Supreme Court Considers Whether SEC Must Prove Investor Loss for Disgorgement in Sripetch v. SEC
April 23, 2026
On April 20, 2026, the Supreme Court heard oral argument in Sripetch v. SEC, No. 25-466, a case that could, once again, reshape the SEC’s disgorgement powers. At issue is a circuit split involving whether the SEC must prove in civil enforcement actions that investors suffered financial (pecuniary) loss before a court may order a defendant to disgorge ill-gotten profits (or losses avoided). Please see our prior alert on the Sripetch case, here. This case marks the third time in a decade that the Supreme Court has addressed the SEC’s disgorgement remedy.
Key Takeaways:
- Proof of Loss: The Court is considering a circuit split on whether disgorgement requires proof of investor (pecuniary) harm.
- Evolving Framework: Prior decisions in Kokesh and Liu narrowed the scope of disgorgement but left open key questions now before the Court.
- Competing Theories: The SEC maintains that disgorgement targets unjust enrichment, not investor harm, while the petitioner argues it must be tied to demonstrable victim losses.
- Signals from the Bench: Several Justices expressed skepticism that disgorgement without proof of harm is punitive, suggesting potential support for the SEC’s position.
- Looking Ahead: The decision could either limit the SEC’s ability to recover funds in certain cases or preserve its authority, while raising potential jury trial considerations.
Background: Kokesh, Liu, and Congress’s Authorization of the SEC’s Disgorgement Power
For more than 50 years, the SEC has sought to have defendants return their “ill-gotten gains.” The SEC routinely seeks disgorgement and civil penalties as separate remedies.
In Kokesh v. SEC, the Court unanimously held that SEC’s disgorgement claims were subject to the five-year statute of limitations for civil penalties because in seeking disgorgement, the SEC sought, in part, to deter wrongdoing rather than compensate victims.1 But in a footnote in Kokesh, the Court left open the possibility of further disgorgement challenges, declining to opine on “whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.”2
Three years later in Liu v. SEC, the Court clarified that disgorgement remains available to the SEC in civil-enforcement actions under Section 21(d)(5) of the Securities Exchange Act (“Exchange Act”)3 if the award (1) does not exceed the defendant’s net profits and (2) is “awarded for victims” where practicable, rather than being deposited into the Treasury.4 Together, Kokesh and Liu constrained disgorgement in SEC enforcement actions, anchoring the remedy to traditional equitable principles.
Congress responded to Kokesh and Liu by codifying the SEC’s disgorgement authority in Section 21(d)(7) of the Exchange Act which provides that the SEC may seek “and any Federal court may order disgorgement.”
The Circuit Split: Does Disgorgement Require Proof of Investor Loss?
The circuits are divided on whether the SEC can obtain disgorgement under Exchange Act Sections 21(d)(5) and (7) without establishing that investors were harmed as a result of the defendant’s violation of the federal securities laws.
In SEC v. Govil, the Second Circuit held that the Exchange Act does not authorize disgorgement absent proof of pecuniary harm.6 The court reasoned that equitable relief must be “awarded for victims” and as such, a defrauded investor who suffered no pecuniary harm does not qualify as a victim for disgorgement purposes.7
Conversely, the Ninth Circuit’s recent decision in Sripetch v. SEC, 154 F.4th 980 (9th Cir. 2025), aligns with the First Circuit’s ruling in SEC v. Navellier & Associates, 108 F.4th 19 (1st Cir. 2024), that disgorgement is a “profit-based measure of unjust enrichment” tethered to a wrongdoer’s net unlawful gains, not an investor’s financial loss.8 Navellier also held that Liu does not require investors to suffer pecuniary harm as a precondition to disgorgement.9
Arguments Before the Court
Petitioner’s Position
Relying on Liu, Sripetch argues that (i) disgorgement must be “restricted” to a “wrongdoer’s net profits to be awarded for victims,”10 (ii) an investor who has suffered no financial loss does not qualify as a “victim,”11 and (iii) the SEC’s position ignores Liu’s countervailing limitation “ensuring any funds are restored to victims.”12
The SEC’s Position
In contrast, the SEC argues that neither Exchange Act Section 21(d)(5) nor (7) imposes a pecuniary-harm prerequisite because disgorgement is a profits-focused equitable remedy designed to strip wrongdoers of unjust enrichment.13 The SEC contends that although damages compensate victims for their losses, disgorgement—by its plain and legal meaning—deprives violators of ill-gotten gains.14 Accordingly, the availability of disgorgement turns on whether the violator profited, not on whether the victim suffered a loss.15
The SEC further argues that the 2021 Exchange Act amendments support its position:16 As amended following Liu, Section 21(d)(3)(A)(ii) now authorizes courts to “require disgorgement under paragraph (7) of any unjust enrichment by the person who received such unjust enrichment as a result of [the] violation.”17 The SEC argues that because it is well-established that unjust enrichment does not depend on proving financial harm, Section 21(d)(3)(A)(ii)’s reference to “unjust enrichment” confirms the absence of any pecuniary-harm prerequisite.18
Oral Argument
At oral argument, several Justices’ questions signaled that they may be inclined to rule in favor of the SEC. Much of the questioning of Petitioner’s counsel focused on whether ordering disgorgement absent proof of pecuniary harm truly constitutes a penalty. Specifically, several Justices expressed skepticism that depriving a wrongdoer of ill-gotten gains—money to which he was never entitled in the first place—is punitive. For example, Justices Jackson and Coney Barrett pressed on this point directly with Justice Jackson asking why the SEC taking from a defendant “money . . . that was never his” would be a punishment. Justice Sotomayor, who authored the Liu majority opinion, tested the practicality of Petitioner’s position that the SEC must prove “every dollar” of investor loss to avoid an impermissible windfall when disgorgement has long been viewed as an alternative remedy because losses can be difficult to quantify. Some Justices questioned the apparent absence of authority for the proposition that courts traditionally required proof of pecuniary harm before exercising their equitable authority to strip defendants of ill-gotten gains.
