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SUPREME COURT OF THE UNITED STATES
_________________
No. 16–529
_________________
CHARLES R. KOKESH, PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION
on writ of certiorari to the united states
court of appeals for the tenth circuit
[June 5, 2017]
Justice Sotomayor delivered the opinion of the
Court.
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.
I
A
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.
Initially, the only statutory remedy available
to the SEC in an enforcement action was an injunction barring
future violations of securities laws. See 1 T. Hazen, Law of
Securities Regulation §1:37 (7th ed., rev. 2016). In the absence of
statutory authorization for monetary remedies, the Commission urged
courts to order disgorgement as an exercise of their “inherent
equity power to grant relief ancillary to an injunction.”
SEC v.
Texas Gulf Sulphur Co., 312 F. Supp. 77, 91
(SDNY 1970), aff’d in part and rev’d in part, 446 F. 2d 1301
(CA2 1971). Generally, disgorgement is a form of “[r]estitution
measured by the defendant’s wrongful gain.” Restatement (Third) of
Restitution and Unjust Enrichment §51, Comment
a, p. 204
(2010) (Restatement (Third)). Disgorgement requires that the
defendant give up “those gains . . . properly
attribut-able to the defendant’s interference with the claimant’s
legally protected rights.”
Ibid. Beginning in the 1970’s,
courts ordered disgorgement in SEC enforcement proceedings in order
to “deprive . . . defendants of their profits in order to
remove any monetary reward for violating” securities laws and to
“protect the investing public by providing an effective deterrent
to future violations.”
Texas Gulf, 312 F. Supp., at 92.
In 1990, as part of the Securities Enforcement
Remedies and Penny Stock Reform Act, Congress authorized the
Commission to seek monetary civil penalties. 104Stat. 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.
B
Charles Kokesh owned two investment-adviser
firms that provided investment advice to business-development
companies. In late 2009, the Commission commenced an enforcement
action in Federal District Court alleging that between 1995 and
2009, Kokesh, through his firms, misappropriated $34.9 million from
four of those development companies. The Commission further alleged
that, in order to conceal the misappropriation, Kokesh caused the
filing of false and misleading SEC reports and proxy statements.
The Commission sought civil monetary penalties, disgorgement, and
an injunction barring Kokesh from violating securities laws in the
future.
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.
The Court of Appeals for the Tenth Circuit
affirmed. 834 F. 3d 1158 (2016). It agreed with the District
Court that disgorgement is not a penalty, and further found that
disgorgement is not a forfeiture.
Id., at 1164–1167. The
court thus concluded that the statute of limitations in §2462 does
not apply to SEC disgorgement claims.
This Court granted certiorari, 580 U. S.
___ (2017), to resolve disagreement among the Circuits over whether
disgorgement claims in SEC proceedings are subject to the 5-year
limitations period of §2462.[
2]
II
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
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”).
B
Application of the foregoing principles
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 what we described in
Meeker
as public laws. The violation for which the remedy is sought is
committed against the United States rather than an aggrieved
individual—this is why, for example, a securities-enforcement
action may proceed even if victims do not support or are not
parties to the prosecution. As the Government concedes, “[w]hen the
SEC seeks disgorgement, it acts in the public interest, to remedy
harm to the public at large, rather than standing in the shoes of
particular injured parties.” Brief for United States 22. Courts
agree. See,
e.g., SEC v.
Rind, 991 F. 2d
1486, 1491 (CA9 1993) (“[D]isgorgement actions further the
Commission’s public policy mission of protecting investors and
safeguarding the integrity of the markets”);
SEC v.
Teo, 746 F. 3d 90, 102 (CA3 2014) (“[T]he SEC pursues
[disgorgement] ‘independent of the claims of individual
investors’ ” in order to “ ‘promot[e] economic and social
policies’ ”).
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).
SEC disgorgement thus bears all the hallmarks of
a penalty: It is imposed as a consequence of violating a public law
and it is intended to deter, not to compensate. The 5-year statute
of limitations in §2462 therefore applies when the SEC seeks
disgorgement.
C
The Government’s primary response to all of
this is that SEC disgorgement is not punitive but “remedial” in
that it “lessen[s] the effects of a violation” by
“ ‘restor[ing] the status quo.’ ” Brief for Respondent
17. As an initial matter, it is not clear that disgorgement, as
courts have applied it in the SEC enforcement context, simply
returns the defendant to the place he would have occupied had he
not broken the law. SEC disgorgement sometimes exceeds the profits
gained as a result of the violation. Thus, for example, “an insider
trader may be ordered to disgorge not only the unlawful gains that
accrue to the wrongdoer directly, but also the benefit that accrues
to third parties whose gains can be attributed to the wrongdoer’s
conduct.”
SEC v.
Contorinis, 743 F. 3d 296, 302
(CA2 2014). Individuals who illegally provide confidential trading
information have been forced to disgorge profits gained by
individuals who received and traded based on that information—even
though they never received any profits.
Ibid; see also
SEC v.
Warde, 151 F. 3d 42, 49 (CA2 1998) (“A
tippee’s gains are attributable to the tipper, regardless whether
benefit accrues to the tipper”);
SEC v.
Clark, 915
F. 2d 439, 454 (CA9 1990) (“[I]t is well settled that a tipper
can be required to disgorge his tippees’ profits”). And, as
demonstrated by this case, SEC disgorgement sometimes is ordered
without consideration of a defendant’s expenses that reduced the
amount of illegal profit. App. to Pet. for Cert. 43a; see
Restatement (Third) §51, Comment
h, at 216 (“As a general
rule, the defendant is entitled to a deduction for all marginal
costs incurred in producing the revenues that are subject to
disgorgement. Denial of an otherwise appropriate deduction, by
making the defendant liable in excess of net gains, results in a
punitive sanction that the law of restitution normally attempts to
avoid”). In such cases, disgorgement does not simply restore the
status quo; it leaves the defendant worse off. The justification
for this practice given by the court below demonstrates that
disgorgement in this context is a punitive, rather than a remedial,
sanction: Disgorgement, that court explained, is intended not only
to “prevent the wrongdoer’s unjust enrichment” but also “to deter
others’ violations of the securities laws.” App. to Pet. for Cert.
43a.
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.
III
Disgorgement, as it is applied in SEC
enforcement proceedings, operates as a penalty under §2462.
Accordingly, any claim for disgorgement in an SEC enforcement
action must be commenced within five years of the date the claim
accrued.
The judgment of the Court of Appeals for the
Tenth Circuit is reversed.
It is so ordered.
