On June 4, 2026, the U.S. Supreme Court handed a game-changing, unanimous victory to the Securities and Exchange Commission in Sripetch v. SEC. Writing for the Court, Justice Neil Gorsuch clarified and resolved a highly debated question in the SEC enforcement defense arena: Does the SEC have to prove that investors suffered actual out-of-pocket financial losses to entitle the SEC to compel a defendant to return their ill-gotten profits (known as disgorgement)?
The Court’s answer was an unequivocal, clear: NO. The Court reasoned that disgorgement is an equitable remedy designed to strip a wrongdoer from retaining his illegal profits.
For corporate executives, securities broker-dealers, investment advisors, traders, and all others who are facing active SEC investigations, this ruling fundamentally reshapes the financial stakes driving defense strategy analysis. It effectively eliminates a powerful defense that targets had previously used to either defeat, or drastically reduce, multi-million-dollar disgorgement claims. While the SEC and SEC whistleblowers are no doubt celebrating this decision, defense strategies still remain that can effectively limit or entirely defeat disgorgement claims.
The Core Defenses Surviving Post-Sripetch
While the Supreme Court shut the door on the “no pecuniary loss” defense, Justice Gorsuch’s opinion, coupled with a notable concurrence by Justice Clarence Thomas, left open several critical defenses that skilled SEC defense lawyers can exploit for their client’s benefit.
To mitigate disgorgement exposure, an effective SEC defense must now examine three distinct strategies:
- Attacking the “Causal Nexus”
Disgorgement is limited by law to profits directly and causally connected to the alleged securities violation. For example, if the SEC claims a firm realized $5 million in profits during a period of non-compliance, the defense must aggressively analyze and dissect the source of those revenues to demonstrate, if supported by fact, that the profits resulted from legitimate market forces, independent business operations, or unrelated macro factors — not the underlying alleged wrongful conduct.
- Distinguishing Between “Net Profits” vs. “Gross Revenues”
Critically, the Supreme Court preserved the core principle espoused in Liu v. SEC (2020): the SEC is only entitled to net profits, not gross revenues. Thus, defense counsel must closely examine and then determine what constitutes legitimate business expenses, such as transaction costs, overhead, and operating costs in order to seek a reduction in disgorgement. In my years of experience as SEC enforcement defense counsel, it is typical to negotiate what costs are deductible and those that are not, under Liu. Depending upon the disgorgement number sought by the SEC, this strategic approach can effectively reduce a life-changing multi-million-dollar SEC demand to a survivable, much more favorable settlement sum.
- Challenging the “Legally Protected Interest”
The Sripetch Court held that to be considered a “victim” entitled to the equitable remedy of disgorgement, an investor’s legally protected interests must be invaded, even if they did not incur out-of-pocket economic harm. For purely technical violations, such as a books and records charge, defense counsel can argue that no investor protectible interest was violated, and thus the Commission would not be entitled to seek disgorgement.
Why Immediate Proactive Legal Counsel is Required to Defend SEC Disgorgement Claims
The Enforcement Division will undoubtedly leverage the Sripetch ruling to take an increasingly aggressive posture in settlement negotiations, particularly in insider trading cases, as well as complex investment fraud or pump-and-dump stock manipulation investigations where out-of-pocket investor damages are difficult, if even practically possible, to calculate.
If you have received an SEC subpoena, a Wells Notice, or are currently navigating an active enforcement investigation on your own, you cannot afford a passive, hope-for-the best defense. You need counsel who understands the inner workings of the Commission and can immediately deploy these surviving post-Sripetch defenses to protect your assets and your career.
David Chase is a former SEC Enforcement Attorney who served in the Miami Office of the SEC as Senior Counsel. In his role, he negotiated disgorgement settlements on behalf of the SEC and for the last twenty-five years he has secured favorable disgorgement settlements for his clients.
