SEC Claims for Permanent Injunction and Disgorgement Not Time-Barred: Tenth Circuit | Practical Law

SEC Claims for Permanent Injunction and Disgorgement Not Time-Barred: Tenth Circuit | Practical Law

On August 23, 2016, in SEC v. Kokesh, the US Court of Appeals for the Tenth Circuit held that disgorgement and permanent injunctions are neither penalties nor forfeitures, and therefore not subject to 28 U.S.C. § 2462, which sets a five-year limitations period for suits to enforce any civil fine, penalty, or forfeiture. ( (10th Cir. Aug. 23, 2016).)

SEC Claims for Permanent Injunction and Disgorgement Not Time-Barred: Tenth Circuit

Practical Law Legal Update w-003-2550 (Approx. 3 pages)

SEC Claims for Permanent Injunction and Disgorgement Not Time-Barred: Tenth Circuit

by Practical Law Litigation
Published on 29 Aug 2016 • USA (National/Federal)
On August 23, 2016, in SEC v. Kokesh, the US Court of Appeals for the Tenth Circuit held that disgorgement and permanent injunctions are neither penalties nor forfeitures, and therefore not subject to 28 U.S.C. § 2462, which sets a five-year limitations period for suits to enforce any civil fine, penalty, or forfeiture. ( (10th Cir. Aug. 23, 2016).)
On August 23, 2016, in SEC v. Kokesh, the US Court of Appeals for the Tenth Circuit held that disgorgement and permanent injunctions are neither penalties nor forfeitures, and therefore not subject to 28 U.S.C. § 2462, which sets a five-year limitations period for suits to enforce any civil fine, penalty, or forfeiture. ( (10th Cir. Aug. 23, 2016).)
The SEC brought a civil enforcement action against Defendant Charles Kokesh for misappropriating funds from SEC-registered companies, seeking a permanent injunction and disgorgement order more than five years after the claims accrued. After a jury returned a verdict in the SEC's favor, the district court permanently enjoined the defendant from violating certain provisions of the federal securities laws, ordered him to disgorge the funds he misappropriated, and imposed civil penalties. The defendant appealed, asserting that the permanent injunction and disgorgement are barred by five-year limitations period under 28 U.S.C. § 2462.
The Tenth Circuit affirmed the district court's order and held that Section 2462 did not apply to either the permanent injunction or the disgorgement. The court reasoned that:
  • The permanent injunction was remedial and preventative, not a penalty, because it merely ordered the defendant to obey the law.
  • The disgorgement was not a penalty because disgorgement merely serves as a remedy to put the wrongdoer in the same position he would have been in had he not done anything wrong.
  • The disgorgement order was not a forfeiture, because when Congress enacted Section 2462, it did not understand forfeiture statutes to include traditional disgorgement remedies.
The Tenth Circuit's decision in Kokesh deepened a circuit split on whether disgorgement orders are subject to Section 2462's five-year limitations period. In holding that disgorgement orders are not subject to Section 2462, the Tenth Circuit joined the US Court of Appeals for the DC Circuit in holding that disgorgement is not a forfeiture under Section 2462 (see Riordan v. SEC, 627 F.3d 1230, 1234-35 (D.C. Cir. 2010)). In contrast, in SEC v. Graham, the US Court of Appeals for the Eleventh Circuit recently held that disgorgement and forfeiture are synonymous (823 F.3d 1357, 1363-64 (11th Cir. 2016) and see Legal Update, SEC Claims for Declaratory Relief and Disgorgement Time-Barred: Eleventh Circuit).