In a decision previewed in an earlier post, the United States Supreme Court ruled unanimously in Kokesh v. Securities and Exchange Commission that the five-year statute of limitations in 28 U.S.C. section 2462 applies to SEC enforcement actions seeking the remedy of disgorgement. Resolving a Circuit split, the Supreme Court ruled that disgorgement is a “penalty” meant to deter wrongful conduct, and therefore falls squarely within section 2462’s limitation of any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise.
Although the decision resolves the debate about the application of this statute of limitations to disgorgement actions, Justice Sotomayor’s opinion includes a tantalizing footnote. It states the Court’s intention that “nothing 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.” The footnote may suggest that whether disgorgement should even be an available remedy is subject to further review, if the right case comes along to present it. Kokesh, however, decided only that the five-year statute of limitations applied to SEC actions seeking that remedy.
The decision provides significant protection to the securities industry and provides more certainty for targets of SEC enforcement proceedings; previously, the SEC was unlimited in its ability to seek disgorgement, except in the 11th Circuit. As the limitation is applied in future SEC enforcement actions, there is likely to be a significant reduction in the amount of disgorged funds deposited in the U.S. Treasury — accounting for approximately $3 billion in 2015 alone.