Next week’s argument in Sripetch v SEC presents yet another chapter in the court’s sustained examination of the Securities and Exchange Commission’s use of certain remedies in its enforcement of the securities laws. The specific question here is whether the SEC can use “disgorgement” to force a wrongdoer to turn over its profits to the government without showing directly that the wrongdoer’s activities harmed its customers.
In this case, Ongkaruck Sripetch pleaded guilty to selling unregistered securities, activity for which he was sentenced to 21 months’ imprisonment. In a separate civil enforcement action, the SEC sought to force him to disgorge more than $6 million in profits from those transactions. Crucially, in affirming that award, the court of appeals declined to consider whether the SEC could prove that Sripetch’s activity caused “pecuniary harm” to his customers – something other courts of appeals have required when imposing such a remedy.
Before the justices, Sripetch argues that this case is just like the three similar cases the court has decided in the last 10 years reining in the SEC’s broad use of equitable remedies like disgorgement. The most recent one (2020’s Liu v SEC) rejected the SEC’s use of disgorgement because it extended beyond the profits that Liu earned from the illegal activity in that case. Here, Sripetch argues, Liu compels reversal – pointing to repeated statements in Liu that the point of disgorgement is to pay “fair compensation to the person wronged” – something that necessarily requires a victim that has suffered pecuniary harm.
For the government’s part, it points out that the relevant statutory term – “disgorgement” – has a long history as a type of restitution that forces the wrongdoer to turn over its “ill-gotten gains.” So long as the SEC proves, as it did here, that Sripetch profited from his illegal activities, and limits the recovery to the profits from that activity, the SEC argues, the remedy falls comfortably within the traditional conception of disgorgement.
An amicus brief from several “remedies and restitution scholars” may aid the government’s case, especially given this includes law professor Douglas Laycock, who is pretty clearly the country’s leading remedies scholar and has been an influential amicus in the past. That brief lays out a straightforward case that disgorgement, as traditionally understood, focuses entirely on the profit of the wrongdoer as opposed to the harm of the victim. So I think the justices motivated by the remedy’s purpose in that regard will be sympathetic to the government.
That said, several of the justices (perhaps most notably Clarence Thomas and Neil Gorsuch) have been deeply skeptical of casual enforcement of equitable remedies in a variety of contexts, and they may be predisposed to a suspicion of the SEC’s continued routine use of disgorgement after the decision in Liu. I look forward very much to seeing where they (and everyone else) seem to land at the argument next week.
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