U.S. Supreme Court Hears Oral Argument In Key SEC Enforcement Challenge

On April 20, 2026, the U.S. Supreme Court heard oral argument in Sripetch v. Securities and Exchange Commission (No. 25-466). At issue is an important question regarding the SEC’s remedial authority: Whether the SEC may seek equitable disgorgement in civil-enforcement suits without showing that investors suffered pecuniary harm.

In a civil enforcement action, the SEC sought disgorgement of more than $6 million in profits from Ongkaruck Sripetch for selling unregistered securities. It relied on 15 U.S.C. § 78u(d)(5), which authorizes the SEC to seek “any equitable relief that may be appropriate or necessary for the benefit of investors,” and 15 U.S.C. § 78u(d)(7), which authorizes the SEC to seek “disgorgement.”

The district court granted the SEC’s disgorgement request, concluding that the SEC showed pecuniary harm to investors. In affirming that award, however, the Ninth Circuit declined to consider whether the SEC proved pecuniary harm. Instead, it joined the First Circuit in holding that such a showing was unnecessary for the SEC to seek disgorgement. This holding deepened a circuit split with the Second Circuit, which requires a showing of pecuniary harm to investors before the SEC can seek disgorgement. As is often the case when such a split emerges, the Supreme Court granted certiorari.

In arguing that the SEC must prove pecuniary harm to investors, Petitioner notes a string of recent Supreme Court decisions curbing the SEC’s broad use of equitable remedial powers. The most important case in that line is Liu v. SEC, 591 U.S. 71 (2020), where the Court held that the SEC could not seek disgorgement beyond the defendant’s net profits from his wrongdoing. Importantly, the Court also emphasized that disgorgement is a remedy restricted “to an individual wrongdoer’s net profits to be awarded for victims.” Id. at 79.

Moreover, six months after the Court issued its opinion in Liu, Congress amended 15 U.S.C. § 78u. Among other things, it added subsection (d)(7), which specifically authorizes the SEC to seek “disgorgement.” Relying on the presumption that Congress legislates in light of the common law, Petitioner argues that Congress ratified Liu’s observation that disgorgement is a remedy restricted to returning profits to victims. Thus, to seek disgorgement, the SEC must show pecuniary harm to victims.

The government counters that Liu did not decide the question presented because it construed Section 78u(d)(5), which authorizes the SEC to seek “any equitable relief that may be appropriate or necessary for the benefit of investors.” (Emphasis added.) Section 78u(d)(7), by contrast, specifically governs the SEC’s disgorgement power—and that provision contains no language requiring disgorgement to be used for the benefit of victims. Instead, it broadly gives the SEC authority to seek “disgorgement.”

Justice Sotomayor, who authored the Court’s opinion in Liu, was among the most active participants at oral argument. She acknowledged that Petitioner had several strong arguments and seemed likely to side with him. Justice Gorsuch, who has long been skeptical of the SEC’s expansive use of its equitable remedial power, was also an active questioner. He repeatedly pressed Malcolm L. Stewart, who argued on behalf of the government, whether the SEC’s disgorgement power can be considered “equitable” if the government does not return the money to harmed investors, but instead keeps the money for itself.

Justice Jackson, however, did not seem troubled by the incongruity Justice Gorsuch identified. She observed the longstanding distinction between civil penalties and disgorgement—unlike civil penalties, disgorgement does not punish wrongdoers, but instead strips them of their ill-gotten gains.

There was no clear winner at oral argument. But regardless who succeeds, this case will have significant consequences. If Petitioner wins, it will pose a significant limitation on the SEC’s enforcement power. Most importantly, cases involving indirect or otherwise unquantifiable harms—insider trading, market manipulation, etc.—will be more challenging for the SEC to pursue and obtain disgorgement. That will impact not only the remedies available to the SEC in its enforcement of the securities laws, but which cases the SEC chooses to pursue in the first place.

If the government wins, the SEC’s ability to obtain disgorgement without showing that investors suffered pecuniary harm will be confirmed. However, the remaining question will be how the SEC’s enforcement power fits within the Seventh Amendment, which guarantees the right to a trial by jury. If the government is allowed to keep the disgorged money—which is very likely if it need not identify individuals who were harmed—the SEC’s disgorgement power could resemble a penalty to be collected by the government rather than a refund to wronged investors. If the SEC can do that, it would implicate SEC v. Jarkesy, 603 U.S. 109 (2024), in which the Court held that when the SEC seeks civil penalties against a defendant for securities fraud, the Seventh Amendment entitles the defendant to a jury trial.

A decision is expected by early July.

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