Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
In the Courts
Tenth Circuit Lowers Investment Advisor's Disgorgement from $35 to $5 Million
On March 5, a panel of the Tenth Circuit lowered former New Mexico investment advisor Charles Kokesh's disgorgement judgment to one-seventh of its initial $35 million. The Tenth Circuit's ruling comes on the heels of Kokesh's 2017 U.S. Supreme Court victory, in which the High Court greatly reduced the SEC's power to disgorge ill-gotten gains.
A federal jury previously found Kokesh guilty of misappropriating money from four business-development companies from 1995 through July 2007. Following the trial, Kokesh was ordered to pay a $2.4 million penalty and a $35 million disgorgement. Due to the five-year statute of limitations period imposed by Section 2462 of the U.S. Code, which applies to any “civil fine, penalty, or forfeiture,” the penalty only applied to misappropriations committed by Kokesh between 2005 and 2009, when the SEC brought suit. The disgorgement, however, took into account every misappropriation committed by Kokesh since 1995. Kokesh appealed, arguing that the disgorgement order disregarded the five-year statute of limitations.
In a June 2017 decision, the Supreme Court unanimously agreed with Kokesh, holding that the disgorgement constituted a penalty and was therefore subject to the statute of limitations. See, Kokesh v. SEC, No. 16-529. Writing for the Court, Justice Sonya Sotomayor reasoned that the 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.” The SEC had argued that disgorgement was neither a penalty nor restitution. Justice Sotomayor disagreed, stating that “disgorgement does not restore the status quo; it leaves the defendant worse off.”
The Kokesh case returned to the Tenth Circuit, which lowered the disgorgement amount to $5 million on March 5, 2018. Kokesh argued that the disgorgement should be thrown out altogether since the wrongdoing began in 1995 and the SEC waited until 2009 to sue him. The SEC, however, argued that Kokesh did not commit a single, 14-year–long misdeed, but a series of violations that took place intermittently. If the court sided with Kokesh, reasoned the SEC, then bad actors could pilfer small amounts for five years and then misappropriate millions for succeeding years without fear of prosecution or liability. The clock should start ticking anew for every misdeed, not just the first one.
The Tenth Circuit agreed with the SEC and held that funds misappropriated in the five years prior to 2009 could be disgorged. In order to do so, the panel had to distinguish a 2016 environmental case in which the Tenth Circuit sided with a gas company accused of illegal construction activities. In that case, the court held that the statute of limitations clock began ticking when the construction project began and did not restart for each day of work.
The panel distinguished that holding by viewing Kokesh's misdeeds as several disconnected crimes, “not a continuing omission to act in compliance with a duty.” Therefore, he could be disgorged of ill-gotten gains from 2005 to 2009.
While Kokesh did not receive as complete a victory as he wanted, the July 2017 Supreme Court decision did greatly impact the SEC's enforcement powers beyond this case. The agency now must look to other methods of deterrence and must act more quickly on alleged misdeeds.
— Dennis Mahoney, Mayer Brown
This premium content is locked for Entertainment Law & Finance subscribers only
ENJOY UNLIMITED ACCESS TO THE SINGLE SOURCE OF OBJECTIVE LEGAL ANALYSIS, PRACTICAL INSIGHTS, AND NEWS IN ENTERTAINMENT LAW.
- Stay current on the latest information, rulings, regulations, and trends
- Includes practical, must-have information on copyrights, royalties, AI, and more
- Tap into expert guidance from top entertainment lawyers and experts
Already a have an account? Sign In Now Log In Now
For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473
How Secure Is the AI System Your Law Firm Is Using?
In a profession where confidentiality is paramount, failing to address AI security concerns could have disastrous consequences. It is vital that law firms and those in related industries ask the right questions about AI security to protect their clients and their reputation.
COVID-19 and Lease Negotiations: Early Termination Provisions
During the COVID-19 pandemic, some tenants were able to negotiate termination agreements with their landlords. But even though a landlord may agree to terminate a lease to regain control of a defaulting tenant's space without costly and lengthy litigation, typically a defaulting tenant that otherwise has no contractual right to terminate its lease will be in a much weaker bargaining position with respect to the conditions for termination.
Pleading Importation: ITC Decisions Highlight Need for Adequate Evidentiary Support
The International Trade Commission is empowered to block the importation into the United States of products that infringe U.S. intellectual property rights, In the past, the ITC generally instituted investigations without questioning the importation allegations in the complaint, however in several recent cases, the ITC declined to institute an investigation as to certain proposed respondents due to inadequate pleading of importation.
The Power of Your Inner Circle: Turning Friends and Social Contacts Into Business Allies
Practical strategies to explore doing business with friends and social contacts in a way that respects relationships and maximizes opportunities.
Authentic Communications Today Increase Success for Value-Driven Clients
As the relationship between in-house and outside counsel continues to evolve, lawyers must continue to foster a client-first mindset, offer business-focused solutions, and embrace technology that helps deliver work faster and more efficiently.