12 June 2017

US corporate law weekly news: Supreme Court rules five-year statute of limitations applies to SEC disgorgement payments

On June 5, 2017, the U.S. Supreme Court unanimously ruled that disgorgement constitutes a penalty under applicable federal law, so that disgorgement will now be subject to the five-year statute of limitations set forth in the federal statute (28 U.S.C. Section 2462). The U.S. Justice Department had argued that disgorgement constituted equitable relief instead of a penalty, reasoning that it restores the defendant to the same position in which it had been prior to its ill-gotten gain.

The Court found that the purpose of disgorgement orders is to deter violators by depriving them of gains that resulted from misconduct, and that sanctions imposed for deterrence purposes are inherently punitive. This decision comes in the wake of the SEC’s having collected approximately $3 billion in disgorgement payments in 2015.

For more information on the Kokesh v. SEC case, see https://www.supremecourt.gov/opinions/16pdf/16-529_i426.pdf.

Category: Blog