The American Supreme Court on Monday unanimously limited the power of the Securities and Exchange Commission (SEC) to recover profits made from illegal behaviour to five years.
Seeking “disgorgement” from those whose fraudulent actions result in illegal profits is a favourite tool of the federal government. In recent years, the SEC took in nearly US$3 billion in disgorgements, more than double what it received in penalties, according to court filings.
The Supreme Court questioned whether disgorgements were a form of penalty, which is subject to the statute of limitations, or a remedy for unjust enrichment that simply restores the offender to the situation he would have been in if he had not acted illegally, as the government claimed.
Justice Sonia Sotomayor wrote, “SEC disgorgement…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.” Sotomayor noted that the money received often goes to the government rather than the victims of the fraud. “The 5-year statute of limitations…therefore applies when the SEC seeks disgorgement.”
Read more at The Washington Post
