US Supreme Court to consider SEC’s ‘disgorgement’ power

By John Kruzel

WASHINGTON, April 20 (Reuters) – The U.S. Supreme Court was set on Monday to weigh the authority of the Securities and Exchange Commission to recover profits made from illegal activities – a financial remedy called disgorgement – in a test of one of the Wall Street watchdog agency’s key powers.

Republican President Donald Trump’s administration is defending the SEC’s broad disgorgement authority against a challenge by a defendant named Ongkaruck Sripetch, who was ordered by a court to repay more than $3 million in ill-gotten gains and interest related to a financial fraud case.

The justices will hear arguments in Sripetch’s appeal of a lower court’s decision backing the SEC’s action.

The SEC’s general power to pursue disgorgement is not in dispute in the case. Courts have long recognized this authority and Congress enshrined it in federal law. At issue is whether the agency must show that victims suffered economic harm before it can seek the surrender of illegal profits.

Under Trump, the SEC used the remedy to obtain around $1.4 billion in fiscal 2025, according to an agency tally that excluded certain sums. The prior year under Democratic President Joe Biden, the SEC obtained $6.1 billion through disgorgement, almost three-fourths of its total financial penalties.    

The SEC in 2020 sought disgorgement for illicit proceeds that it said Sripetch reaped through fraudulent means, including a pump-and-dump scheme that involved artificially inflating the price of penny stocks before selling off his shares at a profit.

Sripetch admitted violating securities law, and in a related criminal case was sentenced to 21 months in prison. He is challenging the lower court’s disgorgement order on the grounds that the SEC failed to prove his actions caused stock prices to drop or otherwise financially harmed investors.

Justice Department lawyers argued in court papers that the SEC is not required to show that fraud inflicted financial, or “pecuniary,” harm before pursuing repayment through the courts. 

“Disgorgement is a remedy designed to strip ill-gotten profits from wrongdoers, not to compensate victims for their losses,” they wrote in court papers.

A California-based federal judge sided with the SEC’s broader interpretation of its disgorgement power in a ruling that was upheld last year by the San Francisco-based 9th U.S. Circuit Court of Appeals.

Federal appellate courts have been divided on whether the SEC must show that victims suffered pecuniary harm as part of the remedy. Both the Trump administration and Sripetch urged the Supreme Court to take up the question to resolve the split among lower courts.

The SEC’s $1.4 billion disgorgement figure for fiscal 2025 excludes certain repayments secured by other federal agencies and an $8 billion payment made in January 2025, during the second week of Trump’s return to the White House, stemming from long-running SEC litigation concerning a Ponzi scheme. Beyond disgorgement, the SEC can also pursue fines, sanctions and other punishment.

(Reporting by John Kruzel; Editing by Will Dunham)