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Supreme Court Curtails SEC Disgorgement Claims: Holds That Five-Year Statute of Limitations Applies

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Rejecting the Securities and Exchange Commission’s (“SEC” or the “Commission”) expansive view of its ability to seek disgorgement in enforcement actions, the United States Supreme Court on June 5, 2017 issued a unanimous decision in Kokesh v. United States, No. 16-529 (581 U.S. __ (2017)), holding that SEC disgorgement constitutes a “penalty” that is subject to the five-year statute of limitations period under 28 U.S.C. § 2462. In reversing the judgment of the Tenth Circuit Court of Appeals, the Supreme Court’s ruling not only resolves an issue which has recently divided the circuit courts, but protects individuals and the business community at large from having to plan for and defend against stale disgorgement remedies sought by the Commission.

Factual Background

In October 2009, the SEC brought a civil enforcement action against Charles R. Kokesh, alleging that from 1995 to 2009 he violated federal securities laws by misappropriating $34.9 million from four SEC-registered business development companies (the “Funds”). See Kokesh, slip op. at 3-4. Following a jury verdict in the SEC’s favor, the district court made rulings on the civil penalty and disgorgement sought by the SEC. See id. at 4. As to the civil penalty, the district court held that § 2462’s five-year limitations period “precluded any penalties for misappropriation occurring prior to October 27, 2004—that is, five years prior to the date the Commission filed the complaint.” Id. Thus, the district court imposed a civil penalty of approximately $2.3 million, the amount Kokesh received during the limitations period. See id. The SEC, however, sought a $34.9 million disgorgement remedy, including $29.9 million in disgorgement stemming “from violations outside the limitations period.” Id. The district court granted the Commission’s request in full, concluding that because the disgorgement sought was not a “penalty,” § 2462’s limitation period did not apply. Id. On appeal to the Tenth Circuit, Kokesh contended that the SEC’s disgorgement claim “must be set aside because the claim[] accrued more than five years before the SEC brought its action” and is therefore barred under § 2462. SEC v. Kokesh, 834 F.3d 1158, 1162 (10th Cir. 2016). The Tenth Circuit disagreed, affirming the order of the district court. 1


Under § 2462, “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture . . . shall not be entertained unless commenced within five years from the date when the claim first accrued.” 18 U.S.C. § 2462 (emphasis added). Turning to the meaning of penalty under § 2462, the Supreme Court observed that “[a] ‘penalty’ is a ‘punishment, whether corporal or pecuniary, imposed and enforced by the State, for a crime or offen[s]e against its laws.’” Kokesh, slip op. at 5 (quoting Huntington v. Attrill, 146 U.S. 657, 667 (1892)). According to the Supreme Court, this definition results in two principles: First, “whether a sanction represents a penalty turns in part on ‘whether the wrong sought to be redressed is a wrong to the public, [and not] a wrong to the individual.’” Id. at 5-6 (quoting Attrill, 146 U.S. at 668). “Second, a pecuniary sanction operates as a penalty only if it sought ‘for the purpose of punishment, and to deter others from offending in like manner’—as opposed to compensating a victim for his loss.” Id. at 6.

Applying these principles, the Supreme Court held that SEC disgorgement is a penalty subject to § 2462's five-year limitations period. Addressing whether the imposition of disgorgement redresses a crime against the State, the Supreme Court held that “[t]he violation for which the remedy is sought is committed against the United States rather than an aggrieved individual,” further noting that “a securities enforcement action may proceed even if victims do not support or are not parties to the prosecution.” Id. at 7 (citing SEC v. Rind, 991 F.2d 1486, 1491 (9th Cir. 1993); SEC v. Teo, 746 F.3d 90, 102 (3rd Cir. 2014)). Moreover, the Supreme Court concluded that because the primary purpose of disgorgement orders is to deter future violations of the federal securities laws, they are fundamentally punitive in nature. See id. at 8 (“[s]anctions imposed for the purpose of deterring infractions of public laws are inherently punitive because ‘deterrence [is] not [a] legitimate nonpunitive governmental objective.’” (quoting Bell v. Wolfish, 441 U.S. 520, 539, n. 20 (1979))); see also United States v. Bajakajian, 524 U.S. 321, 329 (1998).


The Commission has a long history of vigorously pursuing disgorgement awards. These awards are, more often than not, larger than any civil penalty that the SEC is statutorily entitled to seek. In 2016 alone, the SEC obtained disgorgement awards totaling over $2.8 billion; this contrasts with the approximately $1.3 billion that the SEC secured in civil penalties for the same period.2 Although today’s ruling in Kokesh will not deter the SEC from seeking disgorgement in the future, it will limit claims for disgorgement to a measurable period of time—i.e. five years from the date of the complaint. Thus, the Supreme Court’s ruling is a victory for individuals and businesses alike as it provides much needed certainty for those trying to plan for and defend against these types of claims. See Kokesh, slip op. at 5 (Statutes of limitations are “‘vital to the welfare of society’ and rest on the principle that ‘even wrongdoers are entitled to assume that their sins may be forgotten[.]’” (quoting Gabelli v. SEC, 568 U.S. 442, 448 (2013)).

Interestingly, the Supreme Court observes in a footnote that “nothing 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.” Kokesh, slip op. at 5, n. 3. Having confined the SEC’s ability to seek disgorgement to within the limitations period of § 2462, the Supreme Court may be suggesting a willingness, in a future case, to determine whether the Commission possesses the authority to pursue the longstanding equitable remedy of disgorgement at all. This question is particularly relevant in the context of SEC administrative proceedings, which have been increasingly used as a means to commence civil enforcement actions in the post Dodd-Frank era. These administrative proceedings, which have been forcefully challenged by many litigants on constitutional grounds, empower the Commission to seek the types of monetary penalties—including disgorgement—which the Commission would ordinarily pursue in federal court. The Supreme Court’s footnote in Kokesh may signal a warning that the Commission’s use of administrative proceedings will be reviewed by the high court some time in the near future.

1The Tenth Circuit’s decision in Kokesh was in line with other circuit courts, which also have concluded that a disgorgement claim is not a penalty or a forfeiture within the meaning of § 2462, but rather is a nonpunitive equitable remedy that does not fall within the statute’s purview. See, e.g., Riordan v. SEC, 627 F.3d 1230 (D.C. Cir. 2010); SEC v. Tambone, 550 F.3d 106 (1st Cir. 2008). Last year, however, the Eleventh Circuit Court of Appeals reached a contrary result in SEC v. Graham. See 823 F.3d 1357 (11th Cir. 2016). The Eleventh Circuit, finding “no meaningful difference in the definitions of disgorgement and forfeiture” held that “the remedy of disgorgement is a forfeiture” and, therefore, § 2462’s five-year limitations period applies. Graham, 823 F.3d at 1363. This disagreement among the circuits set the stage for the Supreme Court’s ruling in Kokesh.

2See (last accessed June 5, 2017).


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