US Supreme Court Restricts SEC’s Ability to Recover Monies Made from Illegal Conduct

In Kokesh v. SEC, the US Supreme Court has restricted the US Securities and Exchange Commission’s ability to pursue disgorgement after five years have passed since the fraud alleged led to illegal profits. In a unanimous decision, the nation’s highest court said that that the five-year statute of limitations must be followed.

The securities fraud lawsuit was brought by Charles Kokesh, who was convicted for misappropriating funds from four investment companies that he controlled and using the money to support his expensive lifestyle. In 2015, a judge ordered Kokesh to pay a $2.4M civil penalty.

Additionally, because the SEC considered disgorgement to have no statute of limitations, the judge also ordered the businessman to pay $35M. This is how much he was calculated to have illegally made starting from when he began engaging in his illegal conduct, from 1995 to 2009.

At issue in this case now was whether the Supreme Court would view disgorgements as a remedy for unjust enrichment or a penalty, in which case the state of limitations would apply. Writing on the case, Justice Sonia Sotomayor said that disgorgement by the SEC is a penalty because it doles out a “consequence” for law violations and is meant to stop such violations rather than provide compensation. (Disgorgement typically goes to the US government and not to the victims who are harmed.) Because of this, Sotomayor wrote, the 5-year statute applies.

With the statute of limitations, Kokesh’s disgorgement would be lowered to approximately $5M.

The ruling could compel many other defendants who have had to pay disgorgement for money made from fraud that occurred outside the statute time limit to assess whether their own cases should be re-evaluated.

Securities Fraud Cases
At Shepherd Smith Edwards and Kantas, LTD LLP, we make it our job to help investors recoup their fraud losses sustained because of the illegal actions, negligence, or mistakes of others. Over the years, we have helped thousands of investors get their money back.

It is important for an investor to have their own securities fraud lawyer representing and fighting for their right to recovery. Please contact us today so that we can help you explore your legal options.

Supreme Court Won’t Hear Patriarch Partners’ Appeal
Meantime, in another securities case involving the SEC, the Supreme Court rejected an appeal by Patriarch Partners founder Lynn Tilton by refusing to get involved in the regulator’s case against her. The Commission had brought an administrative complaint accusing Tilton of misleading investors about corporate loan pools that were high risk and of overcharging them nearly $200M on fees for $2.5B of collateralized loan obligations (CLOs). A SEC judge will be ruling on the case.

Tilton has argued that the Commission’s use of in-house judges to preside over cases in which it is a party is not constitutional and gives the regulator an unfair advantage.

CLO Fraud Cases
When securities fraud happens it is the investors who sustain losses. For some investors the losses can prove catastrophic. This is not the type of legal case that an investor should handle without proper legal representation. Working with a collateralized loan obligation law firm can increase your chances of recovery. Your first consultation with one of our securities attorneys is a free, no further obligation session.

Supreme Court Casts Doubts on a Potent S.E.C. Weapon, The New York Times, June 12, 2017