Supreme Court Upholds SEC’s Disgorgement Power But Leaves Some Questions Unanswered

Introduction

On June 4, 2026, the U.S. Supreme Court upheld the U.S. Securities and Exchange Commission’s (SEC) ability to order disgorgement regardless of whether or not investors suffered financial harm. In the unanimous opinion, the Court held that a showing of pecuniary loss to investors is not required before the SEC may obtain a disgorgement award under 15 U.S.C. § 78u(d).[1] It is notable that the current Court chose to fortify, rather than pare back, the SEC’s enforcement arsenal after previously issuing decisions that have incrementally eroded the SEC’s powers in both civil and administrative forums.[2]

The Sripetch decision marks a turning point in the debate over what Congress meant when it allowed the SEC to seek equitable relief for the benefit of investors, and whether disgorgement orders fulfill such a role or act more akin to a pecuniary measure. Those in favor of viewing disgorgement as an equitable remedy contend that such orders are within the bounds of the SEC’s statutory authority to hinder unjust enrichment and promote relief for investors. Those who view disgorgement as a civil penalty, rather than equitable relief, argue that such actions are punitive in nature, are often not compensatory with the alleged wrong, and have as their primary goal to deter future wrongdoers. The Court, firmly siding with the former, reasoned that equitable relief may be sought to benefit investors so long as the remedy “adheres to traditional equitable principles,”[3] which historically have not required a showing of harm suffered by an aggrieved party, such as investors.

While the Sripetch decision is undoubtedly a win for the SEC, there are questions that the Court declined to answer that could create uncertainty in future cases. This includes the SEC’s ability to order disgorgement when there are no identifiable investors, in which case the funds would have previously been deposited into the Treasury, and whether or not a defendant is entitled to a jury trial because disgorgement is now a legal remedy and not solely an equitable remedy, as argued by Justice Clarence Thomas in the concurring opinion.[4] Generally, however, we expect the SEC to take an aggressive posture towards ordering disgorgement in light of Chair Paul Atkins’ focus on holding individuals accountable for fraud.    

Below we provide a summary of the context in which the Sripetch decision should be evaluated and analyzed.

Historical Background and Context

Over time, Congress and the Courts have taken action to strengthen the SEC’s ability to enforce the U.S. securities laws. At its creation, the SEC solely had the authority to investigate wrongdoing and wield injunctions against defendants to prevent future violations. However, beginning in the 1970s, the SEC “urged courts to order disgorgement as an exercise of their ‘inherent equity power to grant relief ancillary to an injunction.’”[5] Federal district courts complied with the request to prevent wrongdoers from profiting off violations of securities laws and to protect the investing public.[6]

In 1990, Congress passed the Securities Enforcement Remedies and Penny Stock Reform Act, which gave the SEC authorization to seek monetary penalties via an enlarged arsenal of enforcement tools.[7] In 2002, Congress allowed the SEC to seek “any equitable relief that may be appropriate or necessary for the benefit of investors” in federal court.[8] Then, in 2010, following the 2008 financial crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which “authorized the SEC to impose [civil penalties] through its own in-house proceedings” before administrative law judges (ALJs).[9]  

Recent Challenges to the Disgorgement Remedy

As the SEC’s use of disgorgement – and the amount of disgorgement ordered – increased, industry actors have challenged these orders through a series of cases heard by the Supreme Court. In 2017 the Court issued a unanimous decision in Kokesh v. SEC, finding that “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of Section 2462 of the Exchange Act, and so disgorgement actions must be commenced within five years of the date the claim accrues.”[10]

Less than three years later, the Supreme Court ruled in Liu v. SEC on the question of whether disgorgement can be ordered in SEC enforcement proceedings. In this decision, the Court held that “a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief under § 78u(d)(5) [of the Exchange Act].”[11] For an order of disgorgement not to “spill over” into the territory of pecuniary sanctions, the Court found that such orders must be limited in that (1) the wrongful gains are returned to the aggrieved party;[12] (2) the remedy must be limited to the net profits of each individual wrongdoer (unless the defendants are “partners engaged in concerted wrongdoing,” an issue which was remanded to the lower courts in this instance);[13] and (3) the order of disgorgement must be limited to the net profits of the wrongdoer.[14] By following these principles, the Court reasoned that a disgorgement order may take the form of an equitable remedy.[15]

