In the case of Kokesh v. SEC, the US Supreme Court held the profit disgorgements operate as a penalty under the Securities and Exchange Act of 1934, as amended. As such “any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued.” The position of the Securities and Exchange Commission (SEC) at the Supreme Court and in all other matters involving this issue was that profit disgorgement were not punitive, hence not a penalty but rather remedial in nature so the SEC could clawback all monies generated as a result of the illegal action.
The decision, authored by Justice Sotomayor, was a 9-0 opinion which in the rarified world of Supreme Court decisions is about as clear a message as one can get. The Court first determined that profit disgorgement met the definition of a “penalty” under two basis, “First, whether a sanction represents a penalty turns in part on “whether the wrong sought to be redressed is a wrong to the public, or a wrong to the individual.” Second, a pecuniary sanction operates as a penalty if it is sought “for the purpose of punishment, and to deter others from offending in like manner” rather than to compensate victims.” [citations omitted] Thus, if a statute provided a compensatory remedy for a private wrong, it should not be characterized as penalty.
For additional thoughts from Marc, see his piece on the FCPA Blog.
For additional thoughts from myself, see my piece on the FCPA Compliance and Ethics Blog.