Questions to the SEC focused on whether disgorgement should be construed as a legal remedy requiring a jury trial under the Seventh Amendment. Justice Gorsuch elicited the government’s concession that, under its reading of Section 21(d)(7), the SEC could obtain disgorgement before a judge sitting in equity “without any effort to get [the money] back to the investors,” which he said is a “pretty perilous” position and warned of the inherent risk in crossing the line from equity into a “legal penalty” to which “the Seventh Amendment might have something to say.” Justice Sotomayor echoed this concern, observing that if the SEC keeps the disgorged funds rather than paying them to victims, the remedy “serves only one purpose, deterrence,” which heightens Seventh Amendment concerns.
Practical Implications Depending on Outcome
Potential Loss of SEC’s Significant Remedy in Some Cases if Petitioner Prevails
A ruling for Petitioner would require the SEC to demonstrate actual investor losses before a court could order disgorgement—potentially limiting government recoveries in cases where a defendant profited from a violation of the securities laws, but the SEC did not meet its burden of proof with respect to investor losses.
In such circumstances, we can see the SEC attempting to rely more heavily on its authority to seek penalties based solely on the nature and severity of the violation. Penalty amounts are tiered;19 as relevant here, the highest tier of penalties apply if the misconduct created either “substantial losses” or a “significant risk of substantial losses to other persons.”20
The SEC also could ask Congress to amend Section 21(d)(7) to authorize the agency to obtain disgorgement of the defendant’s ill-gotten gains regardless of whether there was pecuniary harm to investors.
Potential Limitation if SEC Prevails
A ruling for the SEC would preserve the broad approach to disgorgement, but as signaled by Justices Gorsuch and Sotomayor, a defendant might have a right to a jury trial, as is currently the case when the SEC seeks civil penalties.
1 Kokesh v. SEC, 581 U.S. 455, 467 (2017).
2 Id. at 461 n.3.
3 Section 21(d)(5), 15 U.S.C. § 78u(d)(5), entitled “Equitable Relief,” provides: “In any action or proceeding brought or instituted by the Commission under any provision of the securities laws, the Commission may seek, and any Federal court may grant, any equitable relief that may be appropriate or necessary for the benefit of investors.”
4 Liu v. SEC, 591 U.S. 71, 75 (2020).
5 15 U.S.C. § 78u(d)(7).
6 SEC v. Govil, 86 F.4th 89, 97–98 (2d Cir. 2023).
7 Id. at 98.
8 SEC v. Navellier & Assocs., 108 F.4th 19, 41 (1st Cir. 2024) (citations omitted).
9 Id. at 41 n.14.
10 Brief for Petitioner at 16, Sripetch v. SEC, No. 25-466 (U.S. Feb. 23, 2026) (citing Liu, 591 U.S. at 79, 84–85, 88).
11 Id. at 17.
12 Id. at 18 (citing Liu, 591 U.S. at 79–80).
13 Brief for Respondent at 14–18, 28–30, Sripetch v. SEC, No. 25-466 (U.S. Mar. 25, 2026).
14 Id. at 10, 14–15.
15 Id. at 16.
16 Id. at 21–24.
17 Id. at 18–19 (citing 15 U.S.C. § 78u(d)(3)(A)(ii)) (emphasis removed).
18 Id. at 20.
19 15 U.S.C. § 78u(d)(3)(B).
20 Id. § 78u(d)(3)(B)(ii)(bb) (emphasis added).
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Jim Bowman, an O’Melveny partner licensed to practice law in California; Mark A. Racanelli, an O’Melveny partner licensed to practice law in New York; Sharon M. Bunzel, an O’Melveny partner licensed to practice law in California; Lindsey Greer Dotson, an O'Melveny partner licensed to practice law in California; Andrew J. Geist, an O’Melveny partner licensed to practice law in New York; Mia N. Gonzalez, an O’Melveny partner licensed to practice law in New York; Michele W. Layne, an O’Melveny of counsel licensed to practice law in California; Rebecca Mermelstein, an O’Melveny partner licensed to practice law in New York and New Jersey; Benjamin D. Singer, an O'Melveny partner licensed to practice law in the District of Columbia and New York; Waqas A. Akmal, an O’Melveny counsel licensed to practice law in California; Lauren Casale, an O’Melveny counsel licensed to practice law in New York; Kathleen Gould, an O’Melveny counsel licensed to practice law in New York; Elizabeth Marley, an O'Melveny associate licensed to practice law in New York; and Faustino S. Galante, an O'Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
© 2026 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, 1301 Avenue of the Americas, Suite 1700, New York, NY, 10019, T: +1 212 326 2000.