Key Takeaways
- • The U.S. Supreme Court heard oral arguments on April 20, 2026, in *Sripetch v. Securities and Exchange Commission*, a case that will clarify the SEC's authority to seek disgorgement without proving pecuniary harm to investors, directly testing limits established in *Liu v. SEC* (2020).
- • The case involves $6+ million in disgorgement sought by the SEC against Ongkaruck Sripetch for selling unregistered securities, with the Ninth Circuit affirming the award without requiring proof of investor pecuniary harm—creating a circuit split with the Second Circuit's stricter standard.
- • Recent Supreme Court oral arguments suggest justices view disgorgement as an equitable remedy akin to unjust enrichment, indicating potential skepticism toward arguments that would further restrict SEC enforcement authority beyond the net-profits limitation imposed in *Liu*.
- • The outcome will resolve conflicting interpretations among circuit courts: the First and Ninth Circuits allow disgorgement without proving pecuniary harm, while the Second Circuit requires such proof, creating uncertainty for SEC enforcement strategy.
- • A ruling against the SEC's broad disgorgement authority could significantly constrain the agency's civil enforcement toolkit, particularly in cases involving complex securities fraud where measuring direct investor losses is difficult.
Summary
The Supreme Court's April 20, 2026, oral argument in *Sripetch v. Securities and Exchange Commission* presents a pivotal moment for clarifying the scope of SEC enforcement remedies six years after the Court's landmark *Liu v. SEC* decision reshaped disgorgement doctrine. The case centers on whether the SEC may recover more than $6 million in profits obtained by Ongkaruck Sripetch through unregistered securities sales without demonstrating that specific investors suffered pecuniary harm.
The underlying dispute reflects a fundamental disagreement among federal circuit courts. The Ninth Circuit, affirming the district court's disgorgement order, declined to require proof of investor pecuniary harm, aligning with the First Circuit's interpretation. This position conflicts sharply with the Second Circuit, which mandates such proof as a prerequisite for disgorgement awards. This circuit split prompted Supreme Court intervention via certiorari review. The SEC's authority rests on two statutory provisions: 15 U.S.C. § 78u(d)(5), authorizing "any equitable relief that may be appropriate or necessary for the benefit of investors," and § 78u(d)(7), explicitly authorizing disgorgement.
The case's significance is amplified by the *Liu* precedent, which limited disgorgement to "an individual wrongdoer's net profits to be awarded for victims," establishing that the remedy cannot extend beyond net profits derived from wrongdoing. However, *Liu* did not definitively resolve whether the SEC must prove actual harm to investors to access disgorgement as an equitable remedy. The petitioner argues that recent Supreme Court decisions consistently curb broad SEC use of equitable remedial powers, contending that a pecuniary harm requirement aligns with this trajectory.
According to analysis from attorneys at Hueston Hennigan, the recent oral arguments indicate the Court views disgorgement principally as an equitable remedy conceptually linked to unjust enrichment doctrine, suggesting potential skepticism toward arguments that would impose additional restrictions on SEC enforcement. This perspective implies the justices may decline to impose the stricter pecuniary-harm threshold that petitioner advocates. The Court's ruling will either affirm the SEC's broader enforcement flexibility within the *Liu* framework or establish a uniform requirement for demonstrating investor losses before disgorgement can be awarded across all circuits.
The underlying dispute reflects a fundamental disagreement among federal circuit courts. The Ninth Circuit, affirming the district court's disgorgement order, declined to require proof of investor pecuniary harm, aligning with the First Circuit's interpretation. This position conflicts sharply with the Second Circuit, which mandates such proof as a prerequisite for disgorgement awards. This circuit split prompted Supreme Court intervention via certiorari review. The SEC's authority rests on two statutory provisions: 15 U.S.C. § 78u(d)(5), authorizing "any equitable relief that may be appropriate or necessary for the benefit of investors," and § 78u(d)(7), explicitly authorizing disgorgement.
The case's significance is amplified by the *Liu* precedent, which limited disgorgement to "an individual wrongdoer's net profits to be awarded for victims," establishing that the remedy cannot extend beyond net profits derived from wrongdoing. However, *Liu* did not definitively resolve whether the SEC must prove actual harm to investors to access disgorgement as an equitable remedy. The petitioner argues that recent Supreme Court decisions consistently curb broad SEC use of equitable remedial powers, contending that a pecuniary harm requirement aligns with this trajectory.
According to analysis from attorneys at Hueston Hennigan, the recent oral arguments indicate the Court views disgorgement principally as an equitable remedy conceptually linked to unjust enrichment doctrine, suggesting potential skepticism toward arguments that would impose additional restrictions on SEC enforcement. This perspective implies the justices may decline to impose the stricter pecuniary-harm threshold that petitioner advocates. The Court's ruling will either affirm the SEC's broader enforcement flexibility within the *Liu* framework or establish a uniform requirement for demonstrating investor losses before disgorgement can be awarded across all circuits.
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