New Script for SEC Disgorgement Demands: Supreme Court Rejects Pecuniary Harm Requirement

On June 4, 2026, the U.S. Supreme Court upheld the SEC’s authority to seek disgorgement without first showing pecuniary harm to investors. The unanimous holding in Sripetch v. SEC confirmed the skepticism of the justices that was evident throughout oral argument in April. The opinion, authored by Justice Neil Gorsuch, resolves a split in which the Second Circuit had required a showing of pecuniary harm, while the First and Ninth Circuits declined to impose such a requirement.

Setting the Stage

In 2024, the U.S. District Court for the Southern District of California entered final judgment against petitioner Sripetch after a consent judgment in an SEC civil enforcement action under the Securities Exchange Act of 1934. The SEC alleged a fraudulent scalping scheme and other securities law violations involving penny stock companies. Pursuant to the final judgment, the SEC ordered Sripetch to disgorge approximately $2.25 million as well as $1.05 million in prejudgment interest. Sripetch appealed the order of disgorgement, arguing that the SEC had the burden of proving pecuniary harm to investors under 15 U.S.C. §§ 78u(d)(5) (Section 5) and (d)(7) (Section 7).

The case reached the Supreme Court against a backdrop of continuing uncertainty following the court’s decision in Liu v. SEC. In Liu, the court held that disgorgement may qualify as equitable relief under Section 5 if limited to the wrongdoer’s net profits and if awarded “for victims.” However, Liu left several questions unresolved, including whether courts must find that investors suffered pecuniary harm before ordering disgorgement.

Congress Thickens the Plot

In 2021, approximately six months after Liu, Congress amended the Exchange Act to add Section 7, which expressly authorizes the SEC to seek disgorgement in civil actions. Notably, unlike Section 5, Section 7 did not include the phrase “for the benefit of investors,” thereby creating a new statutory basis for disgorgement that might not carry the same equitable limitations set forth in Liu.

Thus, in his petition, Sripetch first argued that, under Sections 5 and 7, disgorgement without pecuniary harm violates traditional principles of equity. However, he also argued that disgorgement without pecuniary harm should be considered a civil penalty, which, in turn, triggers the Seventh Amendment right to a jury trial per the Supreme Court’s decision in SEC v. Jarkesy. Although Sripetch raised the Jarkesy issue, the court did not consider this argument. Justice Gorsuch stated that “[t]he only question we took this case to resolve is whether the SEC must show that an investor suffered a pecuniary loss before it may secure a disgorgement remedy under either [Section 5 or Section 7].” Likewise, in his concurrence, Justice Clarence Thomas addressed the jury trial requirement insofar as the court may take up the issue in a future case.

Supreme Court Clarifies Stage Directions for SEC

The court disagreed with Sripetch’s first claim, i.e., that awarding disgorgement without proving pecuniary harm violates traditional principles of equity as delineated in Liu. During oral argument, Justice Sonia Sotomayor, who had authored Liu, emphasized that a considerable body of historical precedent, common law, and legal scholarship indicates that “disgorgement as an equitable remedy never required proof of pecuniary loss.” Likewise, the court confirmed that, historically, various forms of equitable relief, including disgorgement, all had the same underlying principle: “the final award to the plaintiff is not measured by his loss but by the defendant's gain attributable to his wrongdoing against the plaintiff.” This is because a “plaintiff whose legally protected interest had been invaded [is] entitled to the defendant’s gain from that wrongful conduct even without showing pecuniary loss.” In short, the court found that the purpose of a disgorgement remedy is restitution of the wrongdoer’s ill-gotten gains rather than “to compensate the plaintiff for a The court also disagreed with Sripetch’s second claim, i.e., that disgorgement in this case was functioning as a civil penalty.

The court’s conclusion was previewed in oral argument, where Justice Ketanji Brown Jackson stated that disgorgement in the case means “depriving [Sripetch] of money he didn’t have, that was never his,” as opposed to a penalty that would require Sripetch to not only return stolen funds but also to pay an additional fine “for having engaged in that behavior.” Also during oral argument, Justice Amy Coney Barrett emphasized that “[i]f all you’re taking away is the ill-gotten gains, so they’re the proceeds that the wrongdoer isn’t entitled to in the first place, … why would that necessarily be a penalty?”

Possible Sequel Productions

Justice Thomas, writing in a concurrence, agreed with Justice Gorsuch that Section 7 permits the SEC to seek disgorgement without pecuniary harm and that the court need not take up the Seventh Amendment issue at this time. Finding that “SEC disgorgement does not resemble any traditional equitable remedy,” Justice Thomas expressed that the court “will soon need to address whether disgorgement under [Section 7] is a legal remedy.”

Ultimately, the decision in Sripetch v. SEC confirms that disgorgement remains a character within the SEC’s cast of sanctions and that it may be used without showing pecuniary harm. Whether, and under what circumstances, ordering disgorgement requires a jury trial, however, is a potential open question.

This article was co-authored by Carlton Fields summer associate Ruska Mumladze.