During oral argument in Sripetch v. SEC, most justices indicated that the recovery of ill-gotten gains falls within the plain meaning of “disgorgement” and does not constitute a penalty.
Ongkaruck Sripetch pleaded guilty to selling unregistered securities and received a 21-month prison sentence. The SEC proved he made $6 million in profits from the unlawful transactions and sought that amount under a statute authorizing disgorgement.
Sripetch’s attorney, Daniel Geyser, argued the recovery should be treated as a penalty because the SEC could not prove the violations harmed his customers. This argument gained little traction with the bench.
Justice Ketanji Brown Jackson questioned why turning over ill-gotten gains would be considered a punishment, noting that a penalty typically involves paying money that is rightfully the defendant’s.
Justice Amy Coney Barrett echoed this view, asking why taking away proceeds the wrongdoer is not entitled to in the first place would necessarily be a penalty.
The justices also pressed Geyser on traditional equitable principles. Justice Jackson stated she saw no case suggesting pecuniary harm is a requirement for disgorgement under those principles.
Justice Sonia Sotomayor, who authored the recent Liu v. SEC decision, characterized Geyser’s position as arguing that common law cases using lost profits as a measure were all wrong.
Justice Brett Kavanaugh directed Geyser to respond to an amicus brief by Professor Douglas Laycock and other remedies scholars, suggesting Geyser was incorrect about the first principles of the remedy.
Justice Neil Gorsuch appeared opposed to the SEC collecting such remedies without a jury trial unless the money is returned to victims, though he agreed the jury issue was not central to the questions before the court.
The analysis suggests it is difficult to see a majority reversing the SEC’s recovery, with Sotomayor potentially writing the opinion.