United States: Supreme Court Sharply Limits SEC's Ability To Order Disgorgement, Ruling That Five-Year Statute Of Limitations Applies

For decades, the US Securities and Exchange Commission (SEC) has wielded a powerful weapon in its ability to obtain disgorgement orders to recoup any ill-gotten gains traceable to alleged securities violations. Although SEC civil money penalties are limited by a five-year statute of limitations, no similar express limitation period applied to disgorgement. As a result, the SEC believed that it had wide latitude to, and regularly did, seek large monetary awards based on the purported profits of often decades-old conduct. On June 5, 2017, the US Supreme Court issued an historic ruling in Kokesh v. SEC1 that drastically slashes the agency's ability to impose financial sanctions by holding unanimously that disgorgement is subject to the same five-year statute of limitations that applies to civil monetary penalties.

At issue in Kokesh was the meaning of 28 USC §2462, which provides that a five-year statute of limitations exists for any "fine, penalty, or forfeiture, pecuniary or otherwise." The SEC has always taken the position that Section 2462 does not apply to disgorgement because it is an equitable remedy, not a "fine, penalty, or forfeiture," and merely seeks to deprive a defendant of unlawful profits, putting the defendant in the position he was prior to the wrongful conduct. In recent years, however, a circuit split had emerged—with the First,2 DC,3 and Tenth Circuits4 all siding with the SEC and holding that Section 2462 does not apply to claims of disgorgement, and the Eleventh Circuit5 finding that disgorgement constitutes a penalty and forfeiture under Section 2462 and is therefore subject to the five-year statute of limitations.

The Supreme Court's decision arose from the defendant's appeal of the Tenth Circuit's decision in S.E.C. v. Kokesh.6 The Defendant Charles Kokesh owned and controlled SEC-registered investment-adviser firms that operated registered business-development companies. According to the SEC, between 1995 through 2009, Kokesh misappropriated more than $34.9 million from the business-development companies. The SEC brought a civil enforcement action in 2009, seeking disgorgement of all profits going back as far as 1995, from Kokesh's conduct. After the jury found that Kokesh had violated the securities laws, the trial court ordered him to pay a civil money penalty in the amount of approximately $2.35 million and to disgorge $34.9 million in profits—the vast majority of which were generated outside the five-year limitations period of Section 2462—specifically ruling that the statute of limitations did not apply to limit disgorgement. On appeal, the Tenth Circuit affirmed the trial court and reiterated that disgorgement was neither a penalty nor a forfeiture, and therefore was not subject to Section 2462's limitation.

The Supreme Court disagreed sharply—holding that disgorgement constitutes a penalty, i.e., a "punishment, whether corporeal or pecuniary, imposed and enforced by the State, for a crime or offen[s]e against is laws."7 The Court explained that a remedy is a penalty when it redresses a "wrong to the public,"8 rather than an individual, and is intended to punish and deter offenders rather than compensate victims. The Supreme Court held that disgorgement satisfies both conditions. First, the remedy is sought for violations against the United States, rather than an individual, which is why an SEC enforcement action proceeds when the victims are not parties to it and, in fact, may not even support the prosecution. Second, the Court reasoned that disgorgement is imposed for punitive, rather than compensatory, purposes. It specifically relied on the stated deterrent purpose of disgorgement in prior SEC enforcement actions. The Court also recognized that although some disgorged funds make their way to the purported victims, the funds are often deposited in the US Treasury.

The Court's decision has major ramifications for the SEC's enforcement program. It can no longer reach profits incurred more than five years prior to the date it brings suit, which will substantially reduce the amounts it is able to recover. The decision will have particular significance for certain types of financial fraud enforcement actions in which the SEC has historically relied heavily on disgorgement to significantly increase monetary sanctions, such as those alleging violations of the Foreign Corrupt Practices Act or multi-period false periodic filings. In these cases disgorgement is often the largest portion of the sanction. For example, disgorgement and prejudgment interest in Kokesh were more than 15 times the amount of the civil money penalty imposed. The Kokesh decision will definitely ratchet up the pressure on the enforcement staff to act quickly. Currently, complex financial fraud investigations take years to complete. The staff will no longer have that luxury if it wants to optimize the monetary sanctions it can impose.

The Supreme Court's decision has several practical applications for those who find themselves the focus of an SEC investigation or become aware of conduct that could lead to an investigation. First, it increases the importance of conducting an early and thorough initial assessment of the conduct and potential liability. Understanding what conduct falls within the actionable time period is crucial when considering whether to self-report.  While self-reporting and subsequent cooperation can result in reduced charges and smaller sanctions, if minimal conduct falls within the actionable period, or the period is about to run, the risk/benefit analysis changes significantly.  Such an assessment is also important when deciding whether to enter into a tolling agreement with the SEC, a routine request by the staff. It may well be in a potential defendant's interest to forgo such agreements, taking advantage of the shortened period and maintaining the pressure on the SEC. Existing investigations should also get a hard look. In some instances potential liability may be significantly curtailed because of the Kokesh ruling. Historical conduct may no longer be actionable and, as a result, the litigation and settlement posture of the investigation may be significantly different.

The Kokesh decision seems to signal a developing trend among courts of greater willingness to rein in law enforcement authorities when they stretch their statutory authority. Korkesh is only the most recent case to suggest that courts will no longer rubber stamp the discretion of enforcement authorities. Just last year the Supreme Court decided McDonnell v. United States,9 wherein it refused to adopt a broad interpretation of the federal bribery statute because of general skepticism in trusting prosecutorial or government discretion to interpret the statute. Likewise, in Gabelli v. S.E.C.,10 the Supreme Court declined to apply the discovery rule when determining when the limitations period for civil money penalties begins to run under Section 2462 —a position espoused by the SEC. Instead, the Court ruled unanimously that the period starts on the date of the occurrence of a violation, noting that the SEC is in a different position from an ordinary person.  It is seeking to punish rather than obtain compensation, and has many tools at its disposal to root out bad conduct. Again, the Court expressed skepticism that an enforcement authority would properly use a discovery rule against wrongdoers.

For more information concerning this alert or other recent developments regarding Kokesh v. SEC, please contact Dentons using the information provided in the upper right under "Key Contacts."


1 No. 16-529, 2017 WL 2407471 (U.S. June 5, 2017).

2 S.E.C. v. Tambone, 550 F.3d 106 (1st Cir. 2008).

3 Riordan v. S.E.C., 627 F.3d 1230 (D.C. Cir. 2010).

4 S.E.C. v. Kokesh, 834 F.3d 1158 (10th Cir. 2016).

5 S.E.C. v. Graham, 823 F.3d 1357 (11th Cir. 2016).

6 834 F.3d 1158 (10th Cir. 2016).

7 Kokesh, 2017 WL 2407471, at *5.

8 Id.

9 136 S. Ct. 2355 (2016).

10 133 S. Ct. 1216 (2013).

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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.

Events from this Firm
24 Jan 2018, Seminar, San Francisco, United States

Dentons will host our Fourth Annual Courageous Counsel Leadership Institute in January, centered on the theme "Cultivating Innovation."

In association with
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