On June 5, 2017, the Supreme Court issued a unanimous decision in Kokesh v. SEC1 and held that a disgorgement in a Securities and Exchange Commission (SEC) enforcement proceeding operates as a penalty, and is thus subject to 28 U.S.C. § 2462’s five-year statute of limitations. For Kokesh, that decision had lucrative consequences: he was relieved from paying $29.9 million dollars.


Kokesh owned two firms that provided investment advice to business-development companies. In late 2009, the commission initiated an enforcement action in federal district court alleging that between 1995 and 2009, Kokesh, through his firms, misappropriated $34.9 million from four of those development companies and that to conceal the misappropriation, Kokesh caused the filing of false and misleading SEC reports and proxy statements. The commission sought civil monetary penalties, disgorgement, and an injunction barring Kokesh from violating securities laws in the future.

After a five-day trial, a jury found Kokesh guilty of violating the Investment Companies Act of 1940, the Investment Adviser Act of 1940 and the Securities Exchange Act of 1934. The district court then turned to determining the penalties sought by the SEC. Regarding civil monetary penalties, the district court determined that section 2462’s five-year limitations period precluded any penalties for misappropriation that occurred prior to October 27, 2004, or five years before the date the commission filed the complaint. However, regarding the commission’s $34.9 million disgorgement request, $29.9 million of which resulted from violations outside the limitations period, the court agreed with the commission; because disgorgement is not a “penalty” within the meaning of section 2462, the limitations period did not apply and the court ordered Kokesh to pay disgorgement of $34.9 million. The Court of Appeals for the Tenth Circuit affirmed.2 The Tenth Circuit agreed with the district court that disgorgement is not a forfeiture, and concluded that the statute of limitations in section 2462 does not apply to SEC disgorgement claims.


The Supreme Court granted certiorari to resolve disagreement among the circuit courts over whether disgorgement claims in SEC proceedings are subject to the five-year limitation period of section 2462. The Supreme Court reversed the Tenth Circuit and interpreted disgorgement as “bear[ing] all the hallmarks of a penalty” under section 2462 and thus a disgorgement claim in SEC proceedings is subject to the five-year limitations period for penalties. Consequently, disgorgement actions must be commenced within five years of the date the claim accrues. For Kokesh himself, the implications of that decision were wholly beneficial, saving him from making a disgorgement payment of $29.9 million. The Supreme Court’s holding turned on the definition of a “penalty.”

The definition of a penalty gives rise to two principles. First, whether a sanction represents a penalty turns in part on “whether the wrong sought to be redressed is a wrong to the public, or a wrong to the individual.”3 Second, a pecuniary sanction operates as a penalty only if it is sought “for the purpose of punishment, and to deter others from offending in like manner – as opposed to compensating a victim for his loss.”4 The Supreme Court concluded that SEC disgorgement is imposed for violating public laws (a violation against the United States). The Court concluded that the violation for which the remedy is sought is committed against the United States rather than an aggrieved individual – that is why, for example, a securities-enforcement action may proceed even if victims do not support or are not parties to the prosecution.5 In addition, the Court found that SEC disgorgement is imposed for punitive purposes. The Court observed that the primary purpose of disgorgement as a remedy for violation of the securities law is to deprive violators of their illegal gains, thereby effectuating the deterrence objectives of the securities laws. The Court concluded that a sanction imposed for the purpose of deterring infractions of public laws are inherently punitive because “deterrence [is] not [a] legitimate non punitive Governmental objectiv[e].”6

Additionally, the Court concluded that disgorgement is not compensatory.7 The Court said “[a]s Courts and the Government have employed the remedy, disgorged profits are paid to the district court, and it is ‘within the Court’s discretion to determine how and when or where the money will be distributed.’”8 Accordingly, the Court held that the SEC disgorgement bears all the hallmarks of a penalty. The five-year statute of limitations in section 2462 therefore applies when the SEC seeks disgorgement.