How the SEC May Circumvent the Five-Year Statute of Limitations on Disgorgement Under Kokesh v. SEC

On June 5, 2017, the U.S. Supreme Court ruled in Kokesh v. SEC that the disgorgement remedy available to the SEC is restricted by a five-year statute of limitations. See “Implications for Fund Managers of the Supreme Court’s Ruling in Kokesh v. SEC” (Jun. 15, 2017). The decision was widely seen as a victory for entities that are subject to the enforcement arm of the SEC. The total monetary liability for advisers alleged to have engaged in securities violations may be dramatically reduced due to Kokesh. Advisers also have greater certainty that they will not be punished for violations that occurred outside the five-year limitations period. It is unlikely, however, that the Commission’s Division of Enforcement will take the Kokesh decision lying down, and it may adopt strategies to mitigate the impact of the Court’s decision on its ability to seek penalties and disgorgement from advisers. In a guest article, MoloLamken partner Justin V. Shur and associate Eric R. Nitz discuss some of the legal tools available to the SEC to circumvent Kokesh now that disgorgement is not the open-ended and unlimited remedy it had previously been. For additional commentary from Shur and Nitz, see our coverage of Och-Ziff’s SEC and DOJ settlements: “Settlements With Och-Ziff and Two Executives Underscore FCPA Compliance Risks to Private Fund Managers” (Oct. 27, 2016); and “Five Compliance Lessons Private Fund Managers Can Glean” (Nov. 3, 2016).

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