Defenders of the SEC’s overreach argue that if the commission can’t seize profits in victimless cases, fraudsters will be allowed to keep their loot. They conjure images of insider traders walking away with millions because the specific counterparties to their trades can’t be identified.
Yet Congress has already empowered the SEC to deprive wrongdoers of profits. Under federal securities statutes, the SEC can seek civil penalties tied to the “gross amount of pecuniary gain” resulting from a violation. This authority exists to ensure that fraud doesn’t pay, even when restitution is impossible.
So why does the SEC fight so hard to use disgorgement instead? Because statutory penalties come with guardrails. To win a penalty—especially one calculated on “pecuniary gain”—the SEC has to meet higher procedural standards, including the right to a jury trial and strict statutory caps. Disgorgement, by contrast, has historically been an “equitable” cleanup tool in cases decided by a judge with looser constraints.
Three times over the past decade, the US Supreme Court has cut the Securities and Exchange Commission’s ability to extract millions of dollars from alleged wrongdoers.
Critics of the commission say it’s not enough. In arguments Monday they are asking the justices to put new limits on “disgorgement,” one of the SEC’s most potent enforcement tools, designed to recoup illicit profits and return them to victims.
The dispute will shape a panoply of SEC cases in which victims aren’t easy to pinpoint, from low-profile record-keeping violations to major insider trading allegations. The SEC used disgorgement to secure orders for more than $6 billion in fiscal 2024 and almost $11 billion last year.
Source: Supreme Court Weighs New Curbs on SEC Disgorgement Power – Bloomberg
The Securities and Exchange Commission’s most powerful monetary remedy is disgorgement—the equitable mechanism that strips defendants of their ill-gotten gains regardless of whether any victim can be identified or any dollar of loss can be traced.
In theory, disgorgement simply puts a wrongdoer back where they started. In practice, it operates as something closer to a penalty: A court orders the defendant to pay the full amount of profits derived from the violation, and those funds go into a Fair Fund for eventual distribution to harmed investors—if any can be found.
The US Supreme Court is about to consider whether that “if any” qualifier matters. In Sripetch v. SEC, scheduled for argument on April 20, the Supreme Court could resolve a circuit split on a question that goes to the foundation of the SEC’s remedial authority: Must the SEC show that its enforcement target’s conduct caused pecuniary harm to investors before a court can award disgorgement?
The stakes are real. In fiscal year 2024, the SEC secured more than $6 billion in disgorgement and related prejudgment interest—nearly three-quarters of the SEC’s total financial remedies. The answer in Sripetch will reshape settlement negotiations, litigation strategy, and the SEC’s institutional incentives in every enforcement action where disgorgement is on the table.
Source: The Supreme Court Could Defang the SEC’s Most Powerful Remedy
The US Supreme Court will consider how much power the Securities and Exchange Commission has to recover illegal profits in a case that could blunt one of the agency’s most potent enforcement tools. The justices said Friday they will decide whether the SEC must show identifiable investor harm in order to win “disgorgement” from people and firms found to have…
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