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SEC Setback As 11th Circuit Concludes That Disgorgement Is Subject To A Five-Year Statute Of Limitations

Judicial Decision

In the FCPA Guidance, the government states:

“In civil cases brought by SEC, the statute of limitations is set by 28 U.S.C. § 2462 which provides for a five-year limitation on any “suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” The five-year period begins to run ‘when the claim first accrued.’ 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.”

Even though the FCPA Guidance contains 418 footnotes of supposed support for government assertions (as highlighted in “Grading the FCPA Guidance” much of this support is prosecutorial common law) the above-highlighted portion lacks a footnote – in other words a naked assertion.

Last week, in SEC v. Graham the 11th Circuit concluded that the government’s above-stated position regarding disgorgement is indeed naked and held that disgorgement is subject to a five-year limitations period.

The underlying facts in Graham concerned an SEC enforcement action alleging that various defendants sold unregistered securities. The trial court dismissed the case ruling that the statute of limitations set forth in 28 USC 2462 is jurisdictional and that every remedy the SEC requested (declaratory relief, injunctive relief, and disgorgement) was outside the court’s jurisdiction. As to disgorgement, the trial court held that this remedy consisted of a forfeiture.

The SEC appealed arguing, among other things, that 2462 is nonjurisdictional and that the various forms of relief it was seeking – including disgorgement – were not subject to 2462’s time bar. Regarding disgorgement, the 11th Circuit stated in full as follows.

“The district court concluded that “the disgorgement of all ill-gotten gains realized from the alleged violations of the securities laws—i.e., requiring defendants to relinquish money and property—can truly be regarded as nothing other than a forfeiture (both pecuniary and otherwise), which remedy is expressly covered by § 2462.” Graham, 21 F. Supp. 3d at 1310-11. We agree with the district court that for the purposes of § 2462 forfeiture and disgorgement are effectively synonyms; § 2462’s statute of limitations applies to disgorgement.

Following the same principles of statutory interpretation as we did with the term “penalty,” we look to the ordinary meaning of “forfeiture.” Webster’s Dictionary defines forfeiture as “the divesting of the ownership of particular property of a person on account of the breach of a legal duty and without any compensation to him.” Forfeiture, Webster’s Third New Int’l Dictionary (2002). The Oxford English Dictionary likewise defines forfeiture as “[t]he fact of losing or becoming liable to deprivation of (an estate, goods, life, an office, right, etc.) in consequence of a crime, offence, or breach of engagement.” Forfeiture, Oxford English Dictionary (2d ed. 1989). These definitions illustrate that forfeiture occurs when a person is forced to turn over money or property because of a crime or wrongdoing.

We find no meaningful difference in the definitions of disgorgement and forfeiture. For example, Black’s Law Dictionary defines disgorgement as “[t]he act of giving up something (such as profits illegally obtained) on demand or by legal compulsion.” Disgorgement, Black’s Law Dictionary (10th ed. 2014). Black’s Law Dictionary provides a very similar definition for forfeiture: “[t]he loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty.” Forfeiture, Black’s Law Dictionary (10th ed. 2014). The Supreme Court, too, has used the terms interchangeably. See United States v. Ursery, 518 U.S. 267, 284 (1996) (“Forfeitures serve a variety of purposes, but are designed primarily to confiscate property used in violation of the law, and to require disgorgement of the fruits of illegal conduct.”). We thus conclude that for the purposes of § 2462 the remedy of disgorgement is a “forfeiture,” and § 2462’s statute of limitations applies. [In a footnote the opinion states: Because we hold that disgorgement is a “forfeiture,” 28 U.S.C. § 2462, we need not reach the defendants’ alternative argument that disgorgement is a “penalty.”]

The SEC argues that disgorgement cannot be forfeiture because the two terms refer to fundamentally different things: disgorgement only includes direct proceeds from wrongdoing, whereas forfeiture can include both ill-gotten gains and any additional profit earned on those ill-gotten gains (i.e., secondary profits). Compare SEC v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978) (recognizing that “[t]he court’s power to order disgorgement extends only to the amount with interest by which the defendant profited from his wrongdoing”), with United States v. Reed, 924 F.2d 1014, 1017 (11th Cir. 1991) (requiring defendants to forfeit a building and its subsequent increase in property value between the time the crime began and when the building was sold). But even under the definitions the SEC puts forth, disgorgement is imposed as redress for wrongdoing and can be considered a subset of forfeiture. Because forfeiture includes disgorgement, § 2462 applies to disgorgement.

Furthermore, to read the two terms according to the SEC’s interpretation would violate the long-settled principle “that words in statutes should be given their ordinary, popular meaning unless Congress clearly meant the words in some more technical sense.” United States v. Nat’l Broiler Mktg. Ass’n, 550 F.2d 1380, 1386 (5th Cir. 1977), aff’d, 436 U.S. 816 (1978). We find no indication that in enacting § 2462’s widely applicable statute of limitations, Congress meant to adopt the technical definitions of forfeiture and disgorgement the SEC urges over the words’ ordinary meanings. “Had Congress wished unique or specialized meanings to attach to any of these terms, it readily could have taken the obvious and usual step either of including a specialized meaning in the definitions section of the statute or by using clear modifying language in the text of the statute.” Consol. Bank, 118 F.3d at 1464. Particularly because § 2462 applies to a wide variety of agency actions and contexts, we are loath to adopt the technical definition that the SEC promotes. In sum, § 2462 applies to the declaratory relief and disgorgement the SEC sought, but not to the injunctive relief.”

Regarding declaratory relief, the 11th Circuit concluded that declaratory relief fits the definition of a penalty and therefore held that such relief is also subject to 2462’s five-year statute of limitations.

Regarding injunctions, the 11th Circuit concluded that injunctions “are equitable, forward-looking remedies and not penalties within the meaning of 2462” and thus concluded that the five-year statute of limitations is inapplicable to injunctions.


One reason to read FCPA Professor is to stay ahead of the curve.

You may recall this excellent November 2013 guest post titled “The Equity Facade of SEC Disgorgement” in which former SEC Assistant Director of Enforcement Russ Ryan wrote “removing the façade of equity from many SEC cases could also affect whether the putative disgorgement claim was subject to any statute of limitations …”.


For additional coverage of the Graham decision see this Gibson Dunn client alert and here from Miller & Chevalier.

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