The Financial Services Committee voted to report to the full House a bill to establish a new statute of limitations applicable to SEC enforcement actions seeking civil monetary penalties. H.R. 3701 ("Strengthening Fraud Protection Provisions for SEC Enforcement Act of 2019") was introduced in July by Representative Vicente Gonzalez (D-TX) and co-sponsor Emanuel Cleaver (D-MO).

As previously covered, in Kokesh v. Securities and Exchange Commission ("Kokesh"), the Supreme Court held that a five-year statute of limitations applies to claims for the disgorgement of ill-gotten gains obtained through violations of federal securities laws. Kokesh follows the holding of Gabelli v. SEC, in which the Supreme Court determined that the five-year statute of limitations period applies when the SEC seeks monetary penalties.

H.R. 3701 would amend the Securities Exchange Act of 1934 by mandating that the SEC must bring any action seeking to impose civil monetary penalties no later than ten years after the alleged violation. The bill excludes from the limitations period any length of time in which the alleged violator is outside the United States or does not have a "reasonably ascertainable" place of residence or work in the United States.

Commentary Kyle DeYoung

There have been a number of bills that have been introduced to clarify and/or extend the statute of limitations applicable to SEC enforcement actions since the Supreme Court's decision in Kokesh. This one simply would extend the limitations period for SEC civil money penalties. It does not address the limitations period for disgorgement or clarify the SEC's authority to obtain disgorgement in the first place - a pressing issue for the SEC since the Supreme Court granted certiorari in Liu v. SEC, and one that at least has some bipartisan support. Moreover, extending the statute of limitations for SEC civil money penalties would be a bad idea. As previously noted, extending the limitations period would do little to increase the SEC's ability to protect investors while making it more difficult for companies and individuals to defend against older meritless claims. It also would remove an important incentive for the SEC to investigate and pursue misconduct on a timely basis. Perhaps due to these concerns, the bill appears to lack bipartisan support and is unlikely to pass the Senate in its current form.

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