| WASHINGTON, April 18
WASHINGTON, April 18 The U.S. Supreme Court on
Tuesday will hear oral arguments in a case that has the
potential to scale back the Securities and Exchange Commission's
ability to recover illegal profits earned as a result of fraud
or other wrongdoing.
The case, which involves New Mexico-based investment adviser
Charles Kokesh who was sued by the SEC in 2009, hinges on
whether ill-gotten gains, in an agency recovery remedy known as
"disgorgement," are subject to a five-year statute of
The ruling in the case could have broad consequences for the
policing of Wall Street. The SEC already faces a five-year
statute of limitations for collecting civil monetary penalties,
a time bar that the Supreme Court upheld unanimously in its 2013
Gabelli v. SEC ruling.
Kokesh, who appealed to the Supreme Court after losing at a
federal appeals court, was accused of misappropriating investor
money and later ordered to pay $2.4 million in penalties plus
$34.9 million in disgorgement. The penalties covered conduct
within the five-year window, but the disgorgement covered
conduct that largely occurred outside that time frame.
Kokesh's attorneys argued that a disgorgement in the case
constituted a punitive "forfeiture" that is time-barred.
The Justice Department, on the SEC's behalf, argued that
disgorgement is equitable relief for harmed investors and that
Congress did not intend to impose a five-year statute of
limitations on it.
A loss for the SEC could impact negotiations in its current
pipeline of investigations. Defendants that already disgorged
profits dating back more than five years could potentially seek
to have their cases re-opened.
"A ruling by the Supreme Court in the SEC's favor would
bless this approach and give the agency a massive club to
wield," said Jack Yoskowitz, a partner at Seward & Kissel LLP
who represents financial services clients and individuals.
Yoskowitz is not involved in the case.
Tuesday will mark Justice Neil Gorsuch's second day of
arguments since he was confirmed to the Supreme Court by the
Senate on April 7 and sworn in three days later.
Wall Street attorneys will be closely watching to see how he
approaches the case.
"I think he is not someone who is going to defer to the SEC
in the way some other judges might," said Michael Dell, a
partner at Kramer Levin Naftalis & Frankel LLP who filed a
friend-of-the-court brief in favor of a statute of limitations
on behalf of the Securities Industry and Financial Markets
Association, the Wall Street trade group.
"I think he is going to look at this and interpret it for
(Reporting by Sarah N. Lynch; Editing by Will Dunham)