Clarifying the scope of the U.S. Supreme Court’s 2017 decision Kokesh v. Securities Exchange Commission, the U.S. Court of Appeals for the Third Circuit has found that “obey the law” injunctions and industry bars in SEC enforcement actions are not “penalties” subject to the federal five-year statute of limitations. The court did, however, qualify this holding with a warning to the commission: In securities enforcement actions, injunction requests not narrowly tailored to a preventive purpose will be denied.
Under the applicable federal statute of limitations for SEC enforcement actions, 28 U.S.C. Section 2462, any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise” must be brought within five years of the date a cause of action accrues. In Kokesh, the Supreme Court held that disgorgement—a remedy frequently requested by the SEC, requiring individuals to repay funds received through insider trading, embezzlement, or other illegal business practices—constitutes a “penalty” under Section 2462. As a result, the commission is now barred from seeking disgorgement in the enforcement-action context outside Section 2462’s five-year window.
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