May 2026 Criminal Deliberations - When Fraud Pays: The Supreme Court Tests SEC Enforcement Power

by Benjamin R. Barron, Gregory D. Bernstein, and Akhil Sheth

The federal government is a many-headed creature—an assortment of agencies with overlapping and often competing missions. While the DOJ, the federal government’s criminal enforcement arm, consumes its fair share of attention, some have overlooked the growing power of the regulatory agencies.

But the U.S. Supreme Court has been paying close attention, and this summer, the Court might deliver a new blow to one of the most powerful agencies: the SEC. If it does, the ruling will fit into the Court’s broader effort to rein in agency authority.

Consider two landmark decisions from the recent past. In Loper Bright Enterprises v. Raimondo, the Court scrapped Chevron deference—the doctrine requiring courts to defer to agency interpretations of ambiguous statutes. In SEC v. Jarkesy, the Court ruled that when the SEC seeks civil penalties for securities fraud, defendants are entitled to a jury trial instead of an administrative proceeding.

The SEC is the federal government’s top regulator of the securities markets and one of its most powerful agencies. It has the authority to investigate misconduct and bring enforcement actions against companies and individuals accused of securities fraud. Those actions can lead to steep financial penalties, and in some cases, a lifetime ban from the securities industry.

So when the Supreme Court steps in to reshape the SEC’s powers, its decisions send ripple effects through the markets.

Enter SEC v. Sripetch.

Between 2013 and 2019, Ongkaruck Sripetch ran penny-stock schemes. The playbook included pump-and-dumps, scalping campaigns, and wash trades. If securities law isn’t your specialty, here’s the short version: all of these schemes involve some variation of buy low, rig the market, sell high. And all of them, unsurprisingly, are illegal. After pocketing millions, Sripetch ended up in federal prison for two years.

But what about the money Sripetch stole?

In a parallel civil case, the SEC sought to disgorge the profits Sripetch made from the schemes. Sripetch protested, arguing that if he deceived investors, he shouldn’t have to return the millions he made because the SEC never proved that any investor actually lost money. The argument sounds shameless, but under federal law, he might actually be right.

To understand why, we need to talk about disgorgement. The concept is straightforward: if you make money through wrongdoing, you shouldn’t get to keep it. When profits are disgorged, the court orders the defendant to give up his ill-gotten gains, ideally so the money can be returned to the people harmed by the misconduct.

For the SEC, disgorgement has become one of its most powerful enforcement tools. Courts began allowing the remedy in SEC cases in the 1970s, and Congress later endorsed it by authorizing courts to award “equitable relief” for the benefit of investors.

Today, disgorgement is a major part of the SEC’s enforcement arsenal. In 2024 alone, the agency recovered $6.1 billion in disgorgement and interest, almost triple the $2.1 billion it collected in civil penalties.

But as disgorgement has grown more central to the SEC’s enforcement strategy, a question has emerged into the spotlight: is it meant to compensate victims or punish wrongdoers? In recent years, the Supreme Court has hinted at an answer to that question.

In the 2017 case of Kokesh v. SEC, the Court held that disgorgement claims are subject to a five-year statute of limitations, preventing the SEC from reaching back indefinitely to recover profits.

Then came Liu v. SEC, where the Court confirmed that disgorgement can qualify as “equitable relief,” but (1) cannot exceed a defendant’s net profits and (2) must be “awarded for victims.” That last phrase turned out to be a big deal. Who exactly counts as a victim? And what happens when the SEC can’t prove that anyone actually lost money? The Court didn’t say.

So lower courts quickly filled the void, but in doing so, created a circuit split.

The Second Circuit tackled the issue in SEC v. Govil in 2023. The SEC argued that investors become victims the moment they’re deceived because the fraud deprives them of the ability to make informed decisions, even if they ultimately make money. The court wasn’t convinced. To qualify as victims, it held, investors must suffer financial harm. Otherwise, disgorgement could hand investors a windfall.

The First Circuit went the other way. In SEC v. Navellier, the court said the focus should be on the defendant’s unjust gain, not the investor’s loss.

Last year, the Ninth Circuit weighed in with SEC v. Sripetch and sided with the First Circuit.

Sripetch asked the Supreme Court to take the case, and in a rare move, the SEC supported the request because it wanted a definitive answer on an enforcement tool that has been integral to the agency’s mission.

The Court agreed to hear the case. The decision will shape how the SEC brings enforcement actions—how it proves its cases, calculates settlement demands, and presents evidence at trial.

But the implications could stretch beyond securities law. Disgorgement is a common remedy in all kinds of business disputes, from breach-of-fiduciary-duty claims to trade-secret litigation and partnership fights. If the Court says something broader about the nature of disgorgement, lawyers across many practice areas will want to pay attention.

Oral argument was scheduled for April 20, after this column went to print. By summer, we’ll find out whether Sripetch gets to keep the money, and the SEC will learn just how sharp one of its most important enforcement tools is.

Benjamin R. Barron, Gregory D. Bernstein, and Akhil Sheth are white-collar defense attorneys with Keller Anderle Scolnick LLP.

Criminal Deliberations is a new, occasional column about criminal litigation that offers insights into a trial or ruling. To contribute, email the Editor-in-Chief at gialisa@gmail.com.