Wall Street Win, SEC’s Use of Disgorgement as Enforcement Tool Curbed
The Securities and Exchange Commission (SEC) brought an enforcement action against the owner of two investment-adviser firms for misappropriation of funds from business development companies in violation of federal securities laws. After final judgment was entered permanently enjoining the defendant from violating certain provisions of federal securities laws, ordering disgorgement of profits, and imposing prejudgment interest and a civil penalty the defendant’s appeal ended up in the Supreme Court. The defendants sought to limit the SEC’s power to pursue stale claims by arguing disgorgement constitutes a fine, penalty or forfeiture, thus the five-year statute of limitations to apply. The Court agreed and applied the five-year statute of limitations to claims for disgorgement imposed as a sanction for violating a federal securities law, thus abrogating prior case law and garnering praise from Wall Street.