Sripetch May Prove To Be An Empty Victory For The SEC

This article was originally published by Law360 here. The views expressed in this article are the sole responsibility of the author and cannot be attributed to Compass Lexecon or any other parties.

On June 4, the U.S. Supreme Court issued its unanimous decision in Sripetch v. U.S. Securities and Exchange Commission, holding that the SEC may obtain disgorgement without a showing of pecuniary loss.

Ongkaruck Sripetch's misconduct followed the typical pump-and-dump pattern: He acquired shares of penny-stock companies, promoted them to retail investors in an effort to increase their stock price, and then promptly sold the shares.[1] After consenting to the entry of judgment, Sripetch opposed disgorgement, arguing that the SEC could not obtain that remedy without showing that investors suffered pecuniary harm.[2]

That argument came out of an unresolved question left by the justices in Liu v. SEC. In Liu, the Supreme Court in 2020 upheld the SEC's disgorgement authority, but only if disgorgement is limited to the wrongdoer's net profits and "awarded for victims." The court contrasted victim awards with the SEC's practice of depositing disgorged funds with the U.S. Department of the Treasury, but it did not decide what happens when the SEC determines that returning money to investors is infeasible.

In 2023, the U.S. Court of Appeals for the Second Circuit in SEC v. Govil read Liu's "awarded for victims" limitation to require the SEC to show that investors suffered pecuniary harm. The U.S. Courts of Appeals for the First and Ninth Circuits disagreed in July 2024 in SEC v. Navellier & Associates Inc. and in September 2025 in Sripetch, respectively.[3]

While the Supreme Court rejected the pecuniary-harm requirement, it left "for another day" the question of "whether the SEC may seek disgorgement when it is 'infeasible to distribute the collected funds to investors.'"[4]

But those problems arise together. When pecuniary harm is hard to prove, distributions are often infeasible for the same reason: The economic effects of the violation are diffuse or not easily quantified. By deciding Sripetch on such narrow grounds, the court resolved the formal question while leaving the practical question open.

Here's why the SEC was likely hoping for more: Six months after Liu, Congress amended the Exchange Act, enacting Section 78u(d)(7) to expressly authorize the SEC to seek disgorgement for violations of securities laws. Under the petitioner's reading, Section 78u(d)(7) codified Liu. According to the SEC, it created a separate authority for disgorgement that need not be "awarded for victims."[5]

In Sripetch, the justices did not choose between those readings. Instead, they held that "a showing of pecuniary loss is not required before an investor may qualify as a victim of an offender's wrongdoing entitled to compensation."[6]

The court was somewhat set up for that narrow ruling. At oral argument, the petitioner characterized infeasible distributions — the sort with the Treasury — as rare exceptions.[7] But the available numbers suggest otherwise.

The SEC's advocate explained his understanding that 88% of disgorgement collections are earmarked for distribution.[8] The portion ultimately distributed to harmed investors is likely lower. Over the past five years, the SEC has obtained disgorgement orders totaling nearly $25 billion.[9] The SEC does not publish comprehensive statistics on collections, but during that same period, it returned roughly $3 billion to harmed investors.[10]

Those figures are not a perfect comparison. Some of that gap is technical: a majority of disgorgement orders are never collected, contact information is often stale, claimants miss deadlines, etc.

But the broader point remains. There are many cases where the SEC can measure the defendant's gain more readily than it can identify victims and distribute funds in a compensatory way.

Sripetch offers little guidance for those cases. Indeed, the court expressly left unresolved whether the SEC may obtain disgorgement when distribution is infeasible, and the SEC's own advocate acknowledged that one attraction of the agency's statutory theory was that it would take the distribution question "off the table."[11]

The basic economic tension is that, in cases where pecuniary harm is difficult to establish, the real consequences of securities violations are often diffuse rather than absent. The problem is not that no one was harmed. It is that the incidence of the harm may be spread across many market participants, reflected in distorted prices or trading decisions, or manifested as reduced confidence in market integrity.

Several examples illustrate the point:

Insider trading and selective or late disclosures: The harm may lie in unequal access, unfairness and reduced market confidence, not just traceable counterparty losses.

Best-execution and order-routing violations: Small execution harms across millions of retail orders may be real in aggregate but too granular to distribute.

Market manipulation: A strategy may generate substantial profits across millions of trades while moving prices by fractions of a cent, making compensation impractical.

Books and records and internal controls violations: These violations compromise the integrity of the SEC's disclosure regime and therefore may extend to the investing public.

Risk management misrepresentations: Misstatements about hedging, collateral, leverage or concentration may affect counterparty risk and market stability, even when later losses cannot be cleanly allocated to particular investors.

The court's decision in Sripetch may not even resolve the distribution question in Sripetch itself. If the SEC can show that Sripetch's promotions successfully increased market prices, then demonstrating pecuniary harm is simple: Investors who purchased at inflated prices were harmed. That same analysis provides the blueprint for a distribution plan.

But if it is difficult to prove that the promotional efforts increased prices, then the SEC may also struggle to identify who, exactly, should receive the disgorged funds.

Suppose, for example, that the promotional efforts encouraged some investors to purchase shares and deterred others from selling, without producing a measurable price effect. How should the SEC identify the buyers who would not have purchased but for the promotions, or the sellers who would have sold but did not?

Treating all investors who bought or held the affected stock as victims would create obvious windfalls. But limiting recovery to Sripetch's direct counterparties would be arbitrary in a different way. Many of those counterparties likely would have traded anyway, and other investors who traded under economically identical conditions would receive nothing.

That is why Sripetch may prove to be an empty win for the SEC. The SEC need not prove pecuniary harm. But if it must still identify victims and distribute funds in a compensatory way, it faces much the same economic problem it faced before Sripetch was decided.

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