SEC Win on Core Enforcement Tool Would Still Leave Payback Gaps

The SEC appears likely to retain its power to recover money snatched by fraudsters in a case before the US Supreme Court, but there’s still a wide gap between what the Wall Street regulator collects and what it can return to any investors who end up on the losing end.

The specifics of how that money is actually clawed back and doled out to investors drew sharp questioning at oral arguments.

A “reasonably good collection agent” would make a concerted effort to get more money back in victims’ pockets instead of a Treasury account, Justice Neil Gorsuch said, taking issue with the discrepancies he perceived in the Securities and Exchange Commission’s annual disgorgement order amounts compared to distributions.

The task of distributing disgorged assets back to investors isn’t straightforward, however, often requiring complex calculations, receivership structures, and time to locate eligible fraud victims, former SEC attorneys said.

“There are numerous scenarios where it is simply not feasible to take disgorged funds from a defendant and distribute them to an identifiable group of victims,” said Mark L. Williams, a founding partner at Williams & Serio LLC and former SEC senior trial attorney.

The dispute central to last month’s high court arguments go to the heart of the market cop’s enforcement strategy.

‘Bread-and-Butter’ Enforcement

The SEC under Chairman Paul Atkins has pursued a narrower agenda than his predecessor, zeroing in on outright fraud and investor harm such as Ponzi-like schemes while stepping back from crypto-related litigation and disclosure infractions.

But the agency’s also prioritizing insider trading cases, even when it’s hard to identify any individual victims.

Going after insider trading “appears to be inside the bread-and-butter enforcement that an Atkins SEC believes in,” said Lance Jasper, a partner at Akin Gump Strauss Hauer & Feld LLP and a former SEC senior counsel.

The agency can’t easily quantify harm to individual shareholders in the type of alleged pump-and-dump and scalping schemes involving nearly 20 microcap companies at issue in last month’s Sripetch v. SEC arguments, which focused on a circuit split over the agency’s capacity to recoup assets lost to fraud.

A majority of justices appeared willing to side with the regulator that it doesn’t need to prove investors directly lost money in order to pursue disgorgement.

A ruling for the SEC in Sripetch could also influence how enforcers pursue apparent fraud involving digital assets and event contracts that indirectly extracts value from token or wager holders.

“As the Supreme Court is addressing this remedy that has been used by the SEC for a long time, many of the kinds of cases that the SEC and other agencies like the CFTC are bringing will be new in their own way because they involve the blockchain or prediction markets,” Jasper said.

The SEC declined to comment.

Complex Distribution

The delicate task of determining who should receive assets recovered from ill-gotten gains in an SEC enforcement action may drive the regulator to err on the side of caution, rather than distributing a sum that could be perceived as a windfall for investors.

“Ultimately the amount that ends up in investors’ pockets ends up being a lot smaller than the amount ordered to be disgorged and the amount ultimately collected,” said Urska Velikonja, a professor of business law at Georgetown University Law Center who specializes in SEC enforcement.

“I would be enormously surprised if the petitioner won on, ‘Disgorgement has to be paid back to investors,’” she added.

The SEC often turns to receivers such as Jeff Schneider, founding partner and chair of the receivership practice group at Levine Kellogg Lehman Schneider & Grossman LLP, to handle particularly complex disgorgement and penalty distributions.

“Ultimately, what you’re trying to make sure is that there’s an equitable process to determine what an investor’s claim amount is,” he said. “Most receivership cases will do it similarly, just take money in, less money out, and come up with a net claim amount.”

Even after disgorgement is ordered, the dissipation of defrauded assets can complicate the task of collecting and ultimately reuniting investors with all the money they lost.

“There are very few cases—and I’ve been doing this for over 25 years—where I could think of a hundred cents on the dollar recovery. It does not happen often,” Schneider said. “Sometimes the protagonists will buy homes, cars, boats, airplanes, things that can be sold, but those things are not likely to fill up an eight- or nine-figure hole.”

Payment Gap

Disgorgement is “programmatic for the SEC” and a crucial source of recoveries, said Kiersten Fletcher, a partner at Cahill Gordon & Reindel LLP and former assistant US attorney.

The SEC ordered $10.8 billion in disgorgement in fiscal 2025, portions of which were deemed satisfied by payments in parallel criminal proceedings brought by the Justice Department.

Minus those “deemed satisfied” amounts and judgments in a long-running case against R. Allen Stanford and others involved in a roughly $8 billion Ponzi scheme, the annual figure totaled $1.4 billion in disgorgement ordered with prejudgment interest, compared with $1.3 billion in civil monetary fines.

Meanwhile, just $262 million was returned to harmed investors in fiscal 2025, according to SEC data.

“Identifying victims, calculating amounts for a particular victim, potentially doing a distribution is something that the SEC does from time to time via its Fair Fund capabilities, but not something they do for all cases where they pursue disgorgement,” said Jim Lundy, co-leader of the securities enforcement subgroup and a partner at Foley & Lardner LLP.

The case is Sripetch v. SEC, U.S., No. 25-466, oral argument 4/20/26.