Source: http://1lawyer.org/kokesh-charles-r-v-sec-decided-06052017/
Timestamp: 2017-12-14 00:21:34
Document Index: 427863320

Matched Legal Cases: ['§2462', '§2462', '§2462', '§2462', '§2462', '§2462', '§77', '§2462', '§2462', '§80', '§80', '§78', '§2462', '§2462', '§2462', '§2462', '§2462', '§1047', '§1712', '§2462', '§2462', '§2462']

KOKESH, CHARLES R. v. SEC. Decided 06/05/2017 | 1 Lawyers
KOKESH, CHARLES R. v. SEC. Decided 06/05/2017
The Securities and Exchange Commission (SEC or Commission) possesses authority to investigate violations of federal securities laws and to commence enforcement actions in federal district court if its investigations uncover evidence of wrongdoing. Initially, the Commission’s statutory authority in enforcement actions was limited to seeking an injunction barring future violations. Beginning in the 1970’s, federal district courts, at the request of the Commission, began ordering disgorgement in SEC enforcement proceedings. Although Congress has since authorized the Commission to seek monetary civil penalties, the Commission has continued to seek disgorgement. This Court has held that
28 U. S. C. §2462, which establishes a 5-year limitations period for “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture,” applies when the Commission seeks monetary civil penalties. See Gabelli v. SEC,
568 U. S. 442.
(a) The definition of “penalty” as a “punishment, whether corporal or pecuniary, imposed and enforced by the State, for a crime or offen[s]e against its laws,” Huntington v. Attrill,
146 U. S. 657, gives rise to two principles. 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.” Id., at 668. 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. Ibid. This Court has applied these principles in construing the term “penalty,” holding, e.g., that a statute providing a compensatory remedy for a private wrong did not impose a “penalty,” Brady v. Daly,
175 U. S. 148. Pp. 5–7.
(b) The application of these principles here readily demonstrates that SEC disgorgement constitutes a penalty within the meaning of §2462. First, SEC disgorgement is imposed by the courts as a consequence for violating public laws, i.e., a violation committed against the United States rather than an aggrieved individual. Second, SEC disgorgement is imposed for punitive purposes. Sanctions imposed for the purpose of deterring infractions of public laws are inherently punitive because “deterrence [is] not [a] legitimate nonpunitive governmental objectiv[e].” Bell v. Wolfish,
441 U. S. 520, n. 20. Finally, SEC disgorgement is often not compensatory. Disgorged profits are paid to the district courts, which have discretion to determine how the money will be distributed. They may distribute the funds to victims, but no statute commands them to do so. When an individual is made to pay a noncompensatory sanction to the government as a consequence of a legal violation, the payment operates as a penalty. See Porter v. Warner Holding Co.,
328 U. S. 395. Pp. 7–9.
(c) The Government responds that SEC disgorgement is not punitive but a remedial sanction that operates to restore the status quo. It is not clear, however, that disgorgement simply returns the defendant to the place he would have occupied had he not broken the law. It sometimes exceeds the profits gained as a result of the violation. And, as demonstrated here, SEC disgorgement may be ordered without consideration of a defendant’s expenses that reduced the amount of illegal profit. In such cases, disgorgement does not simply restore the status quo; it leaves the defendant worse off and is therefore punitive. Although disgorgement may serve compensatory goals in some cases, “sanctions frequently serve more than one purpose.” Austin v. United States,
509 U. S. 602. Because they “go beyond compensation, are intended to punish, and label defendants wrongdoers” as a consequence of violating public laws, Gabelli, 568 U. S., at 451–452, disgorgement orders represent a penalty and fall within §2462’s 5-year limitations period. Pp. 9–11.
A 5-year statute of limitations applies to any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise.”
28 U. S. C. §2462. This case presents the question whether §2462 applies to claims for disgorgement imposed as a sanction for violating a federal securities law. The Court holds that it does. Disgorgement in the securities-enforcement context is a “penalty” within the meaning of §2462, and so disgorgement actions must be commenced within five years of the date the claim accrues.
After rampant abuses in the securities industry led to the 1929 stock market crash and the Great Depression, Congress enacted a series of laws to ensure that “the highest ethical standards prevail in every facet of the securities industry.” 1 SEC v. Capital Gains Research Bureau, Inc.,
375 U. S. 180–187 (1963) (internal quotation marks omitted). The second in the series—the Securities Exchange Act of 1934—established the Securities and Exchange Commission (SEC or Commission) to enforce federal securities laws. Congress granted the Com-mission power to prescribe “ ‘rules and regulations . . . as necessary or appropriate in the public interest or for the protection of investors.’ ” Blue Chip Stamps v. Manor Drug Stores,
421 U. S. 723, 728 (1975)
. In addition to rulemaking, Congress vested the Commission with “broad authority to conduct investigations into possible violations of the federal securities laws.” SEC v. Jerry T. O’Brien, Inc.,
467 U. S. 735, 741 (1984)
. If an investigation uncovers evidence of wrongdoing, the Commission may initiate enforcement actions in federal district court.
In 1990, as part of the Securities Enforcement Remedies and Penny Stock Reform Act, Congress authorized the Commission to seek monetary civil penalties.
932, codified at
15 U. S. C. §77t(d). The Act left the Commission with a full panoply of enforcement tools: It may promulgate rules, investigate violations of those rules and the securities laws generally, and seek monetary penal-ties and injunctive relief for those violations. In the years since the Act, however, the Commission has con-tinued its practice of seeking disgorgement in enforcement proceedings.
This Court has already held that the 5-year statute of limitations set forth in
28 U. S. C. §2462 applies when the Commission seeks statutory monetary penalties. See Gabelli v. SEC,
568 U. S. 442, 454 (2013)
. The question here is whether §2462, which applies to any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise,” also applies when the SEC seeks disgorgement.
After a 5-day trial, a jury found that Kokesh’s actions violated the Investment Company Act of 1940,
15 U. S. C. §80a–36; the Investment Advisers Act of 1940, 15 U. S. C. §§80b–5, 80b–6; and the Securities Exchange Act of 1934, 15 U. S. C. §§78m, 78n. The District Court then turned to the task of imposing penalties sought by the Commission. As to the civil monetary penalties, the District Court determined that §2462’s 5-year limitations period pre-cluded any penalties for misappropriation occurring prior to October 27, 2004—that is, five years prior to the date the Commission filed the complaint. App. to Pet. for Cert. 26a. The court ordered Kokesh to pay a civil penalty of $2,354,593, which represented “the amount of funds that [Kokesh] himself received during the limitations period.” Id., at 31a–32a. Regarding the Commission’s request for a $34.9 million disgorgement judgment—$29.9 million of which resulted from violations outside the limitations period—the court agreed with the Commission that because disgorgement is not a “penalty” within the meaning of §2462, no limitations period applied. The court therefore entered a disgorgement judgment in the amount of $34.9 million and ordered Kokesh to pay an additional $18.1 million in prejudgment interest.
Statutes of limitations “se[t] a fixed date when exposure to the specified Government enforcement efforts en[d].” Gabelli, 568 U. S., at 448. Such limits are “ ‘vital to the welfare of society’ ” and rest on the principle that “ ‘even wrongdoers are entitled to assume that their sins may be forgotten.’ ” Id., at 449. The statute of limitations at issue here—
28 U. S. C. §2462—finds its roots in a law enacted nearly two centuries ago. 568 U. S., at 445. In its current form, §2462 establishes a 5-year limitations period for “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” This limitations period applies here if SEC disgorgement qualifies as either a fine, penalty, or forfeiture. We hold that SEC disgorgement constitutes a penalty. 3
A “penalty” is a “punishment, whether corporal or pecuniary, imposed and enforced by the State, for a crime or offen[s]e against its laws.” Huntington v. Attrill,
146 U. S. 657, 667 (1892)
. This definition gives rise to two principles. 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.” Id., at 668. Although statutes creating private causes of action against wrongdoers may appear—or even be labeled—penal, in many cases “neither the liability imposed nor the remedy given is strictly penal.” Id., at 667. This is because “[p]enal laws, strictly and properly, are those imposing punishment for an offense committed against the State.” Ibid. Second, a pecuniary sanction operates as a penalty only if it is sought “for the purpose of punishment, and to deter others from offending in like manner”—as opposed to compensating a victim for his loss. Id., at 668.
The Court has applied these principles in construing the term “penalty.” In Brady v. Daly,
175 U. S. 148 (1899)
, for example, a playwright sued a defendant in Federal Circuit Court under a statute providing that copyright infringers “ ‘shall be liable for damages . . . not less than one hundred dollars for the first [act of infringement], and fifty dollars for every subsequent performance, as to the court shall appear to be just.’ ” Id., at 153. The defendant argued that the Circuit Court lacked jurisdiction on the ground that a separate statute vested district courts with exclusive jurisdiction over actions “to recover a penalty.” Id., at 152. To determine whether the statutory damages represented a penalty, this Court noted first that the statute provided “for a recovery of damages for an act which violates the rights of the plaintiff, and gives the right of action solely to him” rather than the public generally, and second, that “the whole recovery is given to the proprietor, and the statute does not provide for a recovery by any other person.” Id., at 154, 156. By providing a compensatory remedy for a private wrong, the Court held, the statute did not impose a “penalty.” Id., at 154.
