Kokesh v. Sec. & Exch. Comm'n
The Supreme Court ruled that when the SEC asks a court to force a wrongdoer to give up profits from securities-law violations (a remedy called disgorgement), that request counts as a "penalty" and must be brought within five years of the violation.
The ruling limits how far back the SEC can reach when seeking to strip illegal profits from people who violate securities laws, closing off a tool the agency had used to claw back money from violations far outside any normal filing deadline.
“SEC disgorgement thus bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate.”
The Court's core reasoning for why SEC disgorgement counts as a penalty.
How it got here: A jury found Kokesh liable; the district court capped civil penalties at five years but ordered full disgorgement; the Tenth Circuit affirmed, and Kokesh appealed to the Supreme Court.
The Case in Depth
What happened
Charles Kokesh ran two investment-adviser firms. The SEC accused him of misappropriating $34.9 million from four business-development companies between 1995 and 2009 and of filing false SEC reports to hide it. After a five-day trial, a jury found Kokesh liable, and the SEC sought civil penalties, an injunction, and disgorgement of the full $34.9 million, even though most of it stemmed from conduct outside the normal five-year filing window.
The question before the Court
When the SEC sues someone years after alleged wrongdoing and asks a court to make them hand over their ill-gotten profits, does a five-year deadline apply?
The Court's answer
Yes — the Court ruled that a five-year statute of limitations applies whenever the SEC seeks disgorgement (forcing a wrongdoer to hand over ill-gotten profits) as punishment for violating securities laws. The Court reasoned that disgorgement in this setting works like a penalty: it punishes wrongs against the public rather than compensating a specific victim, and its main purpose is deterrence, not restitution.
Because disgorgement functions as a penalty, the same five-year clock that already applies to SEC civil monetary penalties also applies to disgorgement claims. That means the SEC must bring a disgorgement claim within five years of the violation, and any disgorgement award can only cover conduct occurring within that five-year window before the lawsuit was filed.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Companies and individuals accused of securities violations can no longer be forced to give up profits from conduct more than five years old, even if the wrongdoing lasted longer. This shrinks the SEC's financial recovery in long-running fraud cases and pushes the agency to investigate and file lawsuits faster.
What changes now
The case returns to the lower courts, where any disgorgement award against Kokesh must be recalculated to cover only violations within the five-year window before the SEC filed suit, mirroring how the civil penalties were already limited. Going forward, the SEC must file disgorgement claims within five years of the underlying conduct, which will affect how the agency times its investigations and enforcement actions in long-running fraud cases.
What this does not decide
The Court expressly said it was not deciding whether courts have the power to order disgorgement in SEC cases at all, or whether disgorgement has been properly calculated in past cases — only whether the five-year deadline applies to disgorgement claims.
How the Court got there
The legal reasoning, step by step
- The Court applied the traditional definition of a "penalty": a punishment imposed by the government for an offense against its laws, as opposed to compensation for a private wrong, drawn from an 1892 case called Huntington v. Attrill.
- Under that definition, a sanction counts as a penalty if it redresses a wrong to the public rather than to a specific victim, and if it is imposed to punish and deter rather than to compensate someone for a loss.
- The Court found SEC disgorgement redresses wrongs against the public: securities-enforcement suits proceed even without support from individual victims, and the SEC itself said it acts to protect the public rather than particular investors.
- The Court found disgorgement is aimed at punishment and deterrence, not compensation, because courts have repeatedly described deterring future securities violations as disgorgement's primary purpose, and deterrence is not considered a legitimate non-punitive goal.
- The Court also noted that disgorged money often goes to the U.S. Treasury rather than to victims, and that disgorgement can require paying more than the wrongdoer's own profit — for example, giving up gains that flowed to third parties or ignoring cost deductions — showing the remedy sometimes exceeds pure restoration of the status quo.
- Because disgorgement in this context punishes public wrongs and serves deterrence rather than only compensating victims, the Court concluded it functions as a penalty within the meaning of the statute of limitations.
Doctrinal impact
Cases affected by this decision
Reaffirms Gabelli v. SEC (568 U.S. 442)
Reaffirms that the same five-year deadline already applies to SEC monetary penalties, extending that logic to disgorgement.