Limitations Period for SEC Enforcement Matters

On April 18, 2017, the United States Supreme Court heard oral argument in Kokesh v. Securities and Exchange Commission to determine whether disgorgement of ill-gotten gains in civil actions brought by the United States Securities and Exchange Commission (SEC) is subject to a five-year statute of limitations period or is an equitable remedy that falls outside the statute. The statute at issue is 28 U.S.C. § 2462, which applies to government actions seeking a “civil fine, penalty, or forfeiture.”

The SEC has long taken the position that disgorgement of ill-gotten gains is not subject to any limitations period because it is a remedial measure that prevents unjust enrichment by violators of the securities laws. Until recently, the SEC’s position had been upheld by federal appellate courts that considered the issue. Last year, however, the Eleventh Circuit, in SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016), held that disgorgement is a “forfeiture” and, accordingly, is subject to the five-year limitations period. Subsequently, the Tenth Circuit, in SEC v. Kokesh, 834 F.3d 1158 (10th Cir. 2016), followed prior precedent by holding that disgorgement is neither a “penalty” nor a “forfeiture” and permitted disgorgement for conduct outside of the five-year period. The defendant in that case, Charles Kokesh, successfully petitioned for Supreme Court review. The Court’s opinion, likely to be issued by early summer 2017, should resolve the split among the circuits and could limit the SEC’s ability to obtain disgorgement for conduct occurring years earlier.