In a case with important consequences for SEC enforcement, the U.S. Supreme Court has agreed to address whether a five-year statute of limitations applies to SEC actions seeking disgorgement of ill-gotten gains.

Courts are currently divided on this question. Some hold, that the five-year statute applies others that it does not. Where it does not apply, the SEC can reach back for a virtually unlimited period to recover gains from securities law violations.

The Supreme Court earlier this month granted certiorari in Kokesh v. SEC, where the U.S. Court of Appeals for the Tenth Circuit held that the five-year statute of limitations does not apply to disgorgement actions. 2016 WL 4437585. The Tenth Circuit joined the First and D.C. Circuits in taking this approach. The 11th Circuit, however, has held that the five-year limit does apply. The Supreme Court will now have a chance to resolve this split in the circuits.

At issue is the scope of a federal statute, 28 U.S.C. 2462, which provides that an action for a “civil fine, penalty or forfeiture” must be brought within five years from when the claim first accrued.

The SEC in enforcement actions may seek monetary relief in the form of (i) civil penalties and (ii) disgorgement of gains, often seeking both. There is no question that SEC actions seeking civil penalties are subject to the five-year statute. Gabelli v. SEC, 133 S. Ct. 1216 (2013). The question is whether “disgorgement” is a “penalty or forfeiture” within the meaning of the statute.

The Tenth Circuit in Kokesh held that disgorgement is not a penalty, but rather a form of remedial relief, in that it deprives the wrongdoer of the benefits of the wrongdoing. And, it held, disgorgement is not a forfeiture, because the statute used the term forfeiture in a specific, historical sense, to refer to a “procedure to take ‘tangible property used in criminal activity.”

By contrast, the Eleventh Circuit has ruled that “forfeiture and disgorgement are effectively synonyms.” SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016).

How the Supreme Court resolves this dispute over interpreting a statute will have significant consequences. The facts of the Kokesh case illustrate the point. The SEC filed its action in 2009, alleging a course of misconduct taking place from 1995 through 2006. The court imposed a monetary penalty of $2.4 million, based only on conduct going back to 2004 (five years prior to commencement of the action). But it also directed the defendant to pay $34.9 million in disgorgement, which it said “reasonably approximates” the ill-gotten gains going back to 1995.

According to Kokesh’s lawyers, in 2015, the SEC won $3 billion in disgorgement payments, as compared to $1.2 billion in money penalties.

In the months ahead, the case will be briefed and argued, with amicus briefs likely in view of the public policy stakes. The U.S. Chamber of Commerce already submitted an amicus brief in support of the request that the Supreme Court grant certiorari. A decision by the Court on whether the five-year statute of limitations applies will have a major impact on how much the SEC can collect in its enforcement actions.