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Supreme Court Reduces Power Of SEC After Court Ruling

Robbie Lawther, Reporter, June 7, 2017

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US Supreme Court has reduced the powers of the Securities and Exchange Commission after a 9-0 court ruling.

The US Supreme Court has reduced the power of the Securities and Exchange Commission to recover ill-gotten profits from defendants’ misconduct. This is a victory for the Wall Street firms but the decision arguably weakens the regulator’s enforcement powers.

In a 9-0 ruling, the court found that the SEC’s power to recover profits, which is known as disgorgement, is subject to a five-year statute of limitations. The court agreed with New Mexico-based investment advisor Charles Kokesh, who previously was ordered by a judge to pay $2.4 million in penalties, plus $34.9 million in disgorgement of ill-gotten profits after the SEC sued him.

Justice Sonia Sotomayor said that disgorgement counts as a penalty and counts as a five-year statute of limitation, which applies to any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise”. 

“SEC disgorgement thus bears all the hallmarks of a penalty: It is imposed as a consequence of violating a public law and it is intended to deter, not to compensate,” she added.

Kokesh was sued by the SEC in 2009 for embezzling his investors’ money. His penalties covered his conduct within the five-year statute of limitations; however the disgorgement covered conduct outside of such time frame.

The investment advisor made an appeal to the Supreme Court after losing at the Court of Appeals. 

Trade group associations had called for the Supreme Court to limit the powers of the SEC to provide a more confident and predictable enforcement process.




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