SEC: Time Out?

US Courts expand the number of SEC sanctions which are subject to statutory time limits

2017 has seen a growing trend of Securities and Exchange Commission (SEC) cases being thrown out by US courts on the basis that they are time barred. Three cases in 2017 have found that actions brought by the SEC which are punitive in nature, regardless of any monetary sanction, are subject to statutory time limits.

Under 28 US Code section 2462 of, a five-year limitation applies to any "action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise." Since the Supreme Court case of Gabelli v SEC in 2013, the SEC has reasoned that disgorgement (a sanction designed to deprive defendants of their ill-gotten gains) is an equitable remedy and therefore not subject to statutory limitations.

However, on 5 June 2017 the US Supreme Court unanimously ruled in SEC v Kokesh that disgorgement is subject to the five-year statute of limitations. Justice Sonia Sotomayor said "Disgorgement, as it is applied in SEC enforcement proceedings, operates as a penalty... intended to deter, not to compensate. Accordingly, any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date accrued".

The case was heralded a "game-changer" for SEC cases, and has already been applied twice since. In October 2017 a court in Columbia ruled that orders to expel or block individuals from working in certain industries were punitive, rather than remedial. In Saad v SEC, the Judge said that the reasoning in Kokesh was not limited to disgorgement but could be applied to any remedy sought by the SEC that was punitive.

The SEC dropped civil penalties and...

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