SEC Claims for Declaratory Relief and Disgorgement Time-Barred: Eleventh Circuit | Practical Law

SEC Claims for Declaratory Relief and Disgorgement Time-Barred: Eleventh Circuit | Practical Law

In SEC v. Graham, the US Court of Appeals for the Eleventh Circuit ruled that the SEC's claims for declaratory relief and disgorgement were time-barred under 28 U.S.C. § 2462, which bars the government from bringing suit to enforce any civil fine, penalty, or forfeiture after five years from when the claim first accrued.

SEC Claims for Declaratory Relief and Disgorgement Time-Barred: Eleventh Circuit

Practical Law Legal Update w-002-5303 (Approx. 3 pages)

SEC Claims for Declaratory Relief and Disgorgement Time-Barred: Eleventh Circuit

by Practical Law Litigation
Published on 31 May 2016 • USA (National/Federal)
In SEC v. Graham, the US Court of Appeals for the Eleventh Circuit ruled that the SEC's claims for declaratory relief and disgorgement were time-barred under 28 U.S.C. § 2462, which bars the government from bringing suit to enforce any civil fine, penalty, or forfeiture after five years from when the claim first accrued.
On May 26, 2016, in SEC v. Graham, the US Court of Appeals for the Eleventh Circuit ruled that the SEC's claims for declaratory relief and disgorgement were time-barred under 28 U.S.C. § 2462, which bars the government from bringing suit to enforce any civil fine, penalty, or forfeiture after five years from when the claim first accrued ( (11th Cir. May 26, 2016)).
After waiting more than five years from when the claims accrued, the SEC commenced a civil enforcement action for declaratory relief, injunctive relief, and disgorgement against multiple individual defendants who allegedly violated federal securities law by selling unregistered securities. The district court dismissed the case as time-barred in its entirety, finding that Section 2462 applied to every remedy the SEC sought, not just to civil money penalties. Specifically, the district court found that the injunctive and declaratory relief the SEC sought were penalties and that the disgorgement the SEC requested constituted forfeiture, all within the meaning of Section 2462. The SEC appealed, arguing that the relief it sought was not subject to Section 2462’s time bar.
The Eleventh Circuit held that:
  • The claim for injunctive relief was not time-barred under Section 2462, because an injunction is an equitable remedy, not a penalty (US v. Banks, 115 F.3d 916, 919 (11th Cir. 1997)). The court reasoned that a penalty addresses a wrong done in the past, and an injunction, by contrast, is nonpunitive and looks forward in time.
  • The claim for declaratory relief was time-barred, because that remedy is backward-looking and therefore operates a penalty under Section 2642. The court reasoned that, like civil penalties, a declaration of liability goes beyond compensation and serves to punish wrongdoers (Gabelli v. SEC, 133 S. Ct. 1216, 1223 (2013).
  • The claim for disgorgement was time-barred, because disgorgement acted as a “forfeiture” to which § 2462’s statute of limitations applied. The court found no meaningful difference between forfeiture and disgorgement, both of which occur when a person must turn over money or property because of a crime or wrong-doing.
The Eleventh Circuit affirmed the district court’s holding that the SEC was time-barred from proceeding with its claims for declaratory relief and disgorgement, but remanded for further proceedings on the claim for injunctive relief.