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Kokesh v. SEC

Supreme Court of the United States

April 18, 2017, Argued; June 5, 2017, Decided

No. 16-529.

Opinion

Justice Sotomayor delivered the opinion of the Court. [***5] 

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 context is a “penalty” within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.

After rampant abuses in the securities industry led to the 1929 stock market crash and the Great Depression, Congress  [*1640]  enacted a series of laws to ensure that “the highest ethical standards prevail in every facet of the securities industry.” 1 SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186-187,  [**90]  84 S. Ct. 275, 11 L. Ed. 2d 237 (1963) (internal quotation marks omitted). The second in the series—the Securities Exchange Act of 1934—established the Securities and Exchange Commission (SEC or Commission) to enforce federal securities laws. Congress granted the Commission power to prescribe “‘rules and regulations . . . as necessary or appropriate in the public interest or for the protection of investors.’” Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 728, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975). In addition to rulemaking, Congress vested the Commission with [***6]  “broad authority to conduct investigations into possible violations of the federal securities laws.” SEC v. Jerry T. O'Brien, Inc., 467 U.S. 735, 741, 104 S. Ct. 2720, 81 L. Ed. 2d 615 (1984). If an investigation uncovers evidence of wrongdoing, the Commission may initiate enforcement actions in federal district court.

Initially, the only statutory remedy available to the SEC in an enforcement action was an injunction barring future violations of securities laws. See 1 T. Hazen, Law of Securities Regulation §1:37 (7th ed., rev. 2016). In the absence of statutory authorization for monetary remedies, the Commission urged courts to order disgorgement as an exercise of their “inherent equity power to grant relief ancillary to an injunction.” SEC v. Texas Gulf Sulphur Co., 312 F. Supp. 77, 91 (SDNY 1970), aff’d in part and rev’d in part, 446 F. 2d 1301 (CA2 1971). Generally, disgorgement is a form of “[r]estitution measured by the defendant’s wrongful gain.” Restatement (Third) of Restitution and Unjust Enrichment §51, Comment a, p. 204 (2010) (Restatement (Third)). Disgorgement requires that the defendant give up “those gains . . . properly attributable to the defendant’s interference with the claimant’s legally protected rights.” Ibid. Beginning in the 1970’s, courts ordered disgorgement in SEC enforcement proceedings [***7]  in order to “deprive . . . defendants of their profits in order to remove any monetary reward for violating” securities laws and to “protect the investing public by providing an effective deterrent to future violations.” Texas Gulf, 312 F. Supp., at 92.

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137 S. Ct. 1635 *; 198 L. Ed. 2d 86 **; 2017 U.S. LEXIS 3557 ***; 85 U.S.L.W. 4308; Fed. Sec. L. Rep. (CCH) P99,733; 26 Fla. L. Weekly Fed. S 626; 2017 WL 2407471

CHARLES R. KOKESH, Petitioner v. SECURITIES AND EXCHANGE COMMISSION

Notice: The LEXIS pagination of this document is subject to change pending release of the final published version.

Prior History:  [***1] ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

SEC v. Kokesh, 834 F.3d 1158, 2016 U.S. App. LEXIS 15425 (10th Cir. N.M., Aug. 23, 2016)

Disposition: 834 F. 3d 1158, reversed.

CORE TERMS

disgorgement, violations, gains, courts, funds, district court, securities law, forfeiture, deterrent, statute of limitations, limitations period, wrongdoers, monetary, profits, enforcement action, punitive, accrues, public law, proceedings, principles, pecuniary, cases, deter, fine

Governments, Legislation, Statute of Limitations, Time Limitations, Governmental Entities, Civil Procedure, Sanctions