[25-466] Sripetch v. SEC

According to Section 78U's plain text, history, structure, and purpose, the SEC cannot seek disgorgement without showing investors suffered economic harm.

This Court in Liu directly confronted the meaning of disgorgement, traced its common law roots, and established its traditional bounds.

It confirmed that disgorgement could not be a penalty or deterrent, and it was limited to restoring the status quo and providing fair compensation to injured investors.

Congress acted against that backdrop to codify disgorgement in subsection D7.

It did so by including the very term that Liu had just defined without any further guidance or modification.

It simply took that term of art and placed it in the statute, and it separately paired disgorgement with penalties as two different remedies with separate functions, one punitive and the other remedial.

Yet the government now maintains that Congress, in its post-Liu amendments, fundamentally redefined the core meaning of disgorgement.

The government says disgorgement can serve as a penalty, it can focus solely on depriving wrongdoers and deterring misconduct, and the government can act without any remedial purpose, with no obligation to restore the status quo or return a single penny to investors.

The government is wrong.

Its view would override critical limits on the SEC's enforcement power.

It would permit an unbounded form of disgorgement rejected by this Court and unmoored from its traditional roots.

It would treat disgorgement as indistinguishable from a penalty in a provision that separately provides for penalties and draws a textual and functional distinction between penalties and disgorgement.

It would assign windfalls to uninjured investors who Congress already determined have no right to these very funds, and it would let the government subvert the substantive and procedural safeguards, including a jury trial, that protect against defendants against SEC overreach and abuse.

To be sure, we are not saying that wrongdoers have a right to keep the proceeds from their violations, but we are saying that the SEC has to go through the rules and hoops for civil penalties when it seeks to punish a defendant rather than restore funds to parties with actual injuries.

I welcome the Court's questions.