One year ago, the U.S. Supreme Court ruled in Kokesh v. SEC[1] that the U.S. Securities and Exchange Commission’s disgorgement remedy constitutes a “penalty,” and is therefore subject to the five-year statute of limitations in 28 U.S.C. § 2462. As a result, the SEC can no longer seek disgorgement of ill-gotten gains older than five years. The SEC’s Enforcement Division has traditionally relied heavily on the agency’s virtually unfettered disgorgement power in its settled and litigated cases. As expected, Kokesh has forced the division to trim its disgorgement demands in certain cases and to abandon it outright in others. To date, however, the most dire predictions of Kokesh’s impact — that it would lead to the wholesale elimination of the SEC’s disgorgement power and place strict limitations upon other types of so-called “equitable” remedies — have not come to pass. That said, many of the issues commentators raised in the immediate aftermath of Kokesh have not yet percolated up through the appellate courts, and significant uncertainty concerning its full impact remains. What is clear, however, is that, absent congressional intervention, the SEC will face challenges in obtaining the full measure of ill-gotten gains in long-running, resource-intensive investigations.

Kokesh and the Footnote

In determining that SEC disgorgement actions constitute “action[s], suit[s] or proceeding[s] for the enforcement of any civil fine, penalty, or forfeiture” subject to 28 U.S.C. § 2462, a unanimous Supreme Court concluded in Kokesh that SEC disgorgement “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.”[2] In reaching this conclusion, the court emphasized that “in many cases, [disgorgement] is not compensatory” — disgorged funds may be paid to victims, but may also simply be dispersed to the United States Treasury.[3] The court explicitly disclaimed a wider holding, noting in a footnote that it was not addressing “whether courts possess authority to order disgorgement in SEC enforcement proceedings or [ ] whether courts have properly applied disgorgement principles in this context.”[4] This footnote — combined with questions during oral argument as to the statutory basis for the SEC’s disgorgement power — has drawn much attention.[5] Was the Supreme Court signaling its skepticism of the SEC’s very ability to obtain disgorgement in federal court? And under the logic of Kokesh, were other SEC remedies such as injunctions and industry bars — traditionally likewise styled as remedial and equitable — now also potentially subject to a five-year limitations period?

SEC Disgorgement Authority Post-Kokesh

So far, no federal court has seized on the Supreme Court’s footnote to find that the SEC lacks disgorgement authority in federal cases.[6] Courts have likewise rejected assertions that Kokesh’s holding has constitutional implications.[7] That said, limiting the SEC to collecting disgorgement within the past five years alone has had a very real impact on the agency’s enforcement program. Steven Peikin, co-director of the SEC’s Division of Enforcement, recently testified to Congress that, as a result of Kokesh, the agency has been unable to collect over $800 million in disgorgement — a “meaningful percentage” of total fines imposed by the SEC.[8] To put this in context, that amount equals 20 percent of the $4 billion the SEC ordered in disgorgement and penalties in 2016.[9] The longer-term significance of this should not be overstated, however. Lost disgorgement following Kokesh was presumably attributable in large part to circumstances beyond the SEC’s control — many such cases were already filed or aged out of the statute of limitations. Going forward, the SEC can mitigate Kokesh’s limiting effects on disgorgement collection by bringing cases more quickly or utilizing tolling agreements more extensively.

However, the SEC cannot now take for granted that the status of its disgorgement power is definitively resolved, or that its arsenal of nonmonetary remedies is safe from being considered penal by dint of historically having been styled as “equitable” relief. That no court has extended Kokesh to eliminate disgorgement entirely does not mean that such questions are off the table. Most courts to consider the question have been district courts constrained by circuit precedent.[10] As these cases make their way up on appeal, we will begin to see courts more fully consider the implications of Kokesh. Tellingly, some judges have already flagged the issue as one worthy of consideration.[11] But the final word on the SEC’s disgorgement power may ultimately emanate from the Supreme Court itself. Just as a footnote in Gabelli v. SEC presaged the demise of aged disgorgement, Kokesh’s footnote may signal the court’s willingness to further curtail the SEC’s disgorgement powers.[12]

Potential Extension of Kokesh to Other Remedies

Efforts to extend Kokesh’s holding to other SEC remedies — such as injunctions and industry bars — as well as to remedies from other agencies have met with at least some success. Setting the high-water mark, a district court in New Jersey concluded that certain equitable remedies — an “obey-the-law” injunction and penny-stock bar — were penalties under Kokesh.[13] The court held that both remedies served punitive, rather than restorative, purposes, noting, for example, that the obey-the-law injunction would “stigmatize Defendant in the eyes of the public” without requiring him to do anything other than follow already established laws and regulations.[14]

