Sripetch: Additional Considerations from Supreme Court's Unanimous Decision Upholding SEC's Disgorgement Remedy

Holland & Knight continues its SECond Opinions Blog Summer Series featuring posts written and researched by the associates from our Securities Enforcement Defense Team. This blog comes from Austin Associate Brandon King, who focuses his practice on complex civil litigation and white collar defense and investigations, representing clients in the commercial, regulatory, real estate and healthcare sectors.

Some time has passed since the U.S. Supreme Court issued its unanimous decision in Sripetch v. Securities and Exchange Commission,¹ resolving a lingering circuit split and permitting the SEC to continue imposing disgorgement as a financial remedy even in situations where investors have not suffered actual pecuniary harm. On this muggy day, we are revising the decision, authored by Justice Neil Gorsuch, which preserves one of the SEC's most potent enforcement tools. Despite the SEC's win, a pointed concurrence from Justice Clarence Thomas signals that the next chapter in the court's ongoing examination of SEC disgorgement may already be taking shape. Let's dive in.

Background

As discussed in a prior post, the case arose from a series of penny-stock pump-and-dump schemes allegedly orchestrated by an individual named Ongkaruck Sripetch (Sripetch). After Sripetch agreed to a so-called bifurcated settlement – agreeing to resolve issues of liability on a no-admit basis but leaving the issue of remedies subject to the court's decision – the SEC sought more than $4.1 million in disgorgement. Sripetch objected, arguing that the SEC lacked evidence that any investors suffered financial losses and, therefore, disgorgement was not an appropriate remedy because the SEC could not show it would be "awarded for victims" as required by the court's 2020 decision in Liu v. SEC, 591 U.S. 71, 79 (2020).

The district court accepted the SEC's position, finding that the Commission had done enough to demonstrate that investors had suffered pecuniary loss, and ordered Sripetch to pay $2,251,923.16 in disgorgement plus $1,051,353.77 in prejudgment interest, totaling more than $3.3 million. Notably, the district court did not decide whether such a showing was actually required. See 2024 WL 1546917, at *5 ("[T]he Court need not resolve this split of out-of-circuit authority because…SEC has demonstrated that investors have been harmed by Defendant Sripetch's fraudulent schemes").

The U.S. Court of Appeals for the Ninth Circuit, however, expressly held that a finding of pecuniary harm is not required before a court orders disgorgement, joining the U.S. Court of Appeals for the First Circuit and deepening a split with the U.S. Court of Appeals for the Second Circuit, which requires a showing of financial loss before the SEC may seek disgorgement. See SEC v. Sriptech, 154 F. 4th 980, 986 (9th Cir. 2025).

Understanding the split requires a brief note on the U.S. Congress' actions post-Liu. Seven months after the Liu decision was issued, Congress enacted Section 78u(d)(7) of the Securities Exchange Act of 1934 (Exchange Act) as part of the National Defense Authorization Act, for the first time expressly authorizing the SEC to seek disgorgement and establishing separate limitations periods for disgorgement and equitable remedies. The circuit split at the heart of Sripetch grew directly from lower courts' attempts to apply Liu's equitable constraints – including the requirement that disgorgement be "awarded for victims" – in light of this new statutory codification of the disgorgement power.

The Opinion

In holding the SEC is not required to prove investor pecuniary harm to obtain disgorgement, the court applied the same traditional equitable principles that anchored its prior disgorgement decisions in Kokesh and Liu that held, respectively, SEC disgorgement constitutes a "penalty" subject to the five-year statute of limitations under 28 U.S.C. § 2462 and a disgorgement award not exceeding a wrongdoer's net profits and awarded for the benefit of victims is permissible equitable relief under Section 78u(d)(5). See Kokesh v. S.E.C., 581 U.S. 455, 465–67 (2017); Liu, 591 U.S. at 45.

