US Supreme Court affirms SEC disgorgement power without proof of investor loss: Key takeaways

On June 4, 2026, in Sripetch v. Securities and Exchange Commission, the United States Supreme Court unanimously held that a showing of pecuniary loss to investors is not required before the US Securities and Exchange Commission (SEC) may obtain a disgorgement award in enforcement proceedings.

The decision resolves a circuit split on the issue and reinforces the SEC’s ability to pursue disgorgement remedies based solely on a defendant’s unjust enrichment from securities-law violations, even where investors cannot demonstrate out-of-pocket financial harm.

Justice Neil Gorsuch delivered the opinion for a unanimous Court, with Justice Clarence Thomas filing a concurrence raising significant questions about whether SEC disgorgement should be classified as a legal remedy triggering Seventh Amendment jury trial rights.

The ruling has immediate implications for SEC enforcement strategy, corporate compliance programs, and companies and individuals facing potential disgorgement exposure.

Background

The SEC’s disgorgement powers have evolved substantially over the past several decades. When Congress created the SEC in the 1930s, the only statutory remedy available to the agency was a judicial injunction barring future violations of securities laws.

Beginning in the 1970s, the SEC urged lower courts to order disgorgement of unlawfully earned gains as an exercise of courts’ inherent equity power to grant relief ancillary to an injunction. Over time, the SEC began routinely seeking and obtaining disgorgement awards that went beyond compensating victims, sending disgorged funds directly to the US Department of the Treasury.

In 2020, the Court addressed the scope of this remedy in Liu v. SEC, holding that 15 U.S.C. § 78u(d)(5) – which allows the SEC to obtain “any equitable relief that may be appropriate or necessary for the benefit of investors” – authorizes disgorgement so long as the remedy adheres to traditional equitable principles. The Court in Liu established key limitations: Any disgorgement remedy must be limited to the defendant’s net profits causally connected to their unlawful conduct, and amounts secured must be “awarded for victims.”

Six months after Liu, Congress adopted § 78u(d)(7), which expressly added “disgorgement” to the SEC’s list of enforcement tools by providing that the SEC may seek “disgorgement . . . of any unjust enrichment by the person who received such unjust enrichment as a result of” a securities-law violation.

In Sripetch, the defendant was alleged to have engaged in numerous fraudulent schemes involving at least 20 penny-stock companies, including classic “pump and dump” operations. The SEC brought a civil enforcement action charging him with six counts of securities fraud and one count of selling unregistered securities. The defendant consented to the entry of judgment against him. However, when the SEC sought more than $4.1 million in disgorgement, he objected, arguing that the SEC lacked evidence that his schemes caused investors to suffer any financial losses.

The US Court of Appeals for the Ninth Circuit rejected the defendant’s argument, holding that “a finding of pecuniary harm is not required” before a court orders disgorgement. That decision deepened a split among the Courts of Appeals, with the First and Ninth Circuits holding that the SEC may obtain disgorgement without proving pecuniary loss, while the Second Circuit had taken the opposite view.

The Court’s reasoning

The Supreme Court affirmed the Ninth Circuit’s judgment. The Court began by noting that it need not resolve the dispute over how § 78u(d)(7) affects the scope of the SEC’s disgorgement powers because – even assuming that disgorgement under § 78u(d)(7) remains an equitable remedy subject to traditional equitable rules (including the rule that disgorgement must be awarded for victims) – a showing of pecuniary loss is not required before an investor may qualify as a victim entitled to compensation.

The Court distinguished the legal remedy of damages and the equitable remedy of disgorgement. Damages are measured by the “plaintiff’s loss” and aim to put the plaintiff in as good a position as they would have been absent the wrongdoing, whereas disgorgement is measured by the “defendant’s gain” attributable to his wrongdoing against the plaintiff.

Under traditional equitable principles, a victim seeking disgorgement does not need to prove they have “suffered a corresponding loss or, indeed, any loss.” Rather, when a victim “has suffered an interference with protected interests,” they may be entitled to restitution of the defendant’s wrongful gain “even when he has suffered no measurable loss whatsoever.”

The Court rejected the defendant’s argument that Liu had already announced a rule requiring pecuniary loss, explaining that while Liu held that disgorgement must be “awarded for victims,” it drew this requirement from traditional equitable principles, and those principles do not demand a showing of pecuniary loss before a person may qualify as a “victim.” The Court also rejected the argument that allowing disgorgement without pecuniary loss would be inconsistent with Liu’s description of disgorgement as a remedy designed to “restore the status quo.”

Finally, the Court acknowledged the defendant’s concern that, without a pecuniary loss requirement, the SEC might use § 78u(d)(7) to seek penalties for the Treasury rather than compensation for victims. Should that occur, the Court noted, it would raise questions about whether and to what degree § 78u(d)(7) permits deviation from equitable principles. However, the possibility of future overreach did not justify imposing a pecuniary-loss requirement “foreign to Liu and to traditional equitable principles alike.”

Justice Thomas’s solo concurrence

Justice Thomas joined the majority opinion but wrote separately (without other Justices joining) to signal that, in a future case, the Court should recognize that disgorgement is now a legal remedy for which the Seventh Amendment requires a jury trial.

Justice Thomas argued that Congress’s 2021 amendments to the Securities Exchange Act of 1934 – which separated disgorgement into its own subsection with its own statute of limitations, apart from the general authorization for equitable relief – suggest that Congress enacted a specific legal regime for disgorgement.

Justice Thomas further observed that the SEC’s actual practice reflects a legal, rather than equitable, character: In 2024, the SEC obtained orders to disgorge $6.1 billion while returning more than $345 million to victims. Justice Thomas characterized this as “difficult to see . . . as anything other than a fines regime, an inherently legal process,” and urged the Court to address the circuit split on whether § 78u(d)(7) disgorgement is a legal remedy in a future case.

Key takeaways

1. The SEC’s disgorgement authority is now broader in practice. By eliminating the pecuniary-loss requirement as a threshold defense, the Court has removed what had been an effective argument for defendants in certain circuits – particularly the Second Circuit – to resist or limit disgorgement.

2. “Victim” status requires only interference with legally protected interests. Under the Court’s holding, an investor qualifies as a “victim” for disgorgement purposes if the defendant’s conduct interfered with the investor’s legally protected interests, regardless of whether that interference produced any measurable financial harm.

3. The Court left important questions open. The decision expressly did not resolve whether § 78u(d)(7) absolves the SEC from Liu’s requirement that disgorgement be “awarded for victims,” nor whether disgorgement remains limited by traditional equitable principles when sought under the newer statutory authority. The Court also did not clarify what happens when it is infeasible to distribute collected funds to investors.

4. The Seventh Amendment question looms. If the Court eventually holds that disgorgement is a legal remedy (as Justice Thomas’s concurrence suggests), defendants would be entitled to a jury trial under the Seventh Amendment – a development that could substantially alter the dynamics of SEC enforcement proceedings.

5. The SEC’s distribution practices face heightened scrutiny. Both the majority and Justice Thomas’s concurrence emphasized that if the SEC were to use disgorgement as a tool to collect penalties for the Treasury, rather than to compensate victims, that practice would raise serious legal questions.

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