Supreme Court Says SEC Need Not Show Investors Lost Money to Obtain Disgorgement

The U.S. Supreme Court's unanimous decision in *Sripetch v. SEC* significantly strengthens the SEC's enforcement arsenal by eliminating a critical burden of proof that had constrained the agency's ability to recover ill-gotten gains from securities law violators. The Court held that the SEC may obtain disgorgement—the forced return of wrongful profits—without demonstrating that any investor suffered actual financial loss as a direct result of the defendant's misconduct.

Writing for the Court, Justice Gorsuch anchored the ruling in centuries-old equity principles. He explained that traditional restitution law has never required proof that a victim suffered measurable pecuniary harm to justify stripping a defendant of unlawful gains. Instead, equity recognizes that a defendant who interferes with a victim's protected interests can be forced to disgorge wrongful profits "even when he has suffered no measurable loss whatsoever." This principle applies with particular force when a defendant unjustly enriches himself through securities violations, even if the mechanics of the fraud leave investors' financial positions technically unchanged.

The decision directly addresses and rebuffs arguments that the Court's 2020 decision in *Liu v. SEC* compelled a different outcome. Although *Liu* established that disgorgement is an equitable remedy that "must be awarded for victims," the Supreme Court clarified that this requirement does not hinge on proving pecuniary loss. The Court further rejected contentions that allowing disgorgement without proof of harm contradicts *Liu*'s instruction that disgorgement is designed to restore the status quo. According to the majority, when a defendant cannot be left better off than before his misconduct without leaving victims worse off, equity traditionally favors stripping the defendant of his unjust gains over permitting him to retain the fruits of wrongdoing.

However, significant questions remain unresolved. The Court conspicuously reserved judgment on the impact of Congress's 2021 amendments to the Securities Exchange Act, which explicitly added disgorgement to the SEC's available remedies following the *Liu* decision. Specifically, the Court left open whether the SEC can pursue disgorgement that amounts to a penalty benefiting the U.S. Treasury or otherwise departs from traditional equitable principles. Justice Thomas's concurring opinion signals a potential future conflict: he argued that the 2021 amendments may have created a new remedy at law (not an equitable remedy) that would entitle defendants to jury trial rights and questioned whether the SEC should retain disgorgement authority under the revised statute at all.

For institutional investors and compliance officers, the immediate takeaway is clear: the SEC's primary enforcement mechanism for recovering wrongful gains from securities violators has been substantially reinforced. Yet investors and legal practitioners should monitor future developments regarding the scope of the 2021 amendments and whether the Court will ultimately curtail disgorgement authority in contexts that exceed traditional equitable limitations.