In Sripetch, the court drew a core distinction between damages (measured by a plaintiff's loss) and disgorgement (measured by a defendant's gain). The court also reaffirmed Liu's principle that any disgorgement remedy must be limited to a defendant's net profits from wrongdoing – meaning legitimate expenses must be both deducted and awarded for the benefit of victims. With that framework in mind, the court explained that courts sitting in equity "have long issued remedies designed to 'deprive wrongdoers of their net profits from unlawful activity,'" slip op at 8, regardless of whether that invasion left the victim financially worse off:

Under traditional equitable principles, a victim seeking disgorgement of a defendant's unlawful gains does not need to prove he has "suffered a corresponding loss or," indeed, "any loss." Restatement (First) of Restitution §1, Comment e (1936) (First Restatement). Instead, when a victim "has suffered an interference with protected interests," he may be entitled to "restitution of [the defendant's] wrongful gain" from that interference even when he has suffered "no measurable loss whatsoever." Third Restatement §3, Reporter's Note a; id., §1, Comment a. The point of the remedy is for "the defendant . . . to give to the plaintiff the amount by which he has been enriched" from the wrongful invasion of the plaintiff 's legally protected interests, not to compensate the plaintiff for a financial loss. First Restatement §1, Comment e.

Id. at 9.

The court analyzed a series of common law cases ranging from the unauthorized use of a railroad easement (see Raven Red Ash Coal Co. v. Ball, 39 S.E. 2d 231 (Va. 1946)) to the exhibition of a cave that extended beneath a neighbor's property (see Edwards v. Lee's Adm'r, 96 S. W. 2d 1028 (Ky. 1936)). In each case, courts ordered defendants to disgorge profits even though the plaintiffs conceded they had suffered no cognizable financial harm. The court distilled the principle into what will likely become a frequently cited passage:

What all these and a great many other cases have in common is this: Applying 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 to know that much is enough to know the answer to this case. Whatever else traditional equitable principles demand, they do not require a showing of pecuniary loss before a court may issue an award of unjust profits.

Id. at 10-11.

Though the court rejected all of Sripetch's counterarguments, it analyzed only the "most salient." Id. at 11. First, Sripetch contended that Liu announced a pecuniary loss requirement when it held that disgorgement must be "awarded for victims." The court disagreed, explaining that Liu drew its "victim" requirement – that disgorged funds must ultimately reach wronged investors rather than serve as a windfall for the government – from traditional equitable principles which, again, have never demanded a showing of pecuniary loss before a person may qualify as a victim entitled to a wrongdoer's profits. Id. at 11. The court also held that allowing disgorgement without proof of pecuniary loss was not inconsistent with Liu's description of disgorgement as a remedy designed to "restore the status quo," reasoning that a defendant can unjustly enrich himself even without leaving a plaintiff financially worse off. In those situations, a court must choose between two versions of the status quo: It can strip the defendant of unjust gains, or it can allow the defendant to keep the fruits of misconduct simply because the plaintiff's bank account did not change. Id. at 11-12. Equity prefers the former. Id. at 12.

The "Victim" Requirement

An important question remains: If disgorgement is fundamentally about depriving a wrongdoer of gains rather than compensating victims for losses, what does Liu still stand for? The answer may rest in a distinction the court drew but did not belabor in Sripetch. To be sure, Sripetch does not eliminate the victim requirement altogether; rather, it redefines what it means to be a "victim." Under the court's framework, a victim is anyone who has suffered an interference with legally protected interests, regardless of whether that interference caused the investor to incur a measurable financial loss. The award must still be directed to those victims (not deposited in the U.S. Department of the Treasury) but the victims themselves need not demonstrate a lighter wallet. Put simply, even when a defendant financially gains from a securities violation in which an investor does not financially lose, equity requires that the defendant be stripped of that gain and, under Liu, that it be for the benefit of investors.

