Penalties in Equity: Disgorgement after Kokesh v. SEC

43 Pages Posted: 22 Nov 2017 Last revised: 23 May 2019

See all articles by Daniel B. Listwa

Daniel B. Listwa

Wachtell, Lipton, Rosen & Katz

Charles Seidell

Yale University, Law School, Students

Date Written: November 18, 2017

Abstract

This Note defends the Securities and Exchange Commission (SEC)’s statutory authority to seek judicial disgorgement. In Kokesh v. SEC, the Supreme Court held that judicial disgorgement brought by the SEC constitutes a penalty for the purpose of the five-year statute of limitations in 28 U.S.C. § 2462. In the following months, scholars and practitioners—and at least one putative class action—have argued that this opinion spells the end for judicial disgorgement. Their reasoning is simple: disgorgement is a penalty; there are no penalties in equity; SEC disgorgement bases its authorization on a statutory grant of equity jurisdiction; therefore, SEC disgorgement is not authorized. This Note refutes the premise that there are no penalties in equity by looking at the Court’s precedents and its general approach to equitable remedies. Further, it offers an affirmative defense of the SEC’s authority to seek judicial disgorgement by pointing to congressional ratification. Next, the Note argues that Kokesh should be understood as a warning shot, directing the SEC to pull back its overly aggressive utilization of disgorgement. This lesson ought to be heeded by similarly situated agencies as well—particularly the Federal Trade Com-mission.

Keywords: SEC, Securities Regulation, Administrative Law, Disgorgement, equity, Securities and Exchange Commission, Federal Trade Commission, penalty

Suggested Citation

Listwa, Daniel and Seidell, Charles, Penalties in Equity: Disgorgement after Kokesh v. SEC (November 18, 2017). 35 Yale Journal on Regulation 667 (2018), Available at SSRN: https://ssrn.com/abstract=3073646

Daniel Listwa (Contact Author)

Wachtell, Lipton, Rosen & Katz ( email )

51 West 52nd Street
New York, NY 10019
United States

Charles Seidell

Yale University, Law School, Students ( email )

127 Wall Street
New Haven, CT 06511
United States

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