Challenges to the SEC’s enforcement
By Bruce Bettigole, Neil Lang, Adam Pollet and Laura Raden
In June 2017, the US Supreme Court unanimously
held in Kokesh v. Securities and Exchange
Commission that the availability of disgorgement
as a remedy in Securities and Exchange
Commission (SEC) civil injunctive actions is
subject to the five-year statute of limitations on
civil penalties. 1 The decision’s immediate impact
is to profoundly limit the ability of the SEC to
seek disgorgement in its civil injunctive actions.
Yet the implications of this decision may have
rippling effects on other longstanding practices
and the perceived authority of the SEC.
1 Kokesh v. SEC, 137 S. Ct. 1635 (2017).
The Supreme Court’s Kokesh
Federal law applies a five-year statute of limitations to fines,
penalties, forfeitures, and other punitive remedies in civil
enforcement matters. 28 U.S.C. § 2462. In its 2013 decision,
Gabelli v. SEC, the Supreme Court unanimously upheld the
five-year time bar for monetary penalties in SEC enforcement
actions but reserved the question of whether Section 2462
applies to claims for disgorgement. 2 In the aftermath
of Gabelli, the SEC argued that the five-year statute
of limitations did not apply to disgorgement because
disgorgement is an equitable remedy, not a penalty. The
US Courts of Appeals for the DC Circuit and the First
Circuit agreed, finding that the statute did not apply to
disgorgement. 3 But the Eleventh Circuit disagreed, holding
that disgorgement is effectively the same as forfeiture and
thus subject to the five-year statute of limitations. 4
2 Gabelli v. SEC, 568 U.S. 442 (2013).
3 SEC v. Tambone, 550 F.3d 106 (1st Cir. 2008); Riordan v. SEC, 627 F.3d 1230 (D.C. Cir. 2010).
4 SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016).