By contrast, in SEC v. Collyard, the Eighth Circuit concluded that a requested obey-the-law injunction was not a penalty.[15] Noting that Kokesh undermined circuit precedent that “a claim is not a ‘penalty’ simply because it is ‘equitable,’” the court left the door open to the possibility that SEC injunctions might be penalties, but found that an injunction on this particular set of facts — including the district court’s finding that the defendant was reasonably likely to violate the securities laws again unless enjoined, given that he operated a business that depended on securities law violations and continued to try to operate that business even after the action against him began — was not a penalty.[16] Likewise, in Federal Trade Commission v. Hornbeam Special Situations LLC, the district court refused to dismiss an FTC complaint seeking disgorgement, noting that, while disgorgement was clearly sought as a consequence of the violation of a public law, additional factual development was necessary to determine whether “the nature and purpose” of the disgorgement in this case was punitive.[17] These decisions may, therefore, reflect the beginnings of a trend of courts determining whether the purpose of a particular remedy is penal as part of a case-by-case, fact-intensive inquiry, as opposed to the pre-Kokesh practice of not applying § 2462 if the remedy sought was historically understood to be “equitable.”

The D.C. Circuit has also grappled with whether to extend Kokesh’s holding to other forms of relief. In Saad v. SEC, the court reviewed the SEC’s decision to sustain a permanent bar imposed by the Financial Industry Regulatory Authority.[18] The court remanded the case to the SEC “to address, in the first instance, the relevance — if any — of” Kokesh to the application of the industry bar.[19] Two members of the panel also wrote separately, drawing clear but opposite conclusions on the question. In his concurrence, Judge Brett Kavanaugh explained that because “expulsion or suspension of a securities broker does not provide anything to the victims to make them whole or to remedy their losses,” they must be penalties under Kokesh.[20] Judge Patricia Millett disagreed; in her view, two main points of distinction preserved the equitable nature of the industry bar.[21] First, she pointed out that the bar was imposed for violating a FINRA rule, not a public law.[22] Second, she argued that the bar was imposed to directly benefit FINRA, its members and their clients, unlike disgorgement payments whose benefit extends — at least in some cases — only to the government.[23]

Saad is currently pending before the commission. However, assuming that the SEC does not find that equitable relief is per se penal, disciplinary panels and administrative law judges may likewise engage in factual inquiry to determine whether the application of such relief is punitive. At least one of the SEC’s in-house administrative law judges has already undertaken a similar inquiry, finding that in light of the facts of the case, “even assuming that a permanent bar is punitive under Kokesh,” the bar met a “substantial need to protect investors from Respondents and deter others from engaging in similar conduct,” and so was justified, punitive or not.[24]

* * *

One year on from Kokesh, some things appear certain. The loss of the SEC’s ability to obtain aged disgorgement has had a quantifiable effect and, absent congressional action, the SEC must now move faster or obtain tolling agreements in order to retain the ability to pursue this remedy. And, while no court has moved to strip the SEC of its disgorgement remedy altogether, many courts are grappling with whether and how Kokesh impacts other important SEC remedies, most significantly industry bars. Will the appellate courts or, indeed, the Supreme Court take up the invitation to re-examine the basis for SEC disgorgement claims? Will Kokesh’s holding be extended to nonmonetary relief or to enforcement actions by self-regulatory organizations? Any such changes to the long-standing regulatory structure could have a significant effect on the SEC’s enforcement program. To date, however, such questions remain mostly open, and the concrete effects of Kokesh have been more modest.

[1] 137 S. Ct. 1635 (2017).

[2] Id. at 1644.

[3] Id. For a fuller discussion of the Kokesh decision, see Kokesh v. SEC: Half a Year On, Cleary Enforcement Watch (Jan. 11, 2018), available at

[4] Kokesh, 137 S. Ct. at 1642 n.3.

[5] It is notable that the decision in Kokesh was presaged by the 2013 unanimous Supreme Court opinion in Gabelli v. SEC, which held that the statute of limitations in § 2462 begins to run when a violation occurs, not when it is discovered. There, the court likewise mentioned in a footnote that the issue of whether SEC injunctive relief and disgorgement were subject to § 2462 was not before it. See Gabelli v. SEC, 568 U.S. 442, 447 n.1 (2013).

