Is Stock-a-palooza Over? Supreme Court allows SEC to Pursue Disgorgement

Key Takeaways

On June 4, 2026, the U.S. Supreme Court unanimously held that the U.S. Securities and Exchange Commission (SEC) can continue to pursue disgorgement as an equitable remedy in securities fraud cases without showing pecuniary loss by investors. The Court’s ruling in Sripetch v. SEC resolves a split between the U.S. Court of Appeals for the Second Circuit, which concluded that the SEC must demonstrate pecuniary loss, and the U.S. Courts of Appeals for the First and Ninth Circuits, which declined to require such a showing.

Background

The SEC has routinely sought disgorgement as an equitable remedy to recover ill-gotten gains since the U.S. Court of Appeals for the Second Circuit decided the seminal SEC v. Texas Gulf Sulphur case in 1971. See Liu v. SEC, 591 U.S. 71, 75 (2020) (citing SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301 (CA2 1971)). In 2002, Congress adopted 15 U.S.C. § 78u(d)(5), which allowed the SEC to pursue “any equitable relief that may be appropriate or necessary for the benefit of investors.” The U.S. Supreme Court upheld the SEC’s authority to seek disgorgement as an equitable remedy under § 78u(d)(5) in 2020. Liu, 591 U.S. at 75. However, Liu also limited disgorgement to net profits from wrongdoing. Id.

While Liu clarified that disgorgement is an equitable remedy that can be pursued for the benefit of investors, it left open the practical question of whether the SEC needed to prove that investors suffered financial harm before seeking disgorgement. Liu was also silent on whether returning ill-gotten gains to the U.S. Department of the Treasury (USDT), rather than directly to investors, was for the benefit of investors. Id. at 90; see also our prior alert on Liu here. Following Liu, Congress adopted 15 U.S.C. § 78u(d)(7), which provides the SEC with express statutory authority to pursue disgorgement.

In the wake of Liu, the U.S. Courts of Appeals for the First, Second, and Ninth Circuits each addressed the open question of whether a finding of pecuniary harm to investors was required for the SEC to obtain disgorgement. The Second Circuit, in SEC v. Govil, reasoned that, as an equitable remedy, disgorgement could only be “awarded for victims” and that pecuniary harm to victims was a prerequisite for awarding disgorgement. 86 F.4th 89, 106 (2d Cir. 2023). The First Circuit applied Liu differently, holding that disgorgement was available as a remedy, even where investors did not suffer pecuniary harm. The First Circuit reasoned that “disgorgement is a profit-based measure of unjust enrichment which reflects the foundational principle that it would be inequitable that a wrongdoer should make a profit out of their own wrong.” SEC v. Navellier & Associates, Inc., 108 F.4th 19, 41 (1st Cir. 2024) (citation modified).

In its latest decision, the Supreme Court was poised to resolve the circuit split over whether the SEC must demonstrate pecuniary loss to wronged investors as a condition of securing disgorgement. The appellant, Ongkaruck Sripetch, engaged in a series of fraudulent schemes tied to at least 20 penny stock companies. The schemes followed similar patterns, where one participant in the scheme would obtain shares in a microcap or “penny stock” issuer through a convertible debt agreement. Then, Mr. Sripetch and others would promote the issuer either directly through Sripetch’s website, Stockpalooza.com, or via third-party promoters, without disclosing that the funder of the promotions owned a significant amount of stock in the issuers being promoted. Once the share prices of these penny stock companies rose, Sripetch and other scheme participants would sell their shares at a premium. The SEC brought a civil enforcement action in the U.S. District Court for the Southern District of California, charging Sripetch with six counts of securities fraud and one count of selling unregistered securities. Sripetch consented to a judgment against him, and the district court entered final judgment requiring him to disgorge his net profits of $2,251,923.16 plus pre-judgment interest of $1,051,353.77.

