SIFMA opposed a bill that would effectively overturn the Supreme Court's Decision in Kokesh v. SEC, which held that SEC claims for disgorgement were punitive and, therefore, subject to a federal statute of limitations. H.R. 4344, sponsored by Representatives Ben McAdams (D-UT) and Bill Huizenga (R-MI) would create a 14-year statute of limitations.

As previously covered, the Supreme Court held that a five-year statute of limitations applies to claims for the disgorgement of ill-gotten gains obtained through violations of federal securities laws. Prior to the decision, the SEC had taken the view that claims of disgorgement were not subject to any statute of limitations.

SIFMA criticized the bill for:

  • exceeding the SEC's enforcement mission, which is remedial, not punitive in nature;

  • authorizing the SEC to pursue "old and stale claims";

  • failing to improve monetary recovery for harmed investors; and

  • being redundant, given that the DOJ pursues claims up to 10 years old.

Commentary

Kyle DeYoung

SIFMA's criticisms about the statute of limitations for SEC disgorgement claims are well founded. While the SEC can come up with horror stories of cases where a limitations period may prevent it from obtaining ill-gotten gains from unsympathetic fraudsters in individual cases, expanding or eliminating the statute of limitations for disgorgement claims would be bad policy overall. It would do little to actually increase recovery to harmed investors, make it more difficult to defend against older meritless claims, and remove an important incentive for the SEC to investigate and pursue misconduct on a timely basis.

Separate from the statute of limitations provision, the proposed bill provides explicit statutory authorization for the SEC to seek certain equitable relief, including disgorgement and injunctive relief, in its enforcement actions. The SEC's ability to obtain this type of relief has been called into question since Kokesh, and, thus, it makes sense for Congress to eliminate this uncertainty.

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