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Perspectives on Cyber Risk
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SEC enforcement powers curtailed

SEC enforcement powers curtailed

June 13, 2017 4:21 PM | Print this page

In a unanimous decision, the US Supreme Court has ruled in Kokesh v Securities and Exchange Commission 16-529 that the Securities and Exchange Commission's (SEC) use of power to recoup illegal profits is subject to the same five year time limit as its other financial penalties.

The court found that SEC disgorgement orders which require those found to have violated securities laws to surrender ill-gotten gains is a 'penalty' under federal law. Writing for the supreme court, Justice Sonia Sotomayor wrote: 'A 5-year statute of limitations applies to any "action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise." 28 U. S. C. §2462. This case presents the question whether §2462 applies to claims for disgorgement imposed as a sanction for violating a federal securities law. The Court holds that it does. Disgorgement in the securities-enforcement con¬text is a 'penalty' within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues'.

The case has received wide media coverage:
The FT and Bloomberg report describe the decision in terms of curtailment of SEC's preferred tool for enforcement. The WSJ suggests that the judgment may 'invite' a future challenge to whether courts possess authority to order disgorgement in SEC enforcement proceedings. This is based on a footnote in the judgment in which Justice Sotomayor states: 'nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceeds or on whether courts have properly applied disgorgement principles in this context…..' According to WSJ: 'That almost sounds like an invitation for a future suit to pose the question. Please do.'

[Source: WSJ 5/6/2017; Bloomberg 06/06/2017 6 June 2017; Kokesh v. SEC, 16-52; SCOTUSblog Argument analysis: Does a statute of limitations apply to SEC actions for disgorgement Theresa Gabaldon 19 April 2017; FT 06/06/2017; [registration required] Reuters 05/06/2017]

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