SEC to Grapple With Ill-Gotten Gains Even After Justices’ Ruling

The Securities and Exchange Commission will now have consistent authority across the country to recover illegal profits in fraud cases under a recent US Supreme Court opinion, even as some questions over the agency’s powers are still up in the air.

The justices’ unanimous decision in Sripetch v. SEC eliminated a split among the federal circuit courts by holding the commission can sue to make accused wrongdoers “disgorge” their gains in situations where it isn’t able to identify or quantify specific investor losses. Disgorgement is typically an equitable, or fairness-based, remedy—as opposed to a compensatory resolution traditionally available in law courts.

The agency’s new latitude will be particularly felt in certain kinds of cases, according to securities attorneys, including former SEC lawyers and federal prosecutors who now represent corporate and individual defendants. Penny stock pump-and-dump and Ponzi schemes, insider trading, and even nondisclosure cases often have diffuse effects that can make it hard for the SEC to prove losses.

Before the June 4 decision, an appellate precedent made it difficult for the SEC to get disgorgement as a remedy in New York and other states within the Second Circuit, according to Kiersten Fletcher of Cahill Gordon & Reindel LLP. “And now the SEC need only show that a defendant or respondent in one of their cases received ill-gotten gains in order to obtain disgorgement,” Fletcher said.

The Second Circuit is particularly important because the SEC brings so many cases in the financial hub of New York City.

For the SEC, the opinion standardizes the law across the country now, Jan Folena of Stradley Ronon Stevens & Young LLP said. “For the defense bar, it does the same,” she said. “You no longer have a certain defense to disgorgement that you may have had before.”

Fights Ahead

But just as the high court settled the issue of disgorgement in cases where investor losses are hard to pinpoint, it raised new questions.

For example, whether disgorgement is an appropriate remedy where the SEC might not feasibly be able to distribute funds to investors is something “the commission is still having to grapple with,” said Gary Leung of McGuireWoods.

The SEC will likely face other challenges to disgorgement, said Susan Hurd of Alston & Bird LLP. “People are going to pick at whether net profits have been established and how you calculate that, and people are going to pick at whether the profits are sufficiently causally related to the violations,” she said.

And Justice Clarence Thomas’ concurrence portends bigger fights ahead, attorneys said. Thomas argued that disgorgement to the SEC resembles a remedy “at law” and has been categorized as such in a change to the Securities Exchange Act, requiring a jury trial. Such a trial would be instead of an in-house agency proceeding, though in this case the SEC sued in federal court.

“Whether the SEC’s use of this remedy is truly consistent with equitable principles is something that the court reserved and didn’t comment on,” said Hurd. But defendants “are going to look at those comments by Justice Thomas, and that’s going to be the argument that they raise in their briefs.”

SEC General Counsel Russell McGranahan said the decision is “critical to maintaining a consistent approach across our enforcement program.”

“This remedy will remain an important part of the Commission’s renewed emphasis on combating fraud,” he said in a statement.

Investor Losses

“The most important thing that the opinion does is it clarifies that disgorgement is measured by the ill-gotten gains to the wrongdoer, and it is not measured by investor losses,” said Folena.

Even if it’s easier across the board to get disgorgement, the SEC will still grapple with the difficulties of remedying investor losses—an issue that justices pressed the commission on during oral arguments. Myriad reasons make it difficult to identify which investors were affected and how much each lost, and raise questions within the agency on when to seek disgorgement.

In a case of financial accounting fraud or disclosure violations at a public company, the impact on investors is “going to be diffuse. It’s going to be a little inchoate. It may not be subject to reliable measurement,” Leung said. “And that’s where the infeasibility of distribution question really sort of continues to resonate across the enforcement program.”

“You also have that dynamic in insider trading cases where you’re often not able to identify who the counterparty was, who was on the other side of a trade that was illegal because somebody was trading on the basis of material nonpublic information,” he said. “So I do think that still remains a hot-button issue within the enforcement division.”

And in penny stock cases, “often the losses are very diffuse,” Fletcher said. “There might be a lot of investors who lost very little individually.” Those investors and losses can be hard to identify, she said.

Joseph S. Diedrich of Husch Blackwell LLP said Sripetch will entice the commission to “push an argument that the current version of the Exchange Act allows them to seek disgorgement even without a victim.”

The justices said they didn’t have to reach that argument in this case, Diedrich said. “But I think that’s going to be an issue that comes up in future cases.”

Jury Trials

Another open question is whether alleged fraudsters should be given the right to a jury trial over disgorgement—a subject the high court may consider in the future.

Leung said the question whittles down to Thomas’ expressed view in his concurrence that disgorgement is “legal” rather than equitable and that therefore the SEC would need to respect a defendant’s Seventh Amendment jury trial right.

“And he may well have colleagues on that bench who agree with him,” Leung said.

Hurd added that the arguments presented by Thomas may be raised in future briefs.

“Attacks on disgorgement are not going away,” she said.

The case is Sripetch v. SEC, U.S., No. 25-466, 6/4/26.