United States: US Supreme Court: Five-Year Statute Of Limitations Applies To SEC Disgorgement

The Court's opinion resolves a circuit split concerning the reach of disgorgement orders.

In a unanimous decision, the US Supreme Court has ruled in Kokesh v. SEC that the five-year statute of limitations in 28 U.S.C. § 2462 applies to claims for disgorgement in enforcement actions brought by the US Securities and Exchange Commission (SEC).

This decision has implications for investigations involving potential violations of the federal securities laws, including those involving allegations of Foreign Corrupt Practices Act (FCPA) violations, insider trading, offering fraud, market manipulation, and broker-dealer and investment adviser fraud.


In 2009, the SEC filed a civil enforcement action against New Mexico investment adviser Charles Kokesh alleging that Kokesh misappropriated funds from four business development companies from 1995 through 2009 and concealed the misappropriation by making false and misleading SEC filings. Kokesh was found liable in a jury trial and ordered in April 2015 to disgorge nearly $35 million in ill-gotten gains, in addition to a $2.4 million civil penalty and $18 million in pre-judgment interest. Kokesh appealed to the US Court of Appeals for the Tenth Circuit, arguing that the disgorgement order was a "penalty" and therefore subject to 28 U.S.C. § 2462, which creates a five-year statute of limitations for the enforcement of "any civil fine, penalty, or forfeiture, pecuniary or otherwise."1

In August 2016, the Tenth Circuit affirmed the order, holding that disgorgement of ill-gotten gains was neither a penalty nor a forfeiture and therefore was not subject to the five-year statute of limitations.2 In doing so, the Tenth Circuit widened an existing circuit split between the DC Circuit and the First Circuit on the one hand, which both had held that disgorgement was not subject to § 2462,3 and the Eleventh Circuit on the other hand, which had recently held in SEC v. Graham4 that § 2462 did apply to disgorgement because it was synonymous with forfeiture.

The Supreme Court's Opinion

On June 5, the Supreme Court resolved the circuit split, holding that disgorgement is a penalty under 28 U.S.C. § 2462 because it seeks to redress a wrong against the United States instead of a private individual and because its primary purpose is as a deterrent and not compensatory.5 Writing for a unanimous court, Justice Sonia Sotomayor opened the opinion by noting that in SEC cases, federal courts historically ordered disgorgement in the absence of statutory civil penalties. In 1990, Congress authorized the SEC to seek statutory monetary penalties for securities law violations, and the Supreme Court held in 2013 that such penalties were limited by § 2462.6

With respect to disgorgement, the Supreme Court observed that its definition of a "penalty" turns on two principles: First, a sanction is more likely to be penal in nature where it seeks to redress a public wrong—rather than harm to an individual—because "[p]enal laws, strictly and properly, are those imposing punishment for an offense committed against the State."7 Second, a sanction operates as a penalty if its purpose is to punish and to deter rather than to compensate specific victims for identifiable losses.

Applying these principles, the Supreme Court held that SEC disgorgement constitutes a penalty under § 2462 for three reasons:

  1. Disgorgement is imposed for violations of "public laws" because the violation "is committed against the United States rather than an aggrieved individual."8 As Justice Sotomayor observed, the SEC conceded as much by stating in its brief that it seeks disgorgement "to remedy harm to the public at large, rather than standing in the shoes of particular injured parties."9
  2. The primary purpose of disgorgement is punitive.10
  3. SEC disgorgement, unlike an award of damages, does not necessarily serve to compensate private injury because federal courts have the discretion to apportion disgorgement proceeds as they wish between victims and the US Treasury and are under no obligation to distribute any disgorgement funds to victims.

In sum, the Supreme Court stated, "SEC disgorgement thus bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate."11

In so holding, the Supreme Court found the SEC's argument—that disgorgement is "remedial," not punitive—to be untenable, reasoning that "SEC disgorgement sometimes exceeds the profits gained as a result of the violation" such that a defendant may be left worse off than before. The Court pointed to insider trading as an example; defendants convicted of insider trading may be ordered to disgorge not only their own ill-gotten gains but also any benefits accruing to third parties that still could be traced to their wrongdoing. Additionally, disgorgement is sometimes ordered "without consideration of a defendant's expenses that reduced the amount of illegal profit," which would go beyond restoring the status quo and leave a defendant worse off than before.12 Although the Supreme Court ultimately did not disagree that disgorgement may serve a compensatory purpose as well, it placed heavy emphasis on disgorgement as a deterrent sanction—one whose punitive character places it well within the ambit of § 2462.

Implications of the Supreme Court's Opinion

Kokesh will have direct and immediate implications for respondents and defendants negotiating settlements with or litigating against the SEC and the US Department of Justice (DOJ). In the past, both the SEC and DOJ have regularly sought disgorgement without limitation—extending back to the first date of any alleged misconduct and without any credit for taxes paid or for many other types of business expenses—rendering the disgorgement calculation disconnected from corporate defendants' business realities.

Going forward, respondents and defendants are well-positioned to argue that any disgorgement sought must extend no further than five years from the date a claim accrued, assuming there are not facts strongly suggesting an ongoing scheme that can be tied to an earlier date. It remains to be seen whether respondents and defendants that have recently executed settlement agreements with the SEC will be successful in renegotiating those agreements on the grounds that the law has now been clarified. Further, the SEC and DOJ may look to accelerate existing investigations and cases based on potential amounts of disgorgement, timing, and fact patterns of misconduct.

The SEC can be expected to try to end-run the Kokesh decision by arguing fraudulent concealment of the conduct at issue or that the wrongdoing represented a "continuing course of conduct" that began before, but continued into, the five-year limitation period. Accordingly, as part of their defensive strategies, respondents and defendants should consider how best to demonstrate distinct patterns of conduct to counter the argument that individual acts or violations were part of an inter-related, ongoing scheme. In addition, for in-house compliance and legal teams, the Supreme Court's ruling further incentivizes robust policing of internal policies and procedures so that any identified wrongdoing can be definitively halted.   

The Supreme Court's evident skepticism about the remedial nature of prior disgorgement awards that were "ordered without consideration of defendant's expenses that reduced the amount of illegal profit"13 should encourage defendants to argue for greater offsets to SEC disgorgement demands. Tellingly, the Court noted that "[n]othing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context."14

In the face of Gabelli and Kokesh, the SEC must now conduct its investigations more quickly, file enforcement actions more readily, and characterize alleged fraudulent activity more frequently as part of a single continuing act, in order to minimize the effect of the statute of limitations. Whether Kokesh will lead to additional cutbacks in the scope of disgorgement remains to be seen in future cases.


1  28 U.S.C. § 2462.

2  SEC v. Kokesh, No. 15-2087, 834 F.3d 1158 (10th Cir. 2016).

3  See Riordan v. SEC, 627 F.3d 1230, 1234 (D.C. Cir. 2010); SEC v. Tambone, 550 F.3d 106, 148 (1st Cir. 2008).

4  No. 14-13562, 823 F.3d 1357 (11th Cir. 2016).

5  Kokesh v. SEC, No. 16-529, 2017 WL 2407471, at *7-8 (June 5, 2017).

6  Gabelli v. SEC, 568 U.S. 442, 454 (2013).

7  2017 WL 2407471, at *6.

8  Id. at *7.

9  Id. (quoting Brief for SEC at 22).

10   Id.

11  Id. at *8.

12  Id.

13  Id. at *8.

14  Id. at *5 n.3.

This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.