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Practice Alert: Supreme Court to decide whether 5-year statute of limitations applies to disgorgement

In a key development of relevance to the FCPA bar, the U.S. Supreme Court Friday accepted cert in Kokesh v. SEC (16-529). The issue presented in the cert petition is: “Whether the five-year statute of limitations in 28 U.S.C. § 2462 applies to claims for ‘disgorgement.’”
The case will clarify the Supreme Court’s landmark 2013 decision in Gabelli v. SEC (pdf), which held that monetary penalties are subject to 28 USC § 2462’s five-year statute of limitations on any “civil fine, penalty, or forfeiture, pecuniary or otherwise,” without addressing whether this time limit extended to various forms of equitable relief. Since the SEC characterizes disgorgement as an equitable remedy rather than as a penalty, a debate began over whether Gabelli extended to disgorgement.
Following Gabelli, a circuit split arose. On May 26, 2016, the U.S Court of Appeals for the Eleventh Circuit held in SEC v. Graham that the five-year statute of limitations in § 2462 applies to SEC claims for disgorgement. In its opinion, the court sidestepped the question of whether disgorgement constitutes equitable relief and decided the matter on the statutory construction of § 2462, reasoning that disgorgement falls within the definition of “forfeiture” based on the ordinary meaning of the terms.

Although Graham was not binding outside of the Eleventh Circuit, it represented a significant challenge to the SEC’s stated position that disgorgement was not subject to the general statute of limitations because it is an equitable remedy.
Thereafter, on August 23, 2016, the U.S Court of Appeals for the Tenth Circuit held in SEC. v. Kokesh (pdf) that disgorgement is not subject to the statute of limitations so long as it is an equitable remedy. The court explicitly rejected the Graham court’s approach of defining the word “forfeiture” broadly, preferring to limit the meaning of that word to the more restrictive the Black’s Law Dictionary definition of an “in rem proceeding brought by the government against property that either facilitated a crime or was acquired as a result of criminal activity.”

Because of the potentially significant impact of these decisions on SEC enforcement strategies — ranging from how the Commission decides to prosecute a case to a defendant’s willingness to enter into a tolling agreement — many observers predicted that the Supreme Court would eventually agree to hear an appeal on this issue, particularly given its recent, unanimous holding in Gabelli.
At this point, it is unclear when the Supreme Court will schedule oral arguments in Kokesh. Under normal circumstances, the case would be heard this term, but with confirmation hearings on President-elect Trump’s forthcoming Supreme Court nomination expected to take place in the coming months, some of today’s grants could get pushed to next term.


Marc Alain Bohn is a Contributing Editor of the FCPA Blog and an editor of Miller & Chevalier’s FCPA Spring Review 2016.

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