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Five-Year Statute of Limitations Applies to SEC Disgorgement

On June 5, 2017, the Supreme Court issued a unanimous opinion in Kokesh v. Securities and Exchange Commission, resolving a circuit split and holding that the 5-year statute of limitations for civil penalties applies to SEC disgorgement.

The Supreme Court previously held that 28 U.S.C. §2462, which establishes a 5-year statute of limitations for “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture,” applies to monetary civil penalties sought by the SEC. See Gabelli v. SEC, 568 U.S. 442, 454 (2013). Its application to disgorgement sought by the SEC, however, has remained a subject of debate, with some, including the SEC, taking the position that disgorgement is a remedial relief and is not a fine, penalty, or forfeiture within the meaning of §2462.

The Court, in an opinion written by Justice Sotomayer, has finally resolved this issue. The Court held that “[d]isgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.” It “bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate. The 5-year statute of limitations in §2462 therefore applies when the SEC seeks disgorgement.”

While this opinion represents a significant restriction to one of the SEC’s enforcement tools, it also seems to have left open the possibility of a further challenge to SEC disgorgement. In a footnote, the Court commented that “[n]othing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context.”

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About this Author

Brooke Clarkson, Foley Lardner Law Firm, Litigation Attorney
Partner

Brooke D. Clarkson is senior counsel with Foley & Lardner LLP, where she is a member of the Securities, Enforcement & Litigation Practice.

During law school, Ms. Clarkson was a summer associate with Foley, where she focused on securities litigation, government agency decisions, and regulatory standards. Prior to entering law school, she worked in the District Attorney’s Office of New York County, NY in the Frauds Bureau as a trial preparation assistant where she was involved in the prosecution of major white collar crimes. Her work...

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Samuel Winer, Foley Lardner Law Firm, Litigation Attorney
Partner

Samuel J. Winer, partner and litigation lawyer with Foley & Lardner LLP, represents audit firms, their partners, public companies, their officers and directors, and law firms and their partners in SEC investigations. He has represented a number of these clients in related SEC or private litigation. In addition, he represents auditors in investigations conducted by the PCAOB. Mr. Winer has assisted various special committees and audit committees of boards of public companies in investigations of financial reporting and related conduct. He also counsels securities broker-dealers and other clients on compliance with the federal and state securities laws and rules of the various self-regulatory organizations (SROs) and represents those clients in SEC enforcement proceedings and SRO disciplinary and other proceedings, litigation and grand jury investigations. Mr. Winer is a member of the firm’s Securities Litigation, Enforcement & Regulation and Transactional & Securities Practices. He previously served on the firm’s Management Committee.

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