United States: Supreme Court To Decide Limitations Period For Securities And Exchange Commission 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.


In civil actions, the SEC can seek monetary relief in the form of penalties, disgorgement, or both. Disgorgement, along with accompanying pre-judgment interest, has been a significant tool for the SEC and an important part of its enforcement program for many decades. During fiscal year 2016 alone, the SEC obtained orders for disgorgement totaling $2.81 billion compared to $1.27 billion in civil penalties.1

A five-year statute of limitations is imposed under 28 U.S.C. § 2462 for any government "action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise." In a 2013 opinion, Gabelli v. SEC, 133 S. Ct. 1216 (2013), the Supreme Court determined that the five-year period accrues when the fraud is complete, not upon its discovery.2 In so doing, the Court set "a fixed date when exposure to the Government enforcement efforts ends . . . ."Id. at 1221. The Court expressly reserved the question of whether § 2462 applies to disgorgement claims, which is now the subject of the circuit split. Id. at 1220 n.1.

The Kokesh case commenced in October 2009, when the SEC brought a civil action alleging that Kokesh (an investment adviser) violated federal securities laws between 1995 and 2006 by misappropriating funds from four SEC-registered business development companies. After a jury returned a verdict in favor of the SEC, the district court imposed a monetary penalty of $2.4 million and ordered disgorgement of $34.9 million, of which $29.9 million was based on violations prior to the five-year limitations period. Kokesh appealed, arguing that the district court's disgorgement order was a "penalty" or a "forfeiture" within the meaning of § 2462 and therefore governed by a five-year limitations period.

The Tenth Circuit affirmed and held that "disgorgement" is neither a penalty nor a "forfeiture." See Kokesh, 834 F.3d at 1164. The court reasoned that disgorgement is not a penalty but rather is remedial and does not inflict punishment because it places the wrongdoer in the position he would have been without the misconduct. Id. The court also emphasized the historical meaning of forfeiture, which narrowly referred to in rem procedures to recover property used in criminal activity, noting that the "nonpunitive remedy of disgorgement does not fit" into this historical context. Id. at 1165-66.

The Tenth Circuit's decision in Kokesh is at odds with the Eleventh Circuit's conclusion that § 2462's five-year limitations period applies to SEC claims for disgorgement. Graham, 823 F.3d at 1363. The Eleventh Circuit held that § 2462 barred the disgorgement sought by the SEC because forfeiture and disgorgement "are effectively synonyms" or, at minimum, that disgorgement is a "subset of forfeiture." Id. at 1363-64. While the Eleventh Circuit did not reach the issue of whether disgorgement is a "penalty," it nonetheless concluded that there is "no meaningful difference in the definitions of disgorgement and forfeiture." Id. at 1363.

Oral Argument

At oral argument, a number of Justices appeared skeptical of the SEC's pursuit of disgorgement without a clear mandate from Congress or clear internal guidelines. Chief Justice Roberts and Justice Kennedy pointed to the lack of express statutory authority for disgorgement, which Justices Sotomayor and Kagan further characterized as "unusual." Justice Gorsuch, the newly appointed member of the Court, stated that "there's no statute governing it . . . [w]e're just making it up."

Nevertheless, the Justices pressed both parties on the meaning of disgorgement. Counsel for Kokesh maintained that disgorgement falls within the "heartland" of the word forfeiture because it requires the wrongdoer to turn over money or property as a result of his wrongdoing. He characterized the SEC's view that disgorgement is an implied remedy as implausible because it enables the SEC to define disgorgement in the "twilight zone of sometimes compensatory, sometimes not," depending on its litigation needs. He instead suggested that citizens should be entitled to basic consistency from their regulators about whether disgorgement is a fine, penalty, or forfeiture.

The SEC countered that disgorgement is neither a penalty nor a forfeiture because its purpose is to remedy unjust enrichment by putting the wrongdoer back in the place he would have been prior to the securities law violation. The Court asked the SEC a number of questions about how disgorgement differs from the specified categories in the statute. For example, Justice Sotomayor asked, "if it looks like a forfeiture, why don't we treat it like a forfeiture?" Justice Kagan took a "commonsensical" approach, suggesting that the SEC has used disgorgement to compensate, to punish, and to deter, and that it would be artificial to tear them apart. Justice Gorsuch observed that disgorgement is often called forfeiture in the criminal context and questioned "[W]hy does the form, whether this is civil versus criminal, make all the difference?"

Several Justices appeared to be concerned about the unlimited nature of disgorgement if no limitations period applies. Chief Justice Roberts, quoting Chief Justice John Marshall, noted that it would be "utterly repugnant" to have a penalty without limit, and that the Court has a special obligation to ensure that the SEC does not reach too far given its lack of express statutory authority. While the SEC represented that it has an incentive post-Gabelli to move quickly so it can secure civil penalties, Chief Justice Roberts noted that "if we think that's inappropriate and bad, we're not going to come out the other way because we trust the government not to bring an action like that."

Both parties, in response to questions from Justice Kennedy, agreed that they were seeking a categorical rule, namely that disgorgement is either covered by the statute or it is not. Some Justices, however, hinted that they would not foreclose the possibility of a non-categorical solution in which the limitations period would not apply to disgorgement when its objective under § 2462 is actual victim compensation. This approach could alleviate several Justices' concerns about where disgorgement proceeds go—to the victims or to the Treasury—but such an approach would be difficult without clear guidance on the SEC's use of the funds.


The Supreme Court's decision in Kokesh could have significant implications for parties being investigated by the SEC. If the Court affirms the SEC's position that no limitations period applies to disgorgement, the SEC would retain the ability to seek profits gained or losses avoided based on violations of the federal securities laws without regard to when the misconduct occurred. On the other hand, if the Court adopts the Eleventh Circuit's categorical position in Graham, the SEC's ability to seek disgorgement for conduct occurring years earlier would be curtailed. This, in turn, could lead to the SEC expediting investigations, using tolling agreements earlier and more frequently during an investigation, or seeking higher penalty and disgorgement amounts for conduct occurring within the limitations period. In any event, the SEC could continue to pursue other equitable remedies, such as civil injunctions, for older conduct falling outside the statute.


1. SEC, Select SEC and Market Data, Fiscal 2016, at 2.

2. For additional background on the Gabelli case, see Advisories, " Supreme Court: Discovery Rule Does Not Apply to SEC Enforcement Actions for Civil Penalties Under Investment Advisers Act" (March 2013); "Supreme Court Holds 'Discovery Rule' Does Not Apply to Statute of Limitations for Government Enforcement Penalty Actions" (March 2013).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions