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Kokesh – Yet Another Reason Why Issuers Should Not Roll Over And Play Dead When Under FCPA Scrutiny

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The Supreme Court’s recent unanimous decision in Kokesh rejecting the SEC’s position and holding that disgorgement “in the securities-enforcement context is a ‘penalty’ within the meaning of [28 U.S.C.] 2462 and so disgorgement actions must be commenced within five years of the date the claim accrues” should impact SEC FCPA enforcement against issuers.

However, statute of limitations issues are meaningless when issuers (as often happens in the FCPA context) waive statute of limitations defenses or agree to toll the statute of limitations.

Thus, whether Kokesh will impact SEC FCPA enforcement against issuers depends on whether issuers will continue to roll over and play dead when under FCPA scrutiny or actually mount a defense.

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Kokesh Footnote Seems To Be Inviting A Future Disgorgement Case

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The Supreme Court’s decision earlier this week in Kokesh v. SEC was yet another Supreme Court benchslap of the SEC. As highlighted in this prior post, the Supreme Court unanimously rejected the SEC’s position and held that disgorgement “in the securities-enforcement context is a ‘penalty’ within the meaning of [28 U.S.C.] 2462 and so disgorgement actions must be commenced within five years of the date the claim accrues.”

As previously highlighted in numerous prior posts regarding Kokesh, the non-FCPA case is FCPA relevant in that since the SEC first sought a disgorgement remedy in an FCPA enforcement action in 2004, disgorgement has become the dominant remedy sought by the SEC in corporate FCPA enforcement actions.

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Supreme Court Benchslaps SEC Yet Again – Rules That Disgorgement Is A Penalty Subject To A Five Year Limitations Period

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FCPA Professor has been closely following Kokesh v SEC, a non-FCPA case that is FCPA relevant because the issue before the Supreme Court is whether SEC disgorgement is subject to a five-year statute of limitations. (See prior posts here and here regarding the case, here for a summary of the oral argument in the case, and here for an FCPA Flash podcast episode devoted to the case and issue).

What makes Kokesh FCPA relevant is that since the SEC first sought a disgorgement remedy in an FCPA enforcement action in 2004, disgorgement has become the dominant remedy sought by the SEC in corporate FCPA enforcement actions.

Yesterday in this unanimous decision authored by Justice Sotomayor, the Supreme Court rejected the SEC’s position and held that disgorgement “in the securities-enforcement context is a ‘penalty’ within the meaning of [28 U.S.C.] 2462 and so disgorgement actions must be commenced within five years of the date the claim accrues.”

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FCPA Gets Some Mentions During Oral Argument In Supreme Court Disgorgement Case

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Because of how the DOJ and SEC have chosen to “enforce” the Foreign Corrupt Practices Act (that is largely through resolution vehicles that are not subject to any meaningful judicial scrutiny), the Supreme Court has never decided an FCPA case and, if this dynamic continues, likely will never decide an FCPA case.

Attempts were made in connection with the flawed 2014 U.S. v. Esquenazi “foreign official” decision (see here for my amicus brief urging the Supreme Court to accept the case including discussion of the above dynamic), but the Supreme Court ordinarily does not decide to hear a disputed legal issue after only one appellate court decision.

Given the above dynamics, the most FCPA observers can do is take note when the words “Foreign Corrupt Practices Act” are uttered in the Supreme Court and this occurred earlier this week during oral argument in SEC v. Kokesh, a non-FCPA case that is FCPA relevant because the issue before the Supreme Court is whether SEC disgorgement is subject to a five-year statute of limitations. (See prior posts here and here regarding the case and general issue as well as this FCPA Flash podcast in which Marc Bohn (Miller & Chevalier) discusses the case).

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If Only The Supreme Court Had Accepted Cert In The “Foreign Official” Challenge

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I was directly involved in the “foreign official” challenges (i.e. are employees of so-called state-owned or state-controlled enterprises “foreign officials” under the FCPA) between 2011 and 2014.

Among other things: (i) I was engaged in connection with the original Carson challenge which relied in part on my “foreign official” declaration; (ii) I was engaged in connection with the Lindsey Manufacturing challenge which also relied in part on my declaration; (iii) I assisted the families of Joel Esquenazi and Carlos Rodriguez secure competent appellant FCPA counsel and assisted the pro bono counsel in that case; and (iv) after the 11th Circuit’s flawed “foreign official” decision in Esquenazi in 2014 (for a full discussion, see this article), I urged the Supreme Court in this amicus brief to accept cert.

In short, I am very familiar with the challenges and the statutory interpretation issues presented to the Supreme Court.

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