In Kokesh v. Securities and Exchange Commission, the Supreme Court resolved a circuit court split by holding that Securities and Exchange Commission (“SEC”) disgorgement operates as a penalty under § 2462; therefore, any claim for disgorgement in an SEC enforcement action must be brought within the five year statute of limitations.
The Supreme Court found that a sanction operates as a penalty when the wrong sought to be redressed is a wrong to the public, or a wrong to the individual. Further, a sanction represents a penalty if it is sought “for the purpose of punishment, and to deter others from offending in like manner” rather than compensating victims.
In applying these principles, the Court found that SEC disgorgement is imposed: (1) as a consequence for violating public laws; (2) for punitive purposes; and (3) not for compensatory purposes. The government responded by arguing that SEC disgorgement is not punitive but a remedial action to restore the status quo. The Court found that in most cases disgorgement leaves the defendant worse off and is thus punitive. Further, SEC disgorgement is often not compensatory because the district courts have the discretion to determine how the money will be distributed.
The entire opinion can be found here: https://www.supremecourt.gov/opinions/16pdf/16-529_i426.pdf.