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On June 4, 2026, the United States Supreme Court issued its much-anticipated opinion in Sripetch v. SEC concerning the scope of the SEC’s disgorgement authority. The Court unanimously held that the SEC can seek disgorgement without a showing that the defendant’s conduct caused pecuniary harm to investors.
The opinion follows the Court’s 2020 decision in Liu v. SEC, which established that the SEC has authority to seek disgorgement under Section 21(d)(5) of the Securities Exchange Act of 1934 (Exchange Act) within certain limits. Specifically, the Court in Liu applied traditional equitable principles to hold that disgorgement is limited to the defendant’s net profits rather than gross pecuniary gain and, further, that disgorgement must be “awarded for victims.” Shortly after Liu, Congress amended the Exchange Act by adding Section 21(d)(7) to expressly permit the SEC to seek “disgorgement.”
A circuit split emerged on whether the SEC had to show pecuniary harm to investors as a prerequisite for disgorgement. The Second Circuit said yes. The court pointed to Liu’s requirement that disgorgement be “awarded to victims” and the decision’s focus on “return[ing] funds to victims.” In the Second Circuit’s view, that “presupposes pecuniary harm.” The First and Ninth Circuits said no. They held that disgorgement, by its very nature, is based on the wrongdoer’s profits irrespective of pecuniary harm to the victim.
The Supreme Court sided with the First and Ninth Circuits and held no pecuniary harm is required. The Court assumed without deciding that disgorgement under Section 21(d)(7) is subject to “traditional equitable rules.” Under those rules, and using a set of historical cases as illustration, the Court held that a plaintiff who suffers an invasion of a legally protected interest is entitled to recover the defendant’s gain from the wrongful conduct — regardless of whether the plaintiff suffered any pecuniary harm. While recognizing that disgorgement is designed to “restor[e] the status quo,” the Court explained that “equity traditionally prefers” that courts “restore the defendant to his prior position by stripping him of his unjust gains” rather than allowing “the defendant to benefit from his misconduct.” The Court cautioned, however, that the SEC is still bound by equitable principles not to seek “penalties” under the guise of disgorgement.
By eliminating a financial harm requirement, the Sripetch decision removes a potential restriction on the SEC’s ability to seek disgorgement in enforcement actions. But it leaves open important questions, including when disgorgement crosses the line into being a “penalty” and whether Section 21(d)(7) permits legal, as opposed to purely equitable, remedies. The latter issue implicates defendants’ right to a jury trial, which the Seventh Amendment guarantees for legal claims but not equitable claims. In a concurrence, Justice Thomas concluded that Congress’s amendments to Section 21(d) effectively converted disgorgement to a legal remedy subject to the Seventh Amendment’s right to a trial by jury. That issue could well come before the Court in the next few years; there is already a split between the Second and Fifth Circuits on whether disgorgement under Section 21(d)(7) is properly understood as a legal remedy.
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