SEC’s Power to Recoup Illegal Profits Draws High Court ScrutinyBy
The U.S. Supreme Court agreed to rule on the scope of a favorite tool used by securities regulators to recoup money from people found to have violated federal laws.
The court said it will decide whether the Securities and Exchange Commission is bound by a five-year statute of limitations when it seeks “disgorgement,” or the return of illegal profits. Lower courts are divided on the issue.
A ruling for the SEC, which contends the time limit doesn’t apply, would bolster what already is a powerful mechanism for government lawyers. The SEC extracted $3 billion in disgorgement payments in 2015 -- more than double what it collected in other types of penalties.
The case before the court involves Charles R. Kokesh, a New Mexico man found by a jury to have misappropriated money from four investment companies he controlled. A judge ordered Kokesh to pay a $2.4 million civil penalty, plus $35 million in disgorgement, equal to the amount he was found to have misappropriated dating back to 1995. An appeals court ruled against Kokesh.
Kokesh says the SEC should be able to collect only $5 million in disgorgement, the amount attributable to the five-year period before the agency filed its claims in 2009.
The legal provision that establishes the five-year statute of limitations doesn’t explicitly mention disgorgement. It says it applies to “enforcement of any civil fine, penalty or forfeiture.”
The case is Kokesh v. SEC, 16-529.