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November 19, 2019 12:40 PM

House passes bill to reverse Supreme Court decision on SEC disgorgement

Hazel Bradford
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    Bipartisan legislation giving the SEC more tools and time to seek restitution for investors harmed by securities fraud was passed Monday by the House.

    The Investor Protection and Capital Markets Fairness Act would counteract a June 2017 Supreme Court ruling that put new limits on a common SEC strategy to recoup illegal profits from people found to have violated federal laws, known as disgorgement. In the Kokesh vs. SEC decision, the justices unanimously said that because disgorgements are penalties, the SEC is bound by a five-year statute of limitations when seeking them.

    The House bill, passed 314-95, would allow for a 14-year statute of limitations and prevent disgorgement from being defined as "a civil fine, penalty or forfeiture," to avoid the shorter time frame.

    In March, similar bipartisan legislation was introduced in the Senate by Sens. Mark R. Warner, D-Va., and John Kennedy, R-La., who are members of the Senate Banking Committee, but no further action has been scheduled.

    The Supreme Court will revisit the disgorgement issue in 2020 in a related case, Charles C. Liu et al. vs. Securities and Exchange Commission that is challenging the SEC's authority to seek disgorgement.

    In its fiscal year 2019 enforcement report issued in early November, the SEC noted that the Supreme Court's Kokesh decision continues to adversely impact the agency's ability to return funds to harmed investors. The five-year statute of limitations has caused the commission to forgo about $1.1 billion dollars in disgorgement in filed cases and also has shifted enforcement resources, the report said.

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    December 12, 2022 page one

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