In a unanimous decision, the United States Supreme Court has reined in the authority of the Securities and Exchange Commission (“SEC”) to recover ill-gotten gains, holding that the five-year statute of limitations period applicable to SEC enforcement actions extends to disgorgement.
In Kokesh v. SEC, No. 16-529 (June 5, 2017), the Court found that any claim for disgorgement in an SEC enforcement action must be commenced within the five-year time limit for civil penalty enforcement actions prescribed by 28 U.S.C. § 2462 because disgorgement constitutes a “penalty.” In reaching this conclusion, the Court noted that SEC disgorgement is:
(1) a remedy sought for violations of law committed against the public, rather than an individual;
(2) imposed for punitive purposes, and is used to deter future violations; and
(3) not compensatory as the funds are not always distributed to the aggrieved persons, but are often dispersed to the United States Treasury.
In an attempt to distinguish disgorgement from a penalty, the SEC argued that disgorgement was remedial in nature as it “restores the status quo.” The Court rejected that argument, noting “it is not clear that disgorgement … simply returns the defendant to the place he would have occupied had he not broken the law. [It] sometimes exceeds the profits gained as a result of the violation.”
The full opinion may be viewed here.