The U.S. Supreme Court has agreed to hear a case that could significantly limit the Securities and Exchange Commission’s (SEC) ability to recover illegal profits. The central question is whether the agency must prove that investors suffered actual financial loss before it can order a wrongdoer to “disgorge” their ill-gotten gains.
The Supreme Court is expected to decide on the issue before its term ends in June 2026, with oral arguments likely in April 2026. The Court agreed to hear the case after the SEC requested clarity due to conflicting lower-court rulings.
Background on Disgorgement
Disgorgement serves as a critical tool for the SEC, enabling it to strip wrongdoers of ill-gotten gains and potentially return funds to affected parties. Unlike civil penalties, which act as punishments, disgorgement focuses on restitution. Whenever possible, the SEC seeks to return the recovered funds to the investors harmed by the fraud.
In fiscal year 2024, the SEC collected over $6 billion in disgorgement and related interest, representing nearly three-quarters of its total financial recoveries. However, this figure plummeted to a historic low of $108 million in fiscal 2025, per Cornerstone Research data. This decline aligns with the views of SEC Chairman Paul Atkins, appointed by President Donald Trump in 2025, who has criticized excessive corporate fines. The SEC has yet to release its official 2025 enforcement statistics.
A prior Supreme Court ruling in 2020 (Liu v. SEC) affirmed the SEC’s disgorgement powers but imposed limits: awards must not surpass the violator’s net profits and should benefit victims. This decision has fueled debates over whether proof of investor harm—known as “pecuniary harm”—is required.
The Charges Against Sripetch
The SEC and the Department of Justice (DOJ) targeted Sripetch for orchestrating a series of fraudulent “pump-and-dump” and “scalping” schemes involving nearly 20 microcap (penny stock) companies. Sripetch allegedly acquired shares in undervalued companies, arranged for third parties to hype the stocks via misleading promotions, and then sold his holdings at inflated prices, causing investor losses.
- Stock Scalping: Sripetch and his associates allegedly bought large amounts of stock, funded aggressive promotional campaigns to drive up the price, and then sold their shares at a profit without disclosing their intent to sell or their role in funding the promotions.
- Market Manipulation: In some instances, the group engaged in “matched orders” and “wash trades”—fictitious trades designed to create the illusion of active market interest to lure in retail investors.
- Sales of Unregistered Securities: Sripetch was also charged with selling more than 24 million shares of microcap stock that were not registered with the SEC as required by law.
The SEC initially sought $4,115,365.88 in disgorgement from Sripetch.
The Judgement Against Sripetch
Sripetch consented to a partial judgment against him in the civil enforcement action. This agreement included permanent injunctions against future violations of securities laws (Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Sections 9(a)(1) and 10(b) of the Securities Exchange Act of 1934; and Rule 10b-5), as well as a permanent penny stock bar. Importantly, Sripetch agreed that the district court could order disgorgement but reserved the right to contest the amount and basis for it.
On April 17, 2024, U.S. District Judge Gonzalo P. Curiel issued a final judgment, ordering Sripetch to disgorge $2,251,923.16 in net profits, plus $1,063,442.72 in prejudgment interest, totaling about $3.3 million. The court did not require the SEC to prove specific pecuniary harm to investors, focusing instead on depriving Sripetch of his wrongful gains.
While Sripetch pleaded guilty to criminal charges and was sentenced to 21 months in prison, he challenged the SEC’s civil demand that he pay back $2.25 million in profits.
The Circuit Split
The lower court rulings in the Sripetch v. SEC case, as well as the influential rulings that created a “circuit split”, have led to the Supreme Court’s review.
- June 22, 2020: Liu v. SEC (Supreme Court Foundation): The Supreme Court set the current standard, ruling that the SEC can seek disgorgement only if the amount does not exceed net profits and is “awarded for victims”. This decision created the legal ambiguity that the lower courts later interpreted differently.
- August 5, 2022: SEC v. Hallam (Fifth Circuit): The Fifth Circuit was the first to disagree with the restrictive trend, arguing that new laws passed by Congress in 2021 changed the rules. It ruled that these new statutes authorized disgorgement in a “legal” sense rather than just an “equitable” one, meaning the SEC is not required to show that investors suffered financial harm. By focusing on the wrongdoer’s profit rather than the victim’s loss, this court allowed the SEC to keep using its traditional recovery methods.
- October 31, 2023: SEC v. Govil (Second Circuit): The Second Circuit Court of Appeals ruled that the SEC must show “pecuniary harm” (financial loss) to investors for them to be considered “victims” eligible for disgorgement proceeds. This significantly limited the SEC’s power in New York, Connecticut, and Vermont.
- July 11, 2024: SEC v. Navellier & Associates, Inc. (First Circuit): The First Circuit joined the Fifth Circuit in rejecting the “pecuniary harm” requirement, even in a case where investors actually made a profit. The court emphasized that disgorgement is a “profit-based measure of unjust enrichment” designed to strip a fraudster of their ill-gotten gains, regardless of whether the investors suffered financial damage. It explicitly disagreed with the Second Circuit, stating that financial loss is not a “precondition” for the SEC to take back illegal profits.
- September 3, 2025: SEC v. Sripetch (Ninth Circuit) The Ninth Circuit Court of Appeals affirmed the lower court’s $2.25 million order, ruling that the SEC does not need to prove “pecuniary harm” (actual monetary loss) to investors. It argued that a “victim” is anyone whose legal rights were violated by fraud, regardless of whether they lost money. This ruling aligned with decisions from the First and Fifth Circuits but conflicted with the Second Circuit’s 2022 Govil v. SEC decision. The Ninth Circuit’s stance deepened the circuit split, prompting calls for Supreme Court clarification.
What’s at Stake?
If the Supreme Court sides with Sripetch, it could make it much harder for the SEC to recover money in cases involving fraud, since individual investor losses are difficult to calculate or prove. Currently, the SEC, under the Trump administration, is urging the Court to maintain its broad power, arguing that the availability of the remedy should depend on whether the violator made a profit, not on whether the victim lost money.
This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.
If you have any questions about this article or would like to speak to a Securities Attorney, Hamilton & Associates Law Group, P.A. is ready to help. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.
To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].
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