CHARLES R. KOKESH, PETITIONER
SECURITIES AND EXCHANGE COMMISSION
April 18, 2017
OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
TO THE UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
Securities and Exchange Commission (SEC or Commission)
possesses authority to investigate violations of federal
securities laws and to commence enforcement actions in
federal district court if its investigations uncover evidence
of wrongdoing. Initially, the Commission's statutory
authority in enforcement actions was limited to seeking an
injunction barring future violations. Beginning in the
1970's, federal district courts, at the request of the
Commission, began ordering disgorgement in SEC enforcement
proceedings. Although Congress has since authorized the
Commission to seek monetary civil penalties, the Commission
has continued to seek disgorgement. This Court has held that
28 U.S.C. §2462, which establishes a 5-year limitations
period for "an action, suit or proceeding for the
enforcement of any civil fine, penalty, or forfeiture, "
applies when the Commission seeks monetary civil penalties.
See Gabelli v. SEC, 568 U.S. 442, 454.
2009, the Commission brought an enforcement action, alleging
that petitioner Charles Kokesh violated various securities
laws by concealing the misappropriation of $34.9 million from
four business-development companies from 1995 to 2009. The
Commission sought monetary civil penalties, disgorgement, and
an injunction barring Kokesh from future violations. After a
jury found that Kokesh's actions violated several
securities laws, the District Court determined that
§2462's 5-year limitations period applied to the
monetary civil penalties. With respect to the $34.9 million
disgorgement judgment, however, the court concluded that
§2462 did not apply because disgorgement is not a
"penalty" within the meaning of the statute. The
Tenth Circuit affirmed, holding that disgorgement was neither
a penalty nor a forfeiture.
Because SEC disgorgement operates as a penalty under
§2462, any claim for disgorgement in an SEC enforcement
action must be commenced within five years of the date the
claim accrued. Pp. 5-11.
(a) The definition of "penalty" as a
"punishment, whether corporal or pecuniary, imposed and
enforced by the State, for a crime or of-fen[s]e against its
laws, " Huntington v. Attrill, 146 U.S. 657,
667, 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." Id., at 668. Second, a
pecuniary sanction operates as a penalty if it is sought
"for the purpose of punishment, and to deter others from
offending in like manner" rather than to compensate
victims. Ibid. This Court has applied these
principles in construing the term "penalty, "
holding, e.g., that a statute providing a
compensatory remedy for a private wrong did not impose a
"penalty, " Brady v. Daly, 175 U.S. 148,
154. Pp. 5-7.
(b) The application of these principles here readily
demonstrates that SEC disgorgement constitutes a penalty
within the meaning of §2462. First, SEC disgorgement is
imposed by the courts as a consequence for violating public
laws, i.e., a violation committed against the United
States rather than an aggrieved individual. Second, SEC
disgorgement is imposed for punitive purposes. Sanctions
imposed for the purpose of deterring infractions of public
laws are inherently punitive because "deterrence [is]
not [a] legitimate nonpunitive governmental
objectiv[e]." Bell v. Wolfish, 441 U.S. 520,
539, n. 20. Finally, SEC disgorgement is often not
compensatory. Disgorged profits are paid to the district
courts, which have discretion to determine how the money will
be distributed. They may distribute the funds to victims, but
no statute commands them to do so. When an individual is made
to pay a noncompensatory sanction to the government as a
consequence of a legal violation, the payment operates as a
penalty. See Porters. Warner Holding Co., 328 U.S.
395, 402. Pp. 7-9.
(c) The Government responds that SEC disgorgement is not
punitive but a remedial sanction that operates to restore the
status quo. It is not clear, however, that disgorgement
simply returns the defendant to the place he would have
occupied had he not broken the law. It sometimes exceeds the
profits gained as a result of the violation. And, as
demonstrated here, SEC disgorgement may be ordered without
consideration of a defendant's expenses that reduced the
amount of illegal profit. In such cases, disgorgement does
not simply restore the status quo; it leaves the defendant
worse off and is therefore punitive. Although disgorgement
may serve compensatory goals in some cases, "sanctions
frequently serve more than one purpose."
Austin v. United States, 509 U.S. 602, 610.
Because they "go beyond compensation, are intended to
punish, and label defendants wrongdoers" as a
consequence of violating public laws, Gabelli, 568
U.S., at 451-452, disgorgement orders represent a penalty
and fall within §2462's 5-year limitations period.
834 F.3d 1158, reversed.
5-year statute of limitations applies to any "action,
suit or proceeding for the enforcement of any civil fine,
penalty, or forfeiture, pecuniary or otherwise." 28
U.S.C. §2462. This case presents the question whether
§2462 applies to claims for disgorgement imposed as a
sanction for violating a federal securities law. The Court
holds that it does. Disgorgement in the
securities-enforcement context is a "penalty"
within the meaning of ...