Sripetch appealed to the Ninth Circuit, arguing that the Supreme Court’s Liu decision required the SEC to demonstrate that victims of his scheme suffered financial harm before it could obtain disgorgement. The Ninth Circuit considered the Govil and Navellier holdings and rejected Sripetch’s argument. SEC v. Sripetch, 154 F.4th 980, 982 (9th Cir. 2025). The Ninth Circuit adopted the view that disgorgement is a remedy designed to ensure that wrongdoers do not retain profits from their misconduct and, as such, held that disgorgement does not require a showing of pecuniary harm to investors. See id. The Supreme Court granted certiorari on January 9, 2026, heard oral arguments on April 20, 2026, and issued its decision on June 4, 2026.

The Supreme Court’s Ruling

In a unanimous decision, the Supreme Court affirmed the judgment of the Ninth Circuit. Writing for the Court, Justice Gorsuch explained that, under traditional equitable principles, disgorgement is available in any instance where a defendant has received a benefit that is “attributable to his invasion of the plaintiff’s legally protected interests.” Sripetch v. SEC, No. 25-466 slip op. at 10–11 (S. Ct. Jun. 4, 2026). Justice Gorsuch then disposed of Sripetch’s argument that disgorgement in the absence of pecuniary loss would be contrary to Liu’s classification of the remedy as one designed to “restor[e] the status quo.” Id. at 11. The Court instead focused on the practical effect of disgorgement on the defendant rather than the investors. Under circumstances where a defendant can unjustly enrich himself without causing financial harm to investors, Justice Gorsuch wrote that “a court must choose between two status quos: It can either restore the defendant to his prior position by stripping him of his unjust gains, or it can allow the defendant to benefit from his misconduct because the plaintiff’s financial position has not changed.” Id. at 11–12. The Court held that equitable principles prefer the first outcome and, thus, courts can order disgorgement to return a defendant who has unjustly enriched himself to his prior position even in the absence of financial harm to the victims. Id. at 12.

Open Questions

The Court explicitly limited its ruling to actions brought under § 78u(d)(5) and declined to substantively address Sripetch’s argument that actions for disgorgement under § 78u(d)(7) may deviate from traditional equitable principles by seeking penalties for USDT rather than compensation for victims. Justice Gorsuch suggested that there remains an open question as to whether disgorgement under § 78u(d)(7) would constitute a “penalty” and thus entitle a defendant to a jury trial. Justice Thomas confronted this issue directly in his concurrence, writing that “[t]he Seventh Amendment requires a jury trial when the SEC seeks disgorgement because Congress has now made disgorgement a legal remedy, not an equitable one.” Sripetch v. SEC, No. 25-466 slip op. at 3 (S. Ct. Jun. 4, 2026) (Thomas, J. concurring). While quoting Black’s Law Dictionary’s (12th ed. 2024) definition of disgorgement, Justice Thomas also noted that it is not a precise legal term. Id. at 1 (citing SEC v. Hallam, 42 F. 4th 316, 327 (CA5 2022)). Notably, disgorgement did not even appear in Black’s Law Dictionary before the 7th edition in 1999, though the term has been around since at least the early 1800s.

As of now, it remains an open question whether the SEC can pursue disgorgement under its § 78u(d)(7) authority in an administrative forum. See SEC v. Jarkesy, 603 U.S. 109, 123–25 (2024) (the Seventh Amendment entitles the defendant to a jury trial when the SEC seeks a penalty).

Implications for Future Cases

The Sripetch decision resolves a split between the Second Circuit and the First and Ninth Circuits and clarifies that traditional equitable principles do not require the SEC to demonstrate any pecuniary loss to investors in order to seek disgorgement. The Court’s adherence to Liu’s holding that disgorgement under § 78u(d)(5) is an equitable remedy suggests that the SEC will continue to seek disgorgement in enforcement actions where defendants unjustly enrich themselves through securities fraud — regardless of whether it can demonstrate pecuniary harm to investors and, for now at least, regardless of where the money goes.