Supreme Court Rules that SEC’s Ability to Seek Disgorgement is Subject to a Five-Year Statute of Limitations

On June 5, 2017, the United States Supreme Court, in a unanimous decision, ruled that disgorgement, a remedy that the SEC frequently utilizes to recover so-called “ill-gotten gains” from respondents in enforcement proceedings, is subject to 28 U.S.C. § 2642’s five-year statute of limitations for “an action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture.”  As discussed previously, the Supreme Court agreed to hear the underlying case, SEC v. Kokesh (“Kokesh”), after a split in the appellate judicial circuits over whether SEC disgorgement was a “penalty” subject to the five-year statute of limitations.

The Supreme Court’s decision in Kokesh is not the first time that the Supreme Court has placed limitations on the SEC’s enforcement powers.  In Gabelli v. SEC, a case from 2013, the Supreme Court ruled that civil monetary penalties were subject to the five-year statute of limitations.

According to the Supreme Court’s decision, the question of whether disgorgement is a penalty rests on what disgorgement’s purpose is.  The Supreme Court found that “SEC disgorgement is imposed by the courts as a consequence for violating… public laws.”  It also found that “SEC disgorgement is imposed for punitive purposes.”  Finally, the Supreme Court noted that disgorged profits are paid to the relevant district court, and the district court has the authority to decide how and to whom the disgorged profits will be paid.  Based on the above factors, the Supreme Court concluded that disgorgement is a penalty because its purpose is to punish wrongdoers for violating public laws and to deter the wrongdoer and others from further violations.

The SEC brought suit against Charles Kokesh (“Kokesh”), an investment adviser, on October 27, 2009.  The SEC alleged that from 1995 through 2006, Kokesh misappropriated $34.9 million from some development companies that he was acting as investment adviser to.  Both the District Court and the Tenth Circuit concluded that disgorgement was not a penalty but an equitable remedy, which does not fall within the five-year statute of limitations.  With the Supreme Court’s decision, the SEC will be barred from imposing disgorgement relating to ill-gotten gains received prior to October 27, 2004, exactly five years before the SEC first brought suit.


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