The U.S. Supreme Court has ruled that the SEC cannot seek disgorgement with respect to ill-gotten gains received more than 5 years ago. A unanimous Court held that disgorgement is a “penalty” under the statute of limitations because (i) the SEC brings public cases not intended to remedy individual harm and (ii) disgorgement is imposed for punitive and deterrent purposes. The Court rejected the SEC’s argument that disgorgement is used for restitution because disgorgement orders often exceed the defendant’s gains. The Court has previously held that SEC penalties are also subject to the 5-year statute of limitations.
OUR TAKE: The Supreme Court significantly constrains the SEC’s enforcement power to demand huge settlements based on multi-year violations. The SEC will have to move more quickly to investigate and file.