Last week, the 11th Circuit held that the limitations period of 28 U.S.C. § 2462 bars disgorgement or declarative relief for acts having occurred five years before the SEC files an action.

The Court drew a distinction between “forward looking” and “backward looking” remedies in applying the statute’s applicability to “any civil fine, penalty, or forfeiture.” Thus, injunctive relief is forward looking and not subject to the limitations period (as several courts have held).

Disgorgement and “you violated the law” declaratory relief, however, are backward looking, thus subject to the five-year limitations. (In a lengthy footnote, the Court continued to rail against the SEC’s practice of seeking “obey the law” injunctions. Op. at 9, n. 2. The Circuit regards them as essentially unenforceable.)

The SEC disagrees, arguing that barring someone from an industry, declaring that their past conduct violated the law (with many adverse collateral consequences), and making them pay substantial amounts, is merely “equitable, not punitive.” In the closely watched Timbervest case, the SEC held last fall that the statute doesn’t apply to “equitable remedial sanctions” that include an industry bar, disgorgement and a cease-and-desist order. The Commission grudgingly acknowledged it must follow D.C. Circuit precedent (but only there) and that “Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996), states the controlling rule—i.e., that a bar based ‘solely in view of … past misconduct’ could constitute a penalty for purposes of Section 2462.” But everywhere else, the Commission argues Johnson was wrongly decided. Timbervest, Op. at 25 n.71. With Graham, the 11th Circuit joins the D.C. Circuit as another place the SEC can’t make that argument.

The Timbervest decision, Rel. IA-4197 (Sept. 17, 2015), is here. The case is pending appeal before the D.C. Circuit as Dkt No. 15-1416.

The 11th Circuit’s opinion in SEC v. Graham, No. 14-13562 (11th Cir. May 26, 2016) is here.