Supreme Court: SEC May Seek Disgorgement Without Proving Investor Loss
The U.S. Supreme Court on June 4 delivered a major win for the Securities and Exchange Commission, unanimously holding that the agency can require securities-law violators to surrender illegal profits without first proving that any particular investor lost money.
The decision in Sripetch v. SEC stems from allegations that Ongkaruck Sripetch was connected to a penny-stock fraud scheme. The Ninth Circuit had upheld an order directing Sripetch to disgorge about $2 million in illicit gains. Sripetch argued the SEC's request should fail because the agency did not show identifiable financial harm to investors.
Writing for a unanimous Court, Justice Neil Gorsuch rejected that position and confirmed that disgorgement—the remedy used to strip wrongdoers of ill-gotten gains—does not depend on proving investor losses.
The Court heard oral arguments on April 20 and issued its ruling roughly six weeks later. The decision also resolves a split among federal appeals courts that had produced different outcomes nationwide. The Ninth and First Circuits had aligned with the SEC, while the Second Circuit's earlier ruling in SEC v. Govil had required proof of victim harm.
The ruling carries significance well beyond penny stocks. Disgorgement remains one of the SEC's core monetary enforcement tools. In fiscal year 2024, the agency collected more than $6.1 billion in disgorgement and prejudgment interest. Notably, the Trump administration defended the SEC in the case, reflecting bipartisan agreement that the agency should be able to recover illegal gains without an extra requirement Congress never imposed.
For crypto and digital asset markets, the decision narrows a defense that had gained traction in the Second Circuit, which includes New York: arguing the SEC failed to prove anyone was harmed. That argument is now off the table nationwide.
For token issuers whose sales are later found to be unregistered securities offerings, the SEC will not need to identify every buyer and establish individualized losses. The agency can instead calculate the issuer's profits and pursue recovery directly. For institutional investors assessing crypto exposure, the SEC's $6.1 billion haul in fiscal 2024 was collected under a more demanding standard; with the new ruling, future totals may rise materially.
