle or the Stinson LLP contact with whom you regularly work.
