Kokesh v. Securities and Exchange Commission

In Kokesh v. SEC, Charles Kokesh was ordered by a federal court to pay millions in disgorgement for securities fraud violations spanning over a decade. Kokesh appealed to the U.S. Supreme Court, arguing that the SEC's disgorgement claim was time-barred by the five-year statute of limitations under 28 U.S.C. § 2462. The Supreme Court examined whether disgorgement in SEC enforcement actions constitutes a penalty, forfeiture, or punishment. On June 5, 2017, the Court unanimously held that SEC disgorgement is a penalty subject to the five-year limitations period. As a result, the SEC may only seek disgorgement for ill-gotten gains obtained within the five years preceding the filing of the enforcement action.

The U.S. Supreme Court delivered a unanimous 9-0 decision, holding that SEC disgorgement operates as a penalty and is therefore subject to the five-year statute of limitations in 28 U.S.C. § 2462, reversing the lower court's ruling.

Whether the Securities and Exchange Commission's claim for disgorgement of ill-gotten gains in federal court enforcement actions constitutes a penalty, forfeiture, or punishment within the meaning of the five-year statute of limitations under 28 U.S.C. § 2462.

The ruling significantly curtailed the SEC's enforcement powers by preventing the agency from seeking disgorgement for conduct beyond the five-year limitations period. It forced the SEC to adjust its investigation and litigation strategies, potentially allowing some defendants to retain profits from older misconduct. The decision also prompted congressional discussions about extending or clarifying limitations periods for securities enforcement remedies.