The U.S. Supreme Court on Thursday unanimously upheld the Securities and Exchange Commission's broad authority to recoup ill-gotten gains from individuals involved in securities fraud. The ruling, delivered in Sripetch v. SEC, resolved a dispute over whether the SEC must prove individual investors lost money to justify disgorgement orders. The justices ruled that proving the defendant profited from illegal transactions is sufficient, even if investor losses are not directly demonstrated.
Core Facts:
- The court ruled unanimously against Ongkaruck Sripetch, who was sentenced to 21 months in prison for selling unregistered securities in penny stock schemes.
- The SEC sought over $3 million in disgorgement, which Sripetch challenged, arguing the agency must prove investor losses to justify repayment.
Deeper Context:
The case centered on Sripetch's involvement in multiple "pump-and-dump" schemes, where he and others artificially inflated stock prices before selling their shares. Justice Neil Gorsuch, writing for the court, emphasized that disgorgement focuses on stripping wrongdoers of illegal profits rather than compensating specific victims. The ruling reaffirms prior Supreme Court precedent, including the 2020 decision in Liu v. SEC, which established disgorgement as a remedy to prevent unjust enrichment.
Implications:
The decision strengthens the SEC's enforcement tools by clarifying that disgorgement does not require proof of investor losses. The agency typically returns disgorged funds to investors when feasible. The ruling also resolves a circuit split, affirming the Ninth Circuit's approach to disgorgement in securities fraud cases.
Additional Details:
The court also issued a unanimous opinion in a separate case, Hikma Pharmaceuticals USA Inc. v. Amarin Pharma, Inc., involving patent infringement and the Hatch-Waxman Act. In that case, the court reversed the Federal Circuit's decision regarding induced infringement of a drug patent.