## Facts

- Charles R. Kokesh owned two investment-adviser firms that managed business development companies.
- The SEC alleged that, beginning in the mid-1990s, Kokesh caused the firms to withdraw funds from the companies for unauthorized uses, including compensation and personal expenses.
- The SEC also alleged Kokesh concealed the misconduct through false or misleading filings.
- Over approximately 14 years, the SEC alleged the misappropriation totaled about $34.9 million.
- In 2009, the SEC brought a civil enforcement action seeking an injunction, civil monetary penalties, and disgorgement plus prejudgment interest.
- A jury found Kokesh violated federal securities laws.
- The district court applied the five-year limitations period in 28 U.S.C. § 2462 to civil penalties but not to disgorgement, ordering disgorgement of $34.9 million, including amounts attributable to conduct outside the five-year period.

## Issues

1. Whether disgorgement sought by the SEC in a civil enforcement action is a “civil fine, penalty, or forfeiture” under 28 U.S.C. § 2462.
2. If disgorgement is a “penalty” or “forfeiture,” whether the SEC must seek it within § 2462’s five-year statute of limitations.

## Decision

- The Supreme Court unanimously reversed the Tenth Circuit in an opinion by Justice Sotomayor.
- The Court held that disgorgement in SEC enforcement actions operates as a “penalty” within the meaning of 28 U.S.C. § 2462.
- Because disgorgement is a penalty, § 2462’s five-year limitations period applies to SEC claims for disgorgement.
- The Court declined to decide whether disgorgement also qualifies as a “forfeiture,” concluding it was sufficient that disgorgement is a “penalty.”
- The Court limited its ruling to the statute-of-limitations characterization and did not decide whether courts have authority to order disgorgement in SEC enforcement actions or whether disgorgement has been properly calculated in practice.

## Legal Principles

- Under 28 U.S.C. § 2462, an action “for the enforcement of any civil fine, penalty, or forfeiture” must be commenced within five years after the claim accrues.
- For § 2462 purposes, a sanction is a “penalty” when it is imposed for a violation of public law and serves punitive or deterrent aims rather than compensating a particular injured party.
- SEC disgorgement is a penalty because it addresses a public wrong, is sought primarily to punish and deter securities-law violations, and is not necessarily compensatory (including where funds are not returned to victims and may be directed to the Treasury).
- Accordingly, the SEC may not obtain disgorgement for conduct occurring more than five years before the enforcement action is filed.

## Conclusion

The Court held that SEC disgorgement functions as a penalty under 28 U.S.C. § 2462, so the SEC must seek disgorgement within five years of claim accrual, limiting recovery for older misconduct in civil securities enforcement actions.


Kokesh v. SEC, 137 S. Ct. 1635 (2017)