The Supreme Court recently granted certiorari in Kokesh v. SEC. The question that currently divides the courts of appeals is whether the statute of limitations period in 28 U.S.C. §2462 is applicable to the Commission’s actions seeking disgorgement of illegal gains obtained in violation of the Federal Securities Laws. The statute sets out a five-year time limitation “for the enforcement of any civil fine, penalty, or forfeiture.” The resolution of this question could have a profound impact on the regular practice of the SEC. Seeking disgorgement of profits is a commonly used remedy to redress financial harm to shareholders.
In October 2009, the SEC filed a complaint in the United States District Court for the District of New Mexico against Charles Kokesh, a registered investment adviser and owner of two investment advisory firms. In its complaint, the SEC alleged that Kokesh defrauded at least 21,000 investors out of approximately $45 million by misappropriating funds in four business development companies. To conceal the fraud, Kokesh caused advisers at his firms to distribute false proxy statements to investors and file false reports with the SEC.
After several years of litigation, the jury returned a verdict favorable to the SEC finding Kokesh liable for direct and aiding and abetting violations. The Commission filed a motion for entry of final judgment ordering Kokesh to be permanently enjoined from committing future violations, to pay civil penalties, and to disgorge profits plus prejudgment interest. The District Court rejected Kokesh’s argument that disgorgement is a civil penalty rather than an equitable remedy.
“ . . . [N]either injunction nor disgorgement, as Plaintiff requests, amounts to a “penalty” in this case because neither is unrelated to, or in excess, of the damages caused by Defendant. In fact, they are tailored to the injury caused by Defendant. Therefore, neither injunction nor disgorgement is subject to the statute of limitations at §2462.”
The District Court ultimately granted the SEC’s Motion and entered a judgment of $55 million against Kokesh. On appeal, the Tenth Circuit affirmed the decision of the District Court.
Both the D.C. Circuit and First Circuit Courts of Appeals are consistent with the Tenth Circuit in holding that § 2462 does not apply to the equitable remedy of disgorgement. To date, only the Eleventh Circuit Court of Appeals has held that the definition of disgorgement is consistent within the ordinary meaning of forfeiture. Therefore, actions seeking disgorgement in the Eleventh Circuit are subject to the time limitation set forth in § 2462. The same issue is pending before both the Second and Eight Circuits.
The Tenth Circuit “fail[ed] to see how an order to obey the law is a penalty.” The Court reasoned that “everyone has a duty to obey the law”; thus, an order to obey the law and disgorge ill-gotten gains is not a penalty. The Court rejected Kokesh’s argument that disgorgement was a penalty because he was ordered to pay more than he actually gained. Kokesh caused the ill-gotten gains to be diverted to others, so he should be held responsible for the financial harm he caused. In addition, the Tenth Circuit held that “disgorgement” was different than “forfeiture” and that the definition of forfeiture should not be expanded to include “traditional” disgorgement remedies. The Eleventh Circuit opted for a different approach to the question about a year earlier, in May of 2016. It relied on modern dictionaries to determine the common meaning of disgorgement and forfeiture. The Eleventh Circuit concluded that disgorgement should be included in the broad definition of forfeiture and is actually a penalty.
Kokesh’s petition for certiorari to the Supreme Court raised a narrow question for the Court to consider: “Does the five-year statute of limitations in 28 U.S.C. § 2462 apply to claims for ‘disgorgement?’” Celebrity investor, Mark Cuban, answered this question in the affirmative in his amicus brief in support of Kokesh. The Supreme Court is scheduled to hear oral argument for this case on Tuesday, April 18, 2017. In the meantime, the circuit split leaves the SEC in a precarious position when it comes to enforcement. The Commission is likely to be proactive on cases within the five-year period and take deliberate action to toll the clock through tolling agreements. For now, insecurities will remain until the Supreme Court has ruled on the matter.
 Petition for Writ of Certiorari, SEC v. Kokesh, 834 F.3d 1158 (10th Cir. 2016) (No. 15-2087).
 28 U.S.C. §2462.
 Complaint at 1, SEC v. Kokesh, No. 09-cv-1021 (D.N.M. Mar. 30, 2015) 2015 U.S. Dist. LEXIS 179999.
 SEC v. Kokesh, at *2-6, No. 09-cv-1021 (D.N.M. Mar. 30, 2015) 2015 U.S. Dist. LEXIS 179999.
 Id. at *32.
 SEC v. Kokesh, 834 F.3d 1158, 1160 (10th Cir. 2016).
 See Riordan v. SEC, 627 F.3d 1230, 1234 & n.1 (D.C. Cir. 2011); SEC v. Tambone, 550 F.3d 106, 148 (1st Cir. 2008), reh’g en banc granted, opinion withdrawn, 573 F.3d 54 (1st Cir. 2009), opinion reinstated in relevant part on reh’g, 597 F.3d 436 (1st Cir. 2010).
 See SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016).
 SEC v. Kokesh, 834 F.3d 1158, 1162 (10th Cir. 2016)
 Id. at 1164.
 Id. at 1166.
 Graham, 823 F.3d at 1364.
 Petition for Writ of Certiorari at 2, SEC v. Kokesh, 834 F.3d 1158 (10th Cir. 2016) (No. 15-2087).
 Brief amicus curiae of Mark Cuban, SEC v. Kokesh, 834 F.3d 1158, 1160 (10th Cir. 2016).
 Eric W. Sitarchuck & Allyson N. Ho, Kokesh v. SEC – US Supreme Court Set to Decide SEC Disgorgement Circuit Split, MorganLewis Lawflash (Jan, 17 2017); Andrew L. Van Houter & Mary P. Hansen, SEC Urges Supreme Court to Consider Nature of Disgorgement, Securities Law Perspectives Blog (Dec. 21, 2016).