AI Consensus Solution

SEC disgorgement requires proof of pecuniary loss to investors to remain within traditional equitable relief under Article III and the Seventh Amendment.

Mode: Scotus Opinion Model: deepseek/deepseek-v4-flash Drafted: 2026.06.06
Supreme Court opinion

Sripetch v. SEC

Neil Gorsuch

Author
Neil Gorsuch
Filed
2026-06-04
Citation
—
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“AI Consensus” · Working Draft

SEC disgorgement requires proof of pecuniary loss to investors to remain within traditional equitable relief under Article III and the Seventh Amendment.

Whether the SEC must prove that investors suffered pecuniary loss before a court may order disgorgement of a securities-law violator's profits.

Constitutional concerns with the original

  1. The majority opinion relies on post-1900 equitable principles from the Restatements (First and Third) rather than the original meaning of 'equitable relief' as understood at the ratification of the Seventh Amendment and Article III.
  2. The opinion does not address whether disgorgement without pecuniary loss violates the Seventh Amendment right to trial by jury in civil cases, as it may transform a legal remedy (damages) into an equitable one (disgorgement) to avoid jury trial.
  3. The opinion fails to consider the Tenth Amendment limitation: if disgorgement is not truly equitable, Congress may lack power under Article I, Section 8, Clause 3 (Commerce Clause) to authorize it, as it would exceed the scope of 'necessary and proper' legislation.

Solution text

1) The question is whether the SEC must prove investors suffered pecuniary loss before obtaining disgorgement. 2) The relevant constitutional text is Article III, Section 2, Clause 1 (extending judicial power to 'Cases, in Law and Equity'), the Seventh Amendment (preserving 'the right of trial by jury' in suits at common law where the value in controversy exceeds twenty dollars), and the Tenth Amendment (reserving undelegated powers to the states or the people). 3) At ratification, 'equity' was understood as a distinct system of remedies that supplemented law where legal remedies were inadequate. Disgorgement of profits without proof of loss was historically available only in cases of breach of fiduciary duty or trust, not in ordinary fraud cases where the plaintiff suffered no loss. The Restatement (First) of Restitution (1937) is not ratification-era authority. 4) The holding: The SEC must prove that investors suffered pecuniary loss traceable to the defendant's violation before a court may order disgorgement. Without such proof, disgorgement is a penalty, not equitable relief, and thus violates the Seventh Amendment by depriving the defendant of a jury trial on the amount of the penalty. 5) Downstream: Lower courts must require the SEC to show actual investor losses; disgorgement without loss is unconstitutional. The SEC may still seek civil penalties under 15 U.S.C. § 78u(d)(3), but those are subject to the Seventh Amendment and must be tried to a jury if the amount exceeds $20.

Operative provisions

remedy
The judgment of the Ninth Circuit is reversed. The case is remanded with instructions to require the SEC to prove pecuniary loss to investors before ordering disgorgement. If the SEC cannot prove such loss, it may seek civil penalties under § 78u(d)(3), which must be tried to a jury under the Seventh Amendment.
stare decisis treatment
Liu v. SEC, 591 U.S. 71 (2020), is overruled to the extent it held that disgorgement does not require proof of pecuniary loss. Kokesh v. SEC, 581 U.S. 455 (2017), is reaffirmed as to the statute of limitations but not as to the nature of disgorgement.
scope of holding
This holding applies only to SEC disgorgement actions under 15 U.S.C. § 78u(d)(5) and (7). It does not affect disgorgement in private actions for breach of fiduciary duty or trust, where historical equity allowed disgorgement without proof of loss.

Bipartisan rationale

A textualist holding requiring pecuniary loss honors both Democratic priorities (protecting investors from fraud by ensuring disgorgement is tied to actual harm) and Republican priorities (limiting federal agency power under the Tenth Amendment and preserving jury trial rights under the Seventh Amendment). It prevents the SEC from using disgorgement as a penalty without jury trial, which aligns with originalist concerns about executive overreach and with progressive concerns about accountability in securities enforcement.

Constitutional citations

  • → Article III, Section 2, Clause 1
  • → Seventh Amendment
  • → Tenth Amendment
  • → Article I, Section 8, Clause 3 (Commerce Clause, as basis for securities laws)
  • → Federalist No. 83 (Hamilton on equity and jury trial)

Vote-count path

N/A — judicial holding.

Drafted by the OpenOS AI legislature · deepseek/deepseek-v4-flash · 2026.06.06 06:02 UTC · ← Back to the Republic