Supreme Court weighs SEC’s power to recoup illegal profits, lawyers predict nuanced ruling
Herrick partner, Maxim M.L. Nowak, was quoted in Pensions & Investments about the anticipated ruling by the United States Supreme Court on whether the Securities Exchange Commission ("SEC") must prove investor harm to recoup illegal profits, known as disgorgement.
The article noted that the case, "Ongkaruck Sripetch v. Securities and Exchange Commission, centers on a civil action the SEC brought against Sripetch for defrauding investors in at least 20 penny-stock companies."
The 9th U.S. Circuit Court of Appeals affirmed the lower court’s decision in September 2025, “holding that a finding of pecuniary harm is not a prerequisite to an award of disgorgement.” A decision that conflicted with a case previously decided by the 2nd U.S. Circuit Court of Appeals.
The Supreme Court’s upcoming decision could provide clarity on "disgorgement standards and determine how much evidence the SEC must gather before pursuing cases — potentially affecting both the agency’s enforcement strategy and defendants’ leverage in settlement negotiations."
According to Max, the oral arguments showed “a conservative bloc of the court that is skeptical of the 9th Circuit’s interpretation,” and “a more liberal bloc that was skeptical” of the petitioner’s argument.
Max predicted “there will be some middle-of-the-road approach” from the Supreme Court that doesn’t fully adopt the 9th Circuit or 2nd Circuit argument.
“I think the SEC after this will have some more work to do in identifying harm,” Max added, calling that outcome “another tool in the tool belt of a defense attorney” negotiating a resolution with the SEC.
Though the court’s decision is still to come, Max said that a ruling against the SEC’s ability to seek disgorgement without showing investor harm would be “another hurdle for enforcement staff.”
While the SEC’s enforcement priorities have shifted under Chair Paul Atkins, “I think even some cases that would arguably fit under this iteration of the SEC’s focus may be not pursued if the disgorgement issue becomes just that much more difficult for staff,” Max said.
For cases the SEC does pursue, the disgorgement issue could also serve as “increased negotiation leverage for respondents,” Max added.
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