Respondents Brief — Kokesh v. Sec. & Exch. Comm'n, 137 S. Ct. 1635 (2017) (No. 16-529)

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No. 16-529

“he the Supreme Court of th the Bnited Dates

CHARLES R. KOKESH, PETITIONER

SECURITIES AND EXCHANGE COMMISSION

ON WRIT OF CERTIORARI

10 THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE RESPONDENT

SANKET J. BULSARA

Acting General Counsel

MICHAEL A. CONLEY

Solicitor

JACOB H, STILLMAN

Senior Advisor to the

Solicitor

HOPE HALL AUGUSTIN!

DANIEL STAROSELSKY

Senior Litigation Counsels

SARAH R. PRINS

Senior Counsel

Securities and Bxchange

Commission.

Washington, D.C. 20549

JEFFREY B. WALL

Acting Solicitor General

Counsel of Record

MALCOLM L. STEWART

Deputy Solicitor General

ELALNE J. GOLDENBERG

Assistant to the Solicitor

General

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriafs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether the Securities and