Litigation » Ruling Caught SEC Flatfooted

Ruling Caught SEC Flatfooted

July 31, 2018

Washington DC, USA - January 13, 2018: US United States Securities and Exchange Commission SEC entrance architecture modern building sign, logo, american flag, looking up sky, glass windows reflection
In May, the Supreme Court ruled in Kokesh v. SEC, that when the commission seeks disgorgement of ill-gotten gains from a defendant, it must, under the federal statute of limitations, file the charges within five years of the violation. Disgorgement had previously been thought to fall outside the statute of limitations because it seeks to take back what a defendant received unlawfully. The court’s view was that such repayments are really a penalty, and therefore subject to the five-year filing requirement. The decision caught the SEC napping, and on July 24 a hearing was held in a class-action lawsuit spawned directly by the ruling that poses a nightmare scenario for the commission. The suit seeks reimbursement from the SEC of over $14 billion of disgorgements paid by defendants for conduct that was more than five years old. The hearing was on an SEC motion to dismiss. The judge hasn’t ruled yet. If the motion is unsuccessful, the SEC may face claims in numerous cases to repay amounts that it received for misconduct beyond the limitations period. One option is to ask Congress to give the commission more time to pursue cases, a move Wall Street is sure to oppose.

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