Nearly two dozen former U.S. Securities and Exchange Commission attorneys are among those urging the U.S. Supreme Court to put an end to the agency collecting disgorgement from those accused of wrongdoing without first identifying victims of the alleged fraud at hand.
The attorneys, who include Gibson Dunn & Crutcher LLP partner Michael Piazza and Dickinson Wright PLLC's Jacob Frenkel, said the SEC's current view of disgorgement "risks eroding the very rule of law they once worked to uphold."
Nick Morgan of Investor Choice Advocates Network, himself a former SEC attorney, filed the brief on behalf of his fellow attorneys on Monday. He said in a post on ICAN's website Tuesday that the Supreme Court "has the opportunity to force the agency back inside the boundaries Congress drew."
"Congress gave the SEC the tools it needs to hold bad actors accountable," Morgan said in the post. "The problem is that the SEC has been reaching past those tools to avoid the work they require."
The attorneys argued in the brief that the remedy the SEC is seeking against Ongkaruck Sripetch and other alleged fraudsters is a civil penalty, which requires the agency to give defendants an opportunity to defend themselves before a jury.
"Disgorgement untethered from investor harm serves no restorative function; it punishes and deters, making it functionally identical to a civil penalty," the attorneys said.
The SEC declined to comment Tuesday.
Sripetch and the SEC both urged the Supreme Court to hear the case after the Ninth Circuit split with the Second Circuit in upholding a $2.2 million disgorgement against Sripetch, who the SEC says profited from a pump-and-dump scheme involving at least 20 penny stock companies.
The Ninth Circuit acknowledged the split in its ruling, saying it disagreed with the Second Circuit's view that disgorgement requires a showing that investors suffered pecuniary harm.
The SEC told the justices last year that disgorgement does not solely exist to return money to victims but is also a remedy that ensures wrongdoers like Sripetch aren't allowed to keep the profits from their wrongdoing.
Frenkel of Dickinson Wright told Law360 on Tuesday it is not always true that the people from whom the SEC seeks disgorgement have been accused of any wrongdoing. He said he has a client who is facing a $44,000 disgorgement order due to alleged misconduct by her ex-husband despite never having identified any victims.
"Any case before the Supreme Court that can curtail further the SEC's rampant abuse of disgorgement and pre-judgment interest cries out for weighing in to advocate for reinforcing and expanding the equitable requirements the Court established in Liu," Frenkel said in an email, referencing the last time the high court limited the SEC's disgorgement powers in 2020 in Liu v. SEC.
Piazza of Gibson Dunn didn't immediately respond to a request for comment.
In addition to the brief filed by the former attorneys, Sripetch also received the backing Monday of the U.S. Chamber of Commerce and the Cato Institute.
Both organizations said the court determined in Liu that not only must a disgorgement award be limited to a wrongdoer's net profits, but that it also must also be "awarded for victims."
"Clarifying that the SEC must show victims suffered losses to seek disgorgement, as the court should, would reaffirm the broader principle that narrowly interpreting grants of executive power is necessary to ensure fidelity to the rule of law and prevent executive overreach," the Cato Institute said in its brief.
The SEC and any supporters of the agency's position have yet to file their briefs before the high court.
The high court is scheduled to hear oral arguments in the case on April 20.
The former SEC attorneys are represented by Nicolas Morgan of ICAN.
The Cato Institute is represented by H. Hunter Bruton, John Gibbons and Noel Hudson of Smith Anderson Blount & Jernigan LLP.
The Chamber of Commerce is represented by Janet Galeria and Matthew P. Sappington of the U.S. Chamber Litigation Center, and Adam G. Unikowsky and Daniel S.G. Schwei of Jenner & Block LLP.
The SEC is represented by D. John Sauer of the U.S. Office of the Solicitor General, and by its own Jeffrey Finnell, Tracey Hardin, Daniel Staroselsky and Kerry Dingle.
Sripetch is represented by Daniel L. Geyser and Michael Qian of Haynes Boone, and Kenneth P. White and Tyler Creekmore of Brown White & Osborn LLP.
The case is Sripetch v. Securities and Exchange Commission, case number 25-466, in the Supreme Court of the United States.
Mar 3
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