Similarly, in construing the statutory ancestor of §2462, the Court utilized the same principles. In Meeker v. Lehigh Valley R. Co.,
236 U. S. 412–422 (1915), the Interstate Commerce Commission, a now-defunct federal agency charged with regulating railroads, ordered a railroad company to refund and pay damages to a shipping company for excessive shipping rates. The railroad company argued that the action was barred by Rev. Stat. §1047, Comp. Stat. 1913, §1712 (now
28 U. S. C. §2462), which imposed a 5-year limitations period upon any “ ‘suit or prosecution for a penalty or forfeiture, pecuniary or otherwise, accruing under the laws of the United States.’ ” 236 U. S., at 423. The Court rejected that argument, reasoning that “the words ‘penalty or forfeiture’ in [the statute] refer to something imposed in a punitive way for an infraction of a public law.” Ibid. A penalty, the Court held, does “not include a liability imposed [solely] for the purpose of redressing a private injury.” Ibid. Because the liability imposed was compensatory and paid entirely to a private plaintiff, it was not a “penalty” within the meaning of the statute of limitations. Ibid.; see also Gabelli, 568 U. S., at 451–452 (“[P]enalties” in the context of §2462 “go beyond compensation, are intended to punish, and label defendants wrongdoers”).
Second, SEC disgorgement is imposed for punitive purposes. In Texas Gulf—one of the first cases requiring disgorgement in SEC proceedings—the court emphasized the need “to deprive the defendants of their profits in order to . . . protect the investing public by providing an effective deterrent to future violations.” 312 F. Supp., at 92. In the years since, it has become clear that deterrence is not simply an incidental effect of disgorgement. Rather, courts have consistently held that “[t]he primary purpose of disgorgement orders is to deter violations of the securities laws by depriving violators of their ill-gotten gains.” SEC v. Fischbach Corp., 133 F. 3d 170, 175 (CA2 1997); see also SEC v. First Jersey Securities, Inc., 101 F. 3d 1450, 1474 (CA2 1996) (“The primary purpose of disgorgement as a remedy for violation of the securities laws is to deprive violators of their ill-gotten gains, thereby effectuating the deterrence objectives of those laws”); Rind, 991 F. 2d, at 1491 (“ ‘The deterrent effect of [an SEC] enforcement action would be greatly undermined if securities law violators were not required to disgorge illicit profits’ ”). Sanctions imposed for the purpose of deterring infractions of public laws are inherently punitive because “deterrence [is] not [a] legitimate nonpunitive governmental objectiv[e].” Bell v. Wolfish,
441 U. S. 520, 539, n. 20 (1979)
; see also United States v. Bajakajian,
524 U. S. 321, 329 (1998) (“Deterrence . . . has traditionally been viewed as a goal of punishment”).
Finally, in many cases, SEC disgorgement is not compensatory. As courts and the Government have employed the remedy, disgorged profits are paid to the district court, and it is “within the court’s discretion to determine how and to whom the money will be distributed.” Fischbach Corp., 133 F. 3d, at 175. Courts have required disgorgement “regardless of whether the disgorged funds will be paid to such investors as restitution.” Id., at 176; see id., at 175 (“Although disgorged funds may often go to compensate securities fraud victims for their losses, such compensation is a distinctly secondary goal”). Some disgorged funds are paid to victims; other funds are dispersed to the United States Treasury. See, e.g., id., at 171 (affirming distribution of disgorged funds to Treasury where “no party before the court was entitled to the funds and . . . the persons who might have equitable claims were too dispersed for feasible identification and payment”); SEC v. Lund, 570 F. Supp. 1397, 1404–1405 (CD Cal. 1983) (ordering disgorgement and directing trustee to disperse funds to victims if “feasible” and to disperse any remaining money to the Treasury). Even though district courts may distribute the funds to the victims, they have not identified any statutory command that they do so. When an individual is made to pay a noncompensatory sanction to the Government as a consequence of a legal violation, the payment operates as a penalty. See Porter v. Warner Holding Co.,
328 U. S. 395, 402 (1946) (distinguishing between restitution paid to an aggrieved party and penalties paid to the Government).
True, disgorgement serves compensatory goals in some cases; however, we have emphasized “the fact that sanctions frequently serve more than one purpose.” Austin v. United States,
509 U. S. 602, 610 (1993)
. “ ‘A civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes, is punishment, as we have come to understand the term.’ ” Id., at 621; cf. Bajakajian, 524 U. S., at 331, n. 6 (“[A] modern statutory forfeiture is a ‘fine’ for Eighth Amendment purposes if it constitutes punishment even in part”). Because disgorgement orders “go beyond compensation, are intended to punish, and label defendants wrongdoers” as a consequence of violating public laws, Gabelli, 568 U. S., at 451–452, they represent a penalty and thus fall within the 5-year statute of limitations of §2462.