The Supreme Court on Thursday unanimously upheld a broad reading of the Securities and Exchange Commission's authority to require disgorgement of ill-gotten gains in securities fraud cases.
The decision rejected a challenge by Ongkaruck Sripetch, a Los Angeles resident who was sentenced to 21 months in prison after pleading guilty to selling unregistered securities as part of a scheme involving high-risk penny stocks.
He had been ordered to repay more than $3 million, including interest, under a court disgorgement order.
The issue in the case was whether the SEC had to prove that individual investors lost money as a result of buying the stocks; the Supreme Court ruled it did not.
"It was enough to show that Sriptech turned a profit from illegal transactions and that "an investor may qualify as a victim of an offender's wrongdoing entitled to compensation," Justice Neil Gorsuch wrote for the court.
Sripetch took part in fraudulent schemes involving at least 20 penny stock companies, Gorsuch wrote, citing court records, and some of those were "pump and dump" operations in which Sripetch and others bought stocks, promoted them so that their share price rose and then promptly sold them.
Under federal law and prior Supreme Court rulings, the SEC may order disgorgement limited to the amount of illegally obtained profits in fraud cases, and the money ordinarily must be returned to investors, when feasible.