On June 5, 2017, the United States Supreme Court unanimously held in Kokesh v. Securities and Exchange Commission, No. 16-529, that “any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued.” Slip. Op. at 11. The Opinion can be found here.
Equally important is the ruling’s implication that, even if the case is timely filed, the SEC can only seek disgorgement of funds or property that was received in the five years prior to the filing of the SEC’s action. In other words, even if the alleged wrongdoing occurred over more than five years, the SEC’s claim for disgorgement can only go back five years from the date the action was filed.
The SEC brought its case against Kokesh in 2009, and alleged that Kokesh had misappropriated $34.9 million between 1995 and 2009. After a jury found for the SEC, monetary sanctions were imposed. The district court held that, when it came to a penalty, the five-year statute of limitations precluded any penalties for misconduct that occurred more than five years prior to the date the SEC filed its action.
As to disgorgement, however, the district court held that there was no statutory provision that limited the time period for which a disgorgement claim could be asserted, and therefore entered judgment against Kokesh for the full $34.9 million misappropriated over fourteen years, plus interest.
The Tenth Circuit affirmed.
The Supreme Court reversed and held that disgorgement constitutes a “penalty,” and is therefore subject to the five-year statute of limitations found in 28 U.S.C. § 2462.
Interestingly, the Supreme Court explicitly noted that Kokesh should not be viewed as a determination of whether courts have the authority to order disgorgement in SEC enforcement proceedings or on whether the district court in Kokesh properly applied disgorgement principles.
In other words, in Kokesh, the Supreme Court not only severely limited the SEC’s ability to “claw back” alleged ill-gotten gains, it pointedly raised the issue of whether courts even possess the authority to order disgorgement in SEC enforcement proceedings.