What happened
The U.S. Supreme Court on Thursday affirmed a Ninth Circuit ruling for the U.S. Securities and Exchange Commission, holding that the agency does not have to prove investors lost money before it may obtain disgorgement from a securities-law violator.
Justice Gorsuch, writing for a unanimous court, said the case presented a narrower question than the parties' broader fight over the SEC's post-Liu disgorgement powers: whether the agency must show an investor suffered "pecuniary loss" before securing disgorgement under the securities laws. The court answered no.
The ruling resolves a circuit split over how to read Liu v. SEC, with the First and Ninth Circuits allowing disgorgement without proof of investor pecuniary loss and the Second Circuit taking the opposite view. The court affirmed the Ninth Circuit's decision in a case involving Ongkaruck Sripetch, who the opinion says engaged in fraudulent schemes involving at least 20 penny-stock companies.
According to the opinion, Sripetch consented to judgment in the SEC's civil enforcement action and agreed that the court could order disgorgement. But when the SEC sought more than $4.1 million, he argued Liu barred the request because the agency lacked evidence that his schemes caused investors financial losses.
The majority rejected that theory, reasoning that traditional equity allows remedies aimed at stripping wrongdoers of net profits from unlawful activity even when the claimant has not suffered a matching financial loss. Liu required disgorgement to be awarded for victims, the court said, but it did not make pecuniary loss a prerequisite to victim status.
The court did not decide whether Congress' post-Liu addition of an express disgorgement provision changes the outer boundaries of the SEC's authority. Instead, it assumed without deciding that disgorgement under that provision remains subject to equitable limits and held that even on that assumption, no investor-loss showing is required.
Justice Thomas concurred separately to question the premise that SEC disgorgement may continue to be treated as equitable. He wrote that the court will soon need to address whether disgorgement under the newer statutory provision is a legal remedy and said, in his view, it bears the hallmarks of a remedy requiring a jury trial.