Justices limit recovery in securities fraud cases

Owen Stevens
June 6, 2017

The Supreme Court of the United States on Monday made it tougher for the government to recover ill-gotten gains from people convicted of securities fraud, ruling that such recoveries are subject to a five-year statute of limitations.

Justice Sonia Sotomayor said in her opinion that so-called "disgorgement" actions are the equivalent of penalties, which have always been considered subject to the five-year limit for collection.

Thomas Gorman, an SEC expert at the law firm Dorsey & Whitney LLP, said in an emailed statement that the SCOTUS decision could have implications in future SEC enforcement cases.

The decision in the case, Kokesh v. SEC, further restricts the securities regulator's ability to require the forfeiture of funds, known as disgorgement.

The Supreme Court previously held that 28 U.S.C. §2462, which establishes a 5-year statute of limitations for "an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture", applies to monetary civil penalties sought by the SEC.

Business and securities industry groups had argued that ruling in favor of the government would harm financial markets by creating uncertainty about the limits of potential liability for securities fraud.

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It "bears all the hallmarks of a penalty: It is imposed as a effect of violating a public law and it is meant to deter, not to compensate".

"We are pleased with the Supreme Court's opinion today, which grants important protection to defendants facing enforcement actions by the SEC and other agencies", said Adam Unikowsky, one of Kokesh's lawyers.

SEC spokesman Ryan White declined to comment on the ruling.

Kokesh was sued by the SEC in 2009 for misappropriating investors' money. He was later ordered to pay $2.4 million in penalties plus $34.9 million in disgorgement.

The Denver-based 10th U.S. Circuit Court of Appeals ruled against Kokesh.

The Justice Department argued that disgorgement is different because, rather than being punishment, it is focused on ensuring a violator doesn't profit from illegal conduct.

Other reports by VgToday

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