Kokesh v. Sec. & Exch. Comm'n

Background

The dispute involves the Securities and Exchange Commission (the SEC) and an investment adviser, Charles Kokesh, who was accused of misappropriating millions from client companies between 1995 and 2009. After a jury found violations of federal securities laws, the SEC sought monetary penalties, an injunction, and disgorgement (return of ill-gotten gains). The district court and the Tenth Circuit treated disgorgement as remedial and allowed a $34.9 million disgorgement judgment despite parts of the conduct occurring more than five years before the SEC filed suit. The Supreme Court agreed to decide whether a five-year time limit applies to disgorgement claims.

Reasoning

The central question was whether disgorgement ordered in SEC enforcement counts as a "penalty" subject to the five-year statute of limitations in federal law. The Court explained that disgorgement in this context punishes violations of public law and aims to deter wrongdoing rather than only compensate victims. The opinion notes that disgorgement is often imposed for the public interest, can exceed direct profits, and sometimes is paid to the government rather than victims. Because disgorgement functions as a punitive sanction, the Court held it falls within the statute’s definition of a penalty and thus must be pursued within five years of when the claim accrued. The Court reversed the Tenth Circuit’s judgment.

Real world impact

The ruling means the SEC must start disgorgement lawsuits within five years of the claim’s accrual. Defendants in old or long-running investigations may avoid large disgorgement orders for older conduct. The opinion does not address whether courts generally have authority to order disgorgement or how courts should calculate it in specific cases.