In SEC v. Sripetch, No. 24-3830, 2025 WL 2525848 (9th Cir. Sept. 3, 2025), the United States Court of Appeals for the Ninth Circuit affirmed a $2.25 million disgorgement award obtained by the United States Securities and Exchange Commission (“SEC”) in an enforcement action, rejecting the argument that the SEC must prove pecuniary harm to investors before obtaining disgorgement under 15 U.S.C. §§ 78u(d)(5) and (d)(7). This decision deepens a split between Circuits that require a showing of pecuniary harm to investors in this context, and those that do not. As it stands now, the First, Fifth and Ninth Circuits have generally agreed that the SEC does not need to show individual investor harm impose disgorgement, whereas the Second Circuit holds the opposite. This split on a critical issue of SEC enforcement raises the specter of review by the United States Supreme Court.
From 2013 through 2019, the defendants operated a network of fraudulent microcap schemes. In a civil enforcement action, the SEC alleged they orchestrated “scalping” campaigns: purchasing and controlling microcap stocks, tainting them through pump campaigns and selling them at inflated prices without disclosing their intent and without registering the securities.
In parallel, certain defendants engaged in matched orders and wash trades — some of which accounted for the entirety of daily trading volume in target stocks — to artificially boost price and liquidity before promotions.
One defendant, Ongkaruck Sripetch, consented to judgment, including agreeing that the United States District Court for the Southern District of California could order disgorgement. The district court ultimately ordered him to disgorge $2,251,923.16 in net profits, plus more than $1 million in prejudgment interest.
Sripetch appealed this disgorgement order, arguing that a prerequisite for the SEC being awarded disgorgement was a showing of individual investor harm, that the SEC did not show such harm in this case, and therefore no disgorgement could be awarded.
The Ninth Circuit disagreed, holding that a showing of pecuniary harm to individual investors is not required for the SEC to receive disgorgement. At the heart of the Ninth Circuit’s reasoning is its conception that disgorgement, historically at common law, is focused on stripping a wrongdoer of illicit gotten gains, not compensating victims for their losses. Highlighting why this distinction is important, the Court referred to the equitable roots of disgorgement in order to clarify that the main prerequisite for disgorgement is a violation of an individual’s right, not the impoverishment of that individual.
In reaching its decision, the Ninth Circuit aligned itself with the First Circuit in SEC v. Navellier & Assocs., Inc., 108 F.4th 19 (1st Cir. 2024), and the Fifth Circuit in SEC v. Hallam, 42 F.4th 316 (5th Cir. 2022), while recognizing expressly that its holding was contrary to the Second Circuit’s decision in SEC v. Govil, 86 F.4th 89 (2d Cir. 2023). The Second Circuit’s contrary holding springs from the observation that providing disgorgement as a remedy when investors did not suffer a pecuniary loss creates a windfall for unharmed investors who otherwise received the contractual benefit of the bargain.
The Supreme Court previously declined to resolve this Circuit split when it was between the First and Fifth Circuits and the Second Circuit, denying certiorari in Navellier. However, now that the Ninth Circuit has weighed in on this important securities law issue, the Supreme Court may be more likely to grant certiorari to resolve the split. See Prof. Joseph A. Grundfest, Quantifying the Significance of Circuit Splits in Petitions for Certiorari: The Case of Securities Fraud Litigation, Rock Center for Corporate Governance, Working Paper Series #254 (draft of Mar. 20, 2024) (“Not all circuit splits are created equal.”).