The nation’s highest court delivered a unanimous decision Thursday strengthening the Securities and Exchange Commission’s power to force fraudsters to return profits from illegal stock schemes.
The justices ruled against Ongkaruck Sripetch, a Los Angeles resident who served 21 months behind bars after admitting guilt for peddling unregistered securities in a penny stock operation. Sripetch had fought a judicial order requiring him to surrender more than $3 million in profits plus interest.
The central question before the court was whether securities regulators must demonstrate that specific investors suffered financial losses from purchasing the fraudulent stocks. The high court determined they do not need such proof.
The court found it sufficient to demonstrate that Sriptech profited from unlawful deals and that “an investor may qualify as a victim of an offender’s wrongdoing entitled to compensation,” Justice Neil Gorsuch explained in the court’s opinion.
Court documents show Sripetch participated in fraudulent activities across at least 20 penny stock enterprises, according to Gorsuch’s writing. Several involved “pump and dump” tactics, where Sripetch and accomplices purchased shares, artificially inflated their value through promotion, then quickly sold them for profit, Gorsuch detailed.
Current federal statutes and previous high court decisions allow the SEC to demand disgorgement up to the total amount of unlawfully earned profits in securities fraud matters. When practical, these recovered funds typically go back to affected investors.
