The Supreme Court ruled on Thursday that the federal Securities and Exchange Commission can recover money that companies and individuals gained illegally, even if the agency is unable to prove that investors suffered a financial loss.
In a unanimous decision written by Justice Neil M. Gorsuch, the justices sided with the independent administrative agency tasked with regulating securities markets, rejecting arguments by a man who had been accused in a penny-stock scheme.
In the ruling, Justice Gorsuch explained 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.”
At a time when the Trump administration has often appeared skeptical of regulation and penalizing some white-collar wrongdoing, the decision bolsters the powers of the Wall Street watchdog agency, which has recovered billions of dollars under a process known as “disgorgement.” The administration had defended the agency’s power to recover the funds.
The case involved Ongkaruck Sripetch, a Los Angeles man whom federal prosecutors accused of engaging in pump-and-dump schemes, where Mr. Sripetch obtained shares of penny-stock companies, promoted the companies and then sold the shares when the share price rose.
In 2022, Mr. Sripetch was sentenced to more than a year in prison for participating in illegal securities fraud schemes.
The S.E.C. separately brought a civil enforcement action against Mr. Sripetch, charging him with six counts of securities fraud and one count of selling unregistered securities.
Mr. Sripetch consented to the judgment against him, but he contested the agency’s attempt to recover the $4.1 million he had gained from the scheme, arguing that the S.E.C. was required to show that he had caused investors to suffer financial losses. Barring that, he asserted, the agency could not require him to pay.
In response, the S.E.C. argued first at a federal trial court that the evidence in the case showed that investors had in fact suffered financial loss. But the agency also argued that even if the investors did not lose money they would still qualify as victims.
A federal appeals court sided with the S.E.C., finding that no financial loss was required for the agency to seek the money from Mr. Sripetch. Another federal appeals court took an opposite view on the question, and the Supreme Court agreed to hear the case.
Lawyers for Mr. Sripetch argued that the S.E.C. could pay his victims from money it recovered from him, which they argued would be unfair if the investors suffered no financial loss.
But Justice Gorsuch countered that a wrongdoer could receive financial benefits even without causing victims to lose money. In that case, courts are left to decide whether to strip a defendant of “unjust gains” or to “allow the defendant to benefit from his misconduct.” The court determined that the first path — taking away a defendant’s financial gains — was the correct one.
Abbie VanSickle covers the United States Supreme Court for The Times. She is a lawyer and has an extensive background in investigative reporting.
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