The textual hook for Liu's victim requirement, then, is the "for the benefit of investors" language in Section 78u(d)(5) of the Exchange Act, which the Liu court read to require that disgorged funds need ultimately reach wronged investors rather than serve as a windfall for the government. Sripetch leaves that principle intact. But by holding that the measure of disgorgement is the defendant's unjust gain and not any quantifiable investor loss, the court has effectively separated two questions that troubled lower courts: 1) who must receive disgorged proceeds (victims), and 2) how are those proceeds calculated (by reference to the wrongdoer's profits, not the victims' losses).

This separation has practical consequences. It means disgorgement remains tethered to the existence of identifiable victims whose legally protected interests were invaded, but it does not require the SEC to prove that those victims suffered financial harm corresponding to, or resulting from, the defendant's gains. Whether this distinction can hold in all cases – particularly where the SEC seeks disgorgement for violations that do not obviously invade any specific investor's protected interests – is a question the court expressly reserved.

The Opinion's Limits

The court was careful to confine its holding, expressly declining to resolve whether Congress' post-Liu addition of Section 78u(d) that, as discussed above, authorizes the SEC to seek disgorgement, frees the Commission from Liu's requirement that disgorgement be "awarded for victims." Id. at 7 ("To decide this case, we need not resolve that dispute."). The court assumed without deciding that disgorgement under Section 78u(d)(7) remains an equitable remedy subject to traditional equitable constraints, including the requirement that it be awarded for victims. Id. at 7-8.

The court also declined to resolve whether the SEC may seek disgorgement when it is "infeasible to distribute the collected funds to investors" – a question the court conceded was left open in Liu. Id. at 3. And though the court warned that any attempt by the SEC to use Section 78u(d)(7) to seek financial remedies akin to punitive penalties rather than legitimate disgorgement designed to strip an alleged wrongdoer of unjust gains "would raise questions about whether and to what degree [the statute] permits deviation from equitable principles," it stopped short of expressly drawing that line. The court suggested, however, that it would violate Liu and the text of Section 78u. Id. at 12 ("Should the government seek to depart from traditional equitable principles and attempt to use §78u(d)(7) to secure penalties, it would of course proceed beyond what Liu held §78u(d)(5) tolerates.").

Justice Thomas' Concurrence

Justice Thomas filed a concurring opinion to lay the groundwork for a challenge that could potentially influence how the SEC obtains disgorgement: whether the Seventh Amendment entitles defendants to a jury trial when the SEC seeks this remedy. Though on paper this could signal alarm, in practice the question may not ruffle the SEC's feathers all too much, as it already adapted to the court's 2024 decision in Jarkesy, which held that the SEC cannot leverage a home court advantage by litigating fraud claims before its own administrative judges because defendants in such cases have a jury trial right under the Seventh Amendment.² The SEC has been filing litigated matters in federal district courts for some time, where defendants are free to demand a jury trial.

For Justice Thomas, Congress' enumeration of disgorgement as a separate remedy in Section 78u(d)(7) effectively transformed disgorgement into a legal remedy rather than a purely equitable one. See Thomas, J. concurring op. at 7. According to Justice Thomas, the Exchange Act now "twice distinguishes between disgorgement and equitable remedies," setting different limitations periods for each, and SEC disgorgement does not resemble any traditional equitable remedy – it is not a constructive trust, an equitable lien or an accounting for profits in the traditional sense. Id. at 5. Instead, it more closely resembles legal restitution for which the Seventh Amendment guarantees a jury trial. Id . at 6.

The concurrence punches with an extraordinary statistic: In fiscal year 2024, the SEC obtained orders to disgorge $6.1 billion but returned only $345 million to victims. As Justice Thomas puts it, "[i]t is difficult to see such a practice as anything other than a fines regime, an inherently legal process." Id. at 8. He notes the circuit courts have already split on this question and urges the court to take it up. See id. at 10 (citing SEC v. Hallam, 42 F. 4th 316, 341 (5th Cir. 2022); SEC v. Ahmed, 72 F. 4th 379, 395 (2nd. Cir. 2023)).

The Road Ahead

Although Sripetch provides clarity in some areas and uncertainty in others, it also created multiple avenues for future challenges to the Commission's authority.

