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U.S.2026Background
- Sripetch ran fraudulent penny-stock schemes involving at least 20 companies, and the SEC sued him for securities fraud and selling unregistered securities. 1
- Sripetch consented to judgment but objected when the SEC sought more than $4.1 million in disgorgement, arguing Liu required proof of investor pecuniary loss. 2
- The Ninth Circuit held the SEC need not prove pecuniary loss before obtaining disgorgement, creating a circuit split. 3
- The Court framed the case around whether pecuniary loss is a condition to SEC disgorgement under §§78u(d)(5) and 78u(d)(7). 4
- The Court ultimately affirmed, holding traditional equity does not require proof of pecuniary loss to support disgorgement. 5
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Must SEC prove investor pecuniary loss for disgorgement? 6 | Sripetch said Liu requires victim pecuniary loss. | SEC said no loss showing is required. | No; disgorgement may issue without pecuniary loss. 7 |
| Does Liu’s 'awarded for victims' rule require financial loss? 8 | Sripetch read Liu to require financial harm. | SEC said 'victim' includes those whose legally protected interests were invaded. | No; traditional equity does not require pecuniary loss. 9 |
| Does disgorgement's status quo rationale require pecuniary loss? 10 | Sripetch argued no loss means no restoration. | SEC said equity may strip unjust gains even without plaintiff loss. | No; equity prefers stripping unjust gains. 11 |
Key Cases Cited
- Liu v. SEC, 591 U.S. 71 (U.S. 2020) (disgorgement under §78u(d)(5) must follow traditional equity and be awarded for victims 12)
- Kokesh v. SEC, 581 U.S. 455 (U.S. 2017) (disgorgement treated as a civil penalty for statute-of-limitations purposes 13)
- SEC v. Navellier & Assoc., 108 F.4th 19 (1st Cir. 2024) (first circuit held SEC may obtain disgorgement without proving pecuniary loss 14)
- SEC v. Govil, 86 F.4th 89 (2d Cir. 2023) (second circuit held pecuniary loss is required for SEC disgorgement 15)
- SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301 (2d Cir. 1971) (early case recognizing restitution-of-profits remedy in SEC enforcement 16)
- SEC v. Hallam, 42 F.4th 316 (5th Cir. 2022) (analyzed disgorgement as a legal remedy distinct from equity after statutory amendments 17)