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Kokesh v. Securities and Exchange Commission

Justia Summary

In the 1970s, federal district courts began ordering disgorgement in Securities and Exchange Commission enforcement proceedings. The Commission may also seek monetary civil penalties; 28 U.S.C. 2462 establishes a five-year limitations period for “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” In 2009, the Commission brought an enforcement action against Kokesh for concealing the misappropriation of $34.9 million from business development companies, seeking monetary civil penalties, disgorgement, and an injunction. A jury found that Kokesh’s actions violated securities laws. The district court determined that section 2462’s limitations period applied to the monetary civil penalties but did not apply to the $34.9 million disgorgement judgment. The Tenth Circuit affirmed. A unanimous Supreme Court reversed. SEC disgorgement operates as a penalty under section 2462. It is imposed by the courts as a consequence for violating public laws, i.e., a violation committed against the United States rather than an aggrieved individual, and is imposed for punitive purposes. SEC disgorgement is often not compensatory. Disgorged profits are paid to the courts, which have discretion to determine how the money will be distributed. When an individual is made to pay a noncompensatory sanction to the government as a consequence of a legal violation, the payment is a penalty. Although disgorgement may sometimes serve compensatory goals, “sanctions frequently serve more than one purpose.”

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