[6] See, e.g., SEC v. Sample, No. 3:14-CV-1218-B, 2017 WL 5569873, at *2 (N.D. Tex. Nov. 20, 2017) (“Kokesh had no effect on how courts apply disgorgement principles.”); SEC v. Jammin Java Corp., No. 2:15-cv-08921 SVW (MRWx), 2017 WL 4286180, at *3 (C.D. Cal. Sept. 14, 2017) (“As it presently stands, Kokesh is best seen as a decision clarifying the statutory scope of § 2462, rather than one redefining the essential attributes of disgorgement.”).

[7] Courts have rejected arguments that (i) disgorgement violates the excessive fines clause of the Eighth Amendment to the U.S. Constitution, SEC v. Metter, 706 F. App’x 699, 703–04 (2d Cir. 2017) (assuming without deciding that the Eighth Amendment applied and concluding the disgorgement was not excessive); (ii) because disgorgement was effectively a criminal penalty, the consideration of loss in sentencing in a parallel criminal action violated the Double Jeopardy Clause of the Fifth Amendment, Transcript of Sentencing Hearing at 617–27, United States v. Brennan, No. 1:17-cr-00053-TRM-SKL (E.D. Tenn. Sept. 29, 2017); and (iii) SEC disgorgement claims implicate the Sixth Amendment right to a jury trial, United States v. Rapower-3, LLC, 294 F. Supp. 3d 1238, 1240–42 (D. Utah 2018) (concluding that while Kokesh determined disgorgement was a penalty for the purpose of the particular statutory language of § 2462, disgorgement was otherwise still equitable and so did not warrant a jury trial).

[8] See Oversight of the SEC’s Division of Enforcement: Hearing Before the H. Fin. Servs. Comm. (May 16, 2018), available at; Dave Michaels, Supreme Court 2017 Decision Has Cost Investors Over $800 Million, SEC Says, Wall Street Journal (May 16, 2018), available at

[9] SEC, Fiscal Year 2018 Congressional Budget Justification at 39, available at

[10] See, e.g., SEC v. Arcturus Corp., No. 3:13-CV-4861-K, 2018 WL 1701998, at *2 (N.D. Tex. Jan. 10, 2018) (“The Fifth Circuit has repeatedly stated that district courts enjoy ‘broad discretion’ in ordering disgorgement. Unless, and until, current binding authority changes, this Court understands its authority to order disgorgement in SEC proceedings such as this.”) (citation omitted).

[11] See, e.g., Osborn v. Griffin, 865 F.3d 417, 470 n.1 (6th Cir. 2017) (Merritt, J. dissenting) (suggesting that the Supreme Court in Kokesh may have signaled the demise of the SEC’s disgorgement powers); United States v. Latorella, No. 10-10388-DPW, 2017 WL 2785413, at *4 n.4 (D. Mass. June 27, 2017) (same); SEC v. Premier Links Inc., No. 14-CV-7375 (CBA) (ST), 2017 WL 7792702, at *9 n.10 (E.D.N.Y. Sept. 14, 2017) (report and recommendation of magistrate judge, adopted 2018 WL 1064575 (E.D.N.Y. Feb. 23, 2018)) (same).

[12] See Gabelli, 568 U.S. at 447 n.1 (2013).

[13] SEC v. Gentile, No. 16-1619 (JLL), 2017 WL 6371301, at *4 (D.N.J. Dec. 13, 2017).

[14] Id.

[15] 861 F.3d 760, 764 (8th Cir. 2017).

[16] Id. The court acknowledged Kokesh’s reasoning that “sanctions imposed for the purpose of deterring infractions of public laws are inherently punitive,” but concluded that though the injunction before it would “likely deter” the defendant, that deterrence was merely an “incidental effect” and so did not tip the injunction toward penalty. Id. at 765.

[17] No. 1:17-cv-3094-TCB, 2018 WL 1870094, at *10–11 (N.D. Ga. Apr. 16, 2018). Because this case was at the motion-to-dismiss stage, the court explained it would be inappropriate to undertake the “fact-intensive inquiry” needed to determine whether FTC disgorgement was, like SEC disgorgement, punitive and “in many cases … not compensatory.” Id.; Kokesh, 137 S. Ct. at 1643–44.

[18] 873 F.3d 297 (D.C. Cir. 2017).

[19] Id. at 304.

[20] Id. at 305 (Kavanaugh, J., concurring).

[21] Id. at 307–09 (Millett, J., dubitante).

[22] Id. at 308–09.

[23] Id. at 309.

[24] See In re Harris, SEC Release No. 1213, 2017 WL 4942807, at *9 (Oct. 30, 2017).