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Headquarters of the U.S. Securities and Exchange Commission

The U.S. Supreme Court’s recent decision in Kokesh v. SEC has been viewed as a significant setback for the U.S. Securities and Exchange Commission in its ability to obtain monetary remedies for violations of the federal securities laws. While most commentary on the case has focused on the court’s holding that a five-year statute of limitations applies both to awards of disgorgement and civil monetary penalties (extending the court’s holding in Gabelli v. SEC), the more meaningful impact is the court finding that disgorgement itself is not an equitable remedy but a penalty. By defining disgorgement as a penalty, the court has set the stage for defendants in SEC enforcement proceedings to attack the Commission’s very ability to seek disgorgement or to limit strictly its amount. Most notably, if disgorgement is a penalty, then it is limited by statute to the maximum prescribed penalty amounts. This is a far more important outcome of the case than the relatively minor issue of the limitations period, and it is one that could significantly reduce the size of the monetary remedies the SEC can obtain in many of its most high profile cases.

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