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Kokesh Footnote Seems To Be Inviting A Future Disgorgement Case

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 [1], 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.


The 2012 FCPA Guidance [2] states:

“The five-year limitations period applies to SEC actions seeking civil penalties, but it does not prevent SEC from seeking equitable remedies, such as an injunction or the disgorgement of ill-gotten gains, for conduct pre-dating the five-year period.”

The Supreme Court in Kokesh unanimously disagreed with this position. Add it to the list of other examples in the FCPA Guidance full of selective information, half-truths, and, worse information that is demonstratively false. (See “Grading the FCPA Guidance [3]” to learn of other examples).


The Supreme Court often drops hints in its decisions of unresolved issues it may be interested in hearing in the future.

In this regard, it was hard to ignore the following footnote in the Kokesh decision:

“Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context. The sole question presented in this case is whether disgorgement, as applied in SEC enforcement actions, is subject to §2462’s limitations period.”

Based on several remarks during oral argument in the case (see here [5] for the prior post), several justices seemed concerned about the lack of a specific statutory basis for disgorgement. As noted in the transcript [6], Justice Ginsberg stated:

“Certainly disgorgement was not in the days of the common law what it is today. Yet the SEC has been asking for this kind of relief now for, what, over 30 years? Has there been any effort, any activity in Congress to make this clear, one way or another, whether disgorgement fits with forfeiture?”

Justice Alito noted:

“Well, this case puts us in a rather strange position, because we have to decide whether this is a penalty or a forfeiture. But in order to decide whether this thing is a penalty or a forfeiture, we need to understand what this thing is. And in order to understand what it is, it would certainly be helpful and maybe essential to know what the authority for it is. So how do we get out of that — out of that situation? How do we decide whether it is a penalty or a forfeiture without fully understanding what this form of this remedy or this, whatever it is, where it comes from and — and its exact nature?”

Justice Sotomayor asked:

“Could Congress pass a statute giving the SEC the authority to bring these actions for however long a period Congress chooses?”

Justice Kagan directed the following question to the SEC attorney and thereafter commented:

“Ms. Goldenberg …. has the SEC or has the Justice Department ever set down in writing what the guidelines are for how the SEC is going to use disgorgement and what’s going to happen to the monies collected?


I must say I find it unusual that the SEC has not given some guidance to its enforcement department or — or that the Department of Justice hasn’t become involved in some way; that — that everything is just sort of up to the particular person at the SEC who decides to bring such a case.

Chief Justice Roberts stated:

“One reason we have this problem is that the SEC devised this remedy or relied on this remedy without any support from Congress. If Congress had provided, here’s a disgorgement remedy, you would expect them, as they typically do, to say, here’s a statute of limitations that goes with it. And including, as your friend says, usually a statute of limitations and an accompanying statute of repose. Now, it was a concern — you know, Chief Justice Marshall said it was utterly repugnant to the genius of our laws to have a penalty remedy without limit. Those were the days when you could write something like that and it’s about a statute of limitations. It’s utterly repugnant. And it — the concern, it sees seems to me, is multiplied when it’s not only no limitation, but it’s something that the government kind of devised on its own. I mean, I think — doesn’t that cause concern?


But it does seem to me that we kind of have a special obligation to be concerned about how far back the government can go when it’s something that Congress did not address because it did not specify the remedy.”

Specific to FCPA enforcement, my 2010 article “The Facade of FCPA Enforcement [7]” notes:

“The facade of FCPA enforcement is evident not only in connection with the FCPA’s substantive provisions, but also in the remedies the enforcement agencies typically pursue in an FCPA enforcement action. The FCPA contains specific penalty provisions for both violations of the anti-bribery and books and records and internal control provisions. Yet, during the current facade era of FCPA enforcement, there has been a dramatic shift away from the FCPA’s statutory penalties in nearly every enforcement action towards disgorgement …”.

If the Kokesh footnote was indeed inviting a case that squarely addresses the statutory basis for a disgorgement remedy, then that could be a very big deal in terms of the SEC’s FCPA enforcement program.

As highlighted in “The Facade of FCPA Enforcement [7]” and in numerous prior posts, the SEC often seeks a disgorgement remedy not only in FCPA enforcement actions that allege or find violations of the FCPA’s anti-bribery provisions, but most concerning, in enforcement actions that “merely” allege or find violations of the FCPA’s books and records and internal controls provisions.


As frequently highlighted on these pages [8] when discussing no-charged bribery disgorgement cases, one of the more vocal critics of SEC no-charged bribery disgorgement is Paul Berger (former Associate Director of the SEC’s Enforcement Division).

Berger has stated:

“Settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.”

“Given the bedrock principle that a court’s equitable power to order such disgorgement goes only as far as the scope of the violation, it is difficult to determine how a court could lawfully allow disgorgement of profits for uncharged violations without the remedy crossing line into ‘punishment’ for the violations actually charged.  Although settling companies that willingly accept disgorgement as a remedy in such cases may have important strategic interests at stake – e.g., avoiding primary anti-bribery charges – even these companies (as well as the SEC) must consider that the federal courts may at some point step in and forbid such settlements as beyond ‘the bounds of fairness, reasonableness, and adequacy.”

In Gabelli v. SEC, the Supreme Court unanimously rejected the SEC’s expansive interpretation of 28 U.S.C. 2462 in cases involving civil penalties.

In Kokesh v. SEC, 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.”

The Kokesh footnote may indeed be a sign of things to come.

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