In Kokesh, a jury found investment adviser Charles Kokesh
liable for misappropriating investor money from four funds
for over a 12-year period. The jury ordered Kokesh to
disgorge nearly $35 million, the amount of proceeds
misappropriated throughout the entirety of his scheme,
the bulk of which were received outside the five-year
limitations period. On appeal, the Tenth Circuit found
Section 2462 inapplicable, reasoning that disgorgement
is not a penalty. The Supreme Court granted certiorari to
resolve the circuit split.
The Supreme Court held that disgorgement does operate
as a penalty and thus is subject to the five-year statute of
limitations. In doing so, the Court laid out two principles
that determine whether a sanction, including disgorgement,
is a penalty: 1) if the wrongful act was perpetrated against
the public rather than an individual; and 2) if the sanction
is used to punish the offending party and deter others from
engaging in similar behavior rather than to compensate
The Court applied these principles in finding that SEC
disgorgement constitutes a penalty. First, it stated that
courts impose SEC disgorgement as a remedy for violations
of public laws against the United States rather than against
an aggrieved individual. Second, it held that SEC
disgorgement is imposed for punitive rather than
compensatory purposes. The Court cited cases that
emphasized the use of disgorgement “to deprive the
defendants of their profits in order to . . . protect the
investing public by providing an effective deterrent to
future violations” and to punish offenders. 5 This holding
prohibits the SEC from bringing an action seeking
disgorgement more than five years after the underlying
conduct has occurred.
Do the principles in Kokesh
implicate the SEC’s ability
to seek injunctions for past
While Kokesh is immediately significant for its limitation
on disgorgement, its holding may lay the groundwork for
applying Section 2462’s five-year statute of limitations to
the Commission’s use of injunctions for past conduct.
Courts might apply the same principles from Kokesh in
determining whether an injunction is a penalty subject to
the five-year statute of limitations. In doing so, courts may
consider whether the wrongful act was perpetrated against
the public rather than an individual and whether the
injunction is imposed primarily for punitive and deterrent
purposes rather than to remedy ongoing misconduct or
protect against future violations.
5 137 S. Ct. at 1643 (quoting SEC v. Texas Gulf Sulphur Co., 312 F. Supp. 77, 92 (S.D.N. Y. 1970)).
Meeting the first principle appears relatively straightforward.
Like with disgorgement, courts impose SEC injunctions to
remedy violations against the United States and the public
at large rather than aggrieved individuals.
While the second principle requires deeper analysis,
precedent suggests that SEC injunctions punish or deter
rather than remediate ongoing misconduct. Courts often
look to the extent of the collateral consequences to
determine whether an injunction is punitive. Beginning
in 1996 in Johnson v. SEC, the DC Circuit found that the
“collateral consequences of the censure and suspension”
suggest that an injunction is a penalty. 6 The court stated
that if a permanent injunction is imposed as “a form of
punishment” that “goes beyond remedying” the damage
allegedly caused by the defendant, it would be a punitive
measure, and thus subject to the Section 2462 time bar.
Another court further found that enjoining the defendants
from any future violations of securities laws “can be
regarded as nothing short of a penalty ‘intended to punish,’
especially where [there was] no evidence (or allegations) of
any continuing harm or wrongdoing [within the limitations
period].” 7 More recently in Gabelli, the Supreme Court
stated that it “‘would be utterly repugnant to the genius of
our laws’” if actions for penalties could “‘be brought at any
distance of time.’” 8
Whether an injunction is “a form of punishment” that “goes
beyond remedying” the harm caused by a defendant would
likely be a fact-specific inquiry. Recently, the Eighth Circuit
analyzed whether Kokesh bars the SEC from bringing
injunctions more than five years after the misconduct
occurred. 9 In that case, the court found it unnecessary to
determine whether an injunction is a penalty under Section
2462, because ( 1) the defendant continued operating his
business after the action was brought and thus there was a
reasonable likelihood of future violations; ( 2) the injunction
was meant to protect the public prospectively from the
defendant’s wrongful conduct rather than punish him; and
( 3) the injunction only required the defendant to obey the
law. The outcome may differ in a case where a company
voluntarily ceased the violative conduct, remediated any
harm caused by the misconduct, took actions to prevent
future misconduct, and self-reported. Thus, depending on
the circumstances, if the at-issue conduct occurred beyond
five years, a court may be inclined to find injunctive relief
barred by the limitations period. Moreover, in future cases
where a court may focus solely on whether to issue an
injunction that merely requires obedience to the law, the
court may consider that the purpose of such an injunction
is to impose a “stigma” that would constitute a penalty.
6 87 F.3d 484, 489 (D.C. Cir. 1996).
7 SEC v. Graham, 21 F.Supp.3d 1300, 1310 (S.D. Fla. 2014); see also SEC v. Jones, 476 F. Supp. 2d 374, 385
(S.D.N. Y. 2007) (holding that where the SEC adduced no positive proof, aside from the defendants’ past
wrongdoing, to suggest some cognizable danger of recurrent violation, an injunction barring future
violations of securities laws would constitute a penalty under Section 2462 because the “practical effect of
such an injunction here would be to stigmatize Defendants in the investment community and significantly
impair their ability to pursue a career”).
8 568 U.S. at 1218 (quoting Adams v. Woods, 2 Cranch 336, 342 (1805)).
9 SEC v. Collyard, No. 16-1405, 2017 WL 2803184 (8th Cir. Jun. 29, 2017).