Why Supreme Court must side with SEC fraudster

NO ONE WANTS to come down on the side of people who commit fraud.

- STEPHEN L CARTER

But last week, the US Supreme Court agreed to consider whether the Securities and Exchange Commission might have gone too far in punishing one. And in this unusually fraught political moment, we would do well to ponder the possibility that the fraudster should prevail.The case in question is Sripetch v. the SEC, which, on its face, raises only the technical question of under what circumstances a person who commits securities fraud can be made to disgorge the profits from the fraud. As a matter of practical ethics, “always” might seem the obvious answer. In general, I’d agree. But read on.

The SEC has long and successfully asserted the authority to seek disgorgement of ill-gotten gains as part of its authority to obtain equitable remedies for securities fraud. In 2020, the Supreme Court placed the breadth of that authority in doubt. A year later, Congress adopted an amendment that expressly permits disgorgement as a remedy. Unfortunately, and somewhat amusingly, that amendment failed to define what disgorgement means, who it benefits, or when it is apt.