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Supreme Court

SEC disgorgement claims subject to five-year statute of limitations

On June 5, 2017, a unanimous Supreme Court in Kokesh v. SEC1 held that SEC enforcement actions seeking disgorgement must be brought within the five-year statute of limitations imposed by 28 U.S.C. § 2462. Kokesh resolved a split in the Courts of Appeals by concluding that disgorgement in SEC federal court actions is a “penalty,” thus triggering § 2462’s statute of limitations. As a result, we may see the SEC bringing enforcement actions more quickly or becoming more aggressive in pressing parties to agree to toll the applicable limitations period.

Background

Under 28 U.S.C. § 2462, government “enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise,” must be commenced within five years of when the claim accrues. Initially, the only remedies available to the SEC in enforcement actions for violations of the federal securities laws were injunctions barring future violations. Unable to impose monetary sanctions, the SEC urged federal courts to order disgorgement as part of the courts’ “inherent equity power to grant relief ancillary to an injunction.”2 Since the 1970s, courts have used this implied authority to order disgorgement in SEC enforcement actions. In 1990, Congress authorized the SEC to seek monetary civil penalties. In Gabelli v. SEC, the Court held that the five-year statute of limitations in 28 U.S.C. § 2462 applies to civil penalties sought by the SEC, but did not address whether that limit also applies to disgorgement. 568 U.S. 442, 454, n.1 (2013). Since Gabelli, the SEC has increasingly sought disgorgement in cases where civil penalties were time-barred.

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