Three years ago, the Supreme Court ruled in Kokesh v. SEC that disgorgement in the context of an SEC enforcement action functions as a “penalty” for purposes of 28 U.S.C. § 2462 and is therefore subject to a five-year statute of limitations. 581 U.S. ___ (2017). In practice, the effect of Kokesh for companies and individuals under investigation by the SEC – including for potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) and other securities laws – was that the potential disgorgement to the SEC from any securities fraud or bribery schemes was limited to only five years, regardless of the duration of the scheme. In a footnote, however, the Court left open the possibility for a future challenge to the SEC’s ability to obtain disgorgement as a form of equitable relief.
On Monday, in Liu v. SEC, the Supreme Court addressed this question, holding that such authority exists but that it is subject to certain conditions. Writing for an 8-1 majority, Justice Sotomayor’s opinion in Liu held that in an SEC enforcement action, disgorgement is permissible as equitable relief provided that it does not exceed the net profits from the scheme and it is awarded for the victims of the scheme.
‘Enforcement 40’ for 2020
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