Following the Kokesh and Liu rulings and as part of the National Defense Authorization Act (NDAA) for fiscal 2021, Congress amended the Exchange Act to allow more flexibility regarding the SEC’s timing for bringing disgorgement actions under § 78u(d)(7). The NDAA increased the flexibility by dividing such actions into two distinct categories. The first category codified the Kokesh ruling by limiting when the SEC may bring a claim for equitable relief to “not later than [five] years after the latest date of the violation that gives rise to the action or proceeding in which the Commission seeks the claim occurs.”[16] However, the second category has both a five-year and ten-year statute of limitations, depending on the exact federal securities law(s) alleged to have been violated and the perpetrator’s intent.[17] With these added authorizations and when applicable, the SEC can extend investigations further back in time to seek higher disgorgement amounts and be more dynamic in its use of tolling agreements in negotiations with alleged violators. Congress thereby bifurcated disgorgement claims, doubling the amount of time the SEC has to bring action for serious violations and effectively carving out a statutory exception to the Kokesh decision in a post-Liu environment.

Sripetch v. SEC – The Latest in the Saga on the SEC’s Enforcement Power

Onkgaruck Sripetch, along with other co-defendants, was charged with securities fraud and with the selling of unregistered securities. While Sripetch initially agreed to injunctions against future securities violations, a bar on trading penny stocks, and disgorgement, he later disputed the SEC’s disgorgement request under §§ 78u(d)(5) and (d)(7) of the Exchange Act, asserting that a disgorgement under § 78u(d) requires a showing of pecuniary harm to an investor.

The SEC, on the other hand, contended that while §§ 78u(d)(5) and (d)(7) allow it to “seek disgorgement of only (1) a defendant’s net profits that were (2) causally connected to his unlawful conduct,”[18] the SEC also claimed that the two statutory provisions differ from one another, namely in the sense that while disgorgement under § 78u(d)(5) “must be ‘awarded for victims’ of the defendant’s securities-law violations,”[19] this same constraint does not apply to § 78u(d)(7) since it was enacted after the Liu decision.

The Court bypassed this division, deciding that Sripetch is instead about whether “the SEC must show that an investor suffered a pecuniary loss before it may secure a disgorgement remedy under either § 78u(d)(5) or § 78u(d)(7).”[20] To arrive at its conclusion, Justice Gorsuch, writing for the Court, compared disgorgement with the legal remedy of damages, noting that an award of damages is calculated by the “plaintiff’s loss”[21] with the goal of placing the plaintiff “in as good a position as he would have been in”[22] had the wrongdoer not received a benefit. In contrast, the final award for equitable relief is generally “not measured by [the plaintiff’s] loss but by the defendant’s gain attributable to his wrongdoing against the plaintiff.”[23] Historically, the Court noted that, when “[a]pplying traditional equitable principles, a court ordered the defendant to disgorge the value of the gain attributable to his invasion of the plaintiff’s legally protected interests without requiring a showing of pecuniary loss” and that “[w]hatever else traditional equitable principles demand, they do not require a showing of pecuniary loss before a court may issue an award of unjust profits.”[24]

By grounding its decision in the bedrock notion that actions at equity should be measured according to the wrongdoer’s gain and not to an aggrieved party’s loss, the Court reversed its trend of eroding the SEC’s power in recent history and preserved one of the Commission’s most well-known enforcement mechanisms. This decision ensures that complex and deceptive “victimless” crimes in the securities industry will remain open to SEC prosecution.

However, Sripetch marks the end of a chapter, not the story. As Justice Thomas noted in his concurrence, Sripetch sets the stage for what may be the next constitutional battle – whether the obtainment of disgorged funds functions as “fines regime, an inherently legal process,”[25] and not as “equitable relief,” meaning that it would mandate a Seventh Amendment jury trial.

If you have any questions or would like to discuss these or any related topics further, please contact the authors or your regular Armstrong Teasdale attorney.