The SEC called on the Supreme Court to affirm the Tenth Circuit's decision in SEC v. Kokesh, which held that "disgorgement is not a penalty under [28 U.S.C.] § 2462 because it is remedial" and, therefore, is not subject to the five-year federal statute of limitations in § 2462.
In a recent memorandum addressing the issue, Cadwalader attorneys cautioned that "any [Supreme Court] decision will likely have an impact on enforcement cases brought by the CFTC, the FERC and other federal regulators." The attorneys stated that "SEC, CFTC and FERC enforcement actions, among others, are typically subject to the federal 'catch-all' statute of limitations in 28 U.S.C. § 2462," which also applies to civil monetary penalties and fines. However, the attorneys noted, "some Circuit Courts and regulatory agencies have asserted that disgorgement of ill-gotten gains is not subject to the five-year limitation because it is neither a 'penalty' nor a 'forfeiture.'" Additionally, "[s]ome of the court decisions have noted that disgorgement is fundamentally different from other sanctions because it prevents unjust enrichment and, therefore, serves a different purpose than a monetary penalty," they said.
Commentary / Paul Pantano
Disgorgement is a significant component of many major regulatory enforcement cases. If the courts hold that disgorgement is not subject to the five-year limitation in § 2462, then federal regulators may be able to pursue enforcement actions and collect sizeable monetary payments without having to adhere to any fixed timeframe. This development could have a significant impact on market participants and regulators in the context of enforcement actions.
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