In a significant ruling, the SEC v. Sripetch upheld a $2.25 million disgorgement award plus interest, holding that the SEC need not prove that investors suffered actual financial losses before reclaiming a defendant’s profits. The Commission had charged Sripetch and others with manipulating penny stock schemes, and while the defendant argued that disgorgement requires evidence of investor “pecuniary harm,” the SEC prevailed by emphasizing that the remedy exists to strip wrongdoers of ill-gotten gains, not to measure investor damages. The court explicitly sided with the First Circuit’s 2024 decision in Navellier and rejected the Second Circuit’s contrary 2023 ruling in Govil, creating a high-stakes circuit split that may eventually demand Supreme Court review.
For the business community, this decision underscores three realities: first, the SEC now wields broader authority in the Ninth Circuit to pursue profit-based remedies without meeting the more difficult evidentiary threshold of proving investor losses; second, executives, issuers, and intermediaries operating in West Coast markets should anticipate more aggressive disgorgement demands as the SEC seeks to maximize leverage in settlement negotiations; and third, compliance and governance failures—particularly around disclosure, trading practices, and sales of unregistered securities—can expose not just companies but also individuals to significant financial clawbacks, even absent quantifiable investor harm.
Why should businesses care? Because the ruling signals that profits tied to alleged misconduct are vulnerable to SEC recovery even when investors cannot demonstrate out-of-pocket losses. This tilts the litigation risk calculus: disgorgement is now a weaponized enforcement tool, not a remedial fallback. Companies must expect the SEC to press harder in parallel civil and criminal proceedings, making early risk assessment, forensic accounting, and internal investigations critical.
Action-Oriented Recommendations:
- Elevate compliance monitoring: Strengthen internal controls around securities trading, investor communications, and public disclosures; regulators will view weak oversight as a ready pathway to unjust enrichment.
- Anticipate SEC leverage in settlements: Recognize that the absence of provable investor harm will not insulate profits; factor potential disgorgement into reserve planning and negotiation strategy.
- Prepare for cross-circuit uncertainty: Businesses operating nationally must track which jurisdictions they face exposure in, as the circuit split means dramatically different litigation outcomes depending on venue.
This decision should sharpen corporate boards’ and executives’ awareness: the SEC is not waiting for victims to show losses—it is focused on reclaiming profits, and businesses should adapt governance and litigation strategies accordingly.
This memorandum is provided by Bradford Edwards LLP for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered to be advertising under applicable state laws.