The Infeasibility of Distribution Problem. Even with the pecuniary loss question resolved, the SEC must still grapple with the practical difficulty of remedying investor losses in many of its cases. In actions involving market manipulation, the impact on investors is often not subject to reliable measurement. In insider trading cases, for example, the SEC frequently struggles to identify who was on the other side of an illegal trade because the defendant was trading on material nonpublic information. And in penny-stock schemes like Sripetch, there may be large numbers of investors for which identification and distribution could be costly or impractical. The court expressly left open whether the SEC may seek disgorgement when it is infeasible to actually identify and distribute collected funds to investors – a question that has lingered since Liu – and this issue will continue percolating in the enforcement program. Sripetch arguably sharpens this tension: If the SEC need not prove that anyone lost anything and if the measure of disgorgement is purely the defendant's gain, it becomes increasingly unclear what "feasibility of distribution" means in practice or what the continued purpose of the "victim" requirement is if the SEC need not identify specific investors or quantify their losses to recover the full measure of the defendant's profits.

Disgorgement Without a Victim. The court's decision not to resolve whether Section 78u(d)(7) frees the SEC from Liu's requirement that disgorgement be "awarded for victims" could embolden the SEC to make this argument in future cases. Specifically, the SEC may contend that the current version of the Exchange Act allows it to seek disgorgement even without identifying a victim – a position that, if accepted, would dramatically expand the remedy's reach.

Net Profits and Causation. Defendants will also continue to challenge disgorgement calculations at the margins, contesting whether net profits have been properly established and whether the profits the SEC seeks are sufficiently causally related to the securities-law violations. These fact-intensive disputes will always remain a primary battleground in enforcement actions.

A recent decision from the U.S. District Court for the Southern District of New York illustrates how quickly Sripetch is being put to work at this very stage. In SEC v. Gallagher, No. 21-CV-8739 (PKC), 2026 WL 1785231 (S.D.N.Y. June 18, 2026), the court relied directly on Sripetch in ordering a defendant charged with scalping and market manipulation to disgorge $1.26 million in trading profits, quoting the decision for the proposition that "any remedy must be limited to the defendant's net profits (not total revenues) derived from his securities-law violations" and that "any amounts the SEC secures must be 'awarded for victims.'" Id. at *18. The court also observed that Sriptech displaced the Second Circuit's Govil decision, which required a showing of pecuniary harm before disgorgement could be awarded. Id. at *18 & n.16.

Gallagher also previews the fights ahead on the profits side of the equation: The defendant unsuccessfully challenged the SEC's expert-driven profits calculation on causation grounds, arguing (among other things) that his tweets could only be shown to correlate with, not cause, stock price movements. Id. at *20. The court rejected that argument and reaffirmed that the SEC need only offer "a reasonable approximation of profits causally connected to the violation," with any residual uncertainty falling on the wrongdoer whose conduct created it. Id. at *21.

No Do-Overs

For those respondents who resolved their actions with the SEC, either through litigation or settlement, and paid disgorgement or have agreed to pay it, the Sripetch decision changes nothing. And even if the decision went the other way, the SEC has made clear (in previous actions involving off-channel communications, for instance) that it is not amenable to challenges to past settlements.

The End…for Now

For now, the SEC can take comfort in a unanimous win at the nation's highest court after a string of earlier losses on disgorgement. The decision preserves one of the agency's most powerful monetary remedies and, in the SEC General Counsel's words, is critical to maintaining a consistent approach across the enforcement program. But attacks on disgorgement are not going away, suggesting that the Supreme Court's examination of SEC disgorgement may be on summer break, but it is far from over.

The SECond Opinions Blog will continue to monitor developments and provide updates. If you need additional information on this topic – or any topic related to securities enforcement or investigations – please contact the authors or other members of Holland & Knight's Securities Enforcement Defense Team.

Notes

¹ 608 U.S. ___, 146 S. Ct. 1403 (2026).

² SEC v. Jarkesy, 144 S. Ct. 2117 (2024).