Supreme Court Decision Provides Significant Protection to Securities Industry, Limits SEC EnforcementIn 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.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Dylan C. Black Dylan C. Black

Dylan Black focuses his practice on complex civil litigation in state and federal courts, with particular emphasis on class actions, state and federal securities fraud cases, professional liability matters, and insurance coverage litigation. His recent class action experience includes the successful defense of…

Dylan Black focuses his practice on complex civil litigation in state and federal courts, with particular emphasis on class actions, state and federal securities fraud cases, professional liability matters, and insurance coverage litigation. His recent class action experience includes the successful defense of clients facing putative nationwide classes in cases alleging violations of consumer protection statutes such as the Telephone Consumer Protection Act and the Fair and Accurate Credit Transactions Act.

Photo of Jeffrey R. Blackwood Jeffrey R. Blackwood

Jeffrey Blackwood has practiced in the Jackson office for over 22 years and has handled a variety of complex commercial litigation matters. He recently represented a private equity firm in a breach of contract matter during the pandemic that involved numerous hearings and…

Jeffrey Blackwood has practiced in the Jackson office for over 22 years and has handled a variety of complex commercial litigation matters. He recently represented a private equity firm in a breach of contract matter during the pandemic that involved numerous hearings and over 25 depositions, all conducted remotely. He is actively representing broker-dealers and registered investment advisors in FINRA arbitrations and investigations before the Mississippi Secretary of State Securities Division. Jeffrey has successfully tried a case in Delaware Chancery Court representing a trust in litigation involving investment LLCs, where the client prevailed and was awarded attorneys’ fees, and he recently obtained dismissal of a putative class action in federal court in Mississippi representing a healthcare client. He routinely speaks and writes on topics related to securities regulatory and enforcement matters. He also has significant experience in representing life insurance companies and brokers in a variety of matters, including sales practice litigation, regulatory actions and professional negligence actions.