Supreme Court Ruling Curbs SEC Disgorgement Power

The U.S. Supreme Court ruled on Monday that the SEC is bound by a five-year limitation period when it seeks disgorgement from those who have been found to violate federal securities laws.

The Court held that “Disgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462 [a five-year statute of limitations,]” and thus, “any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued.”

U.S. Supreme Court (Photo Credit – Joe Ravi CC-BY-SA 3.0)

Section 2462 expressly applies to “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise” and the Court had already held that the five-year statute applies when the SEC seeks statutory monetary penalties.

The Court’s reasoning included that SEC disgorgement is imposed as a consequence for violating public laws; the violation for which the SEC seeks disgorgement is against the United States rather than an aggrieved individual; SEC disgorgement furthers the policy mission of “protecting  investors and safeguarding the integrity of the markets[;]” SEC disgorgement is imposed to deter infractions and, therefore, is “inherently punitive[;]” and SEC disgorgement—“in many cases”—is not compensatory and can be required regardless of whether funds are used as restitution.

While the government argued SEC disgorgement is “remedial” in that it “restor[es] the status quo,” the Court disagreed, citing cases where defendants were ordered to disgorge third-party profits and without consideration of expenses that reduced illegal profits. “In such cases, disgorgement does not simply restore the status quo; it leaves the defendant worse off.”

The Court therefore found that SEC disgorgement operates as a penalty under §2462.

The Court reversed the judgment of the Court of Appeals for the Tenth Circuit. Justice Sonia Sotomayor delivered the opinion of the Court.

For a complete reading of this unanimous opinion, please click here.

Related Content

Latest Content

Regulation Best Interest, Cybersecurity Top Concerns at IAA 2019 Compliance Conference

The Investment Adviser Association (IAA) represents the interests of investment advisers in Washington D.C., and the IAA Investment Adviser Compliance Conference 2019 was a forum for the discussion of future potential rulemaking. Cybersecurity and Fiduciary Rule considerations were headline topics, with custody and marketing right behind. The following is a summary of key issues discussed … Continued

The Challenges of Building a Global Compliance Program

Compliance programs face challenges in balancing global requirements with local exceptions while incorporating the fast pace of regulatory change, addressing critical business needs and obtaining the necessary resources necessary to manage the program. Trends and thinking on the subject were center stage at the recent CSS London event “Looking at the Year Ahead – Global … Continued

Coming to America – California Adopts GDPR-Like Privacy Regulation

After a number of firms struggled last year to get their marketing and information systems into compliance with the EU’s General Data Protection Regulation (GDPR), advisers to U.S. clients will soon be facing similar requirements on the home front.  On the heels of the Cambridge Analytica scandal, California enacted the California Consumer Privacy Act of … Continued

SEC and FINRA 2019 Examination Priorities

The SEC and FINRA have recently released their examination priorities for 2019. These releases provide insight into regulatory priorities and serve as guidance for a firm in evaluating its compliance program. We will discuss topics covered in these releases, including: Protecting retail investors Fees and expenses Disclosure Conflicts of interest Suitability Protecting senior investors Trading … Continued

SEC Reopened After 35-Day Government Shutdown

SEC Chairman Jay Clayton announced on Saturday, January 26 that with an agreement reached to end the government shutdown, the “Commission has resumed normal staffing levels and is returning to normal operations.” In total, about 94% of the commission’s approximately 4,400 employees had been furloughed during the 35-day shutdown, according to its operations plan. In a … Continued

Mailing List

Subscribe to the Ascendant Compliance email list for the latest compliance resources, conferences, ComplianceCasts™, and more.

Loading form...

Contact Us

Ascendant works together with clients to identify and assess critical needs through customized plans. If you need assistance with compliance functions, regulatory services, cybersecurity or technology tools, we’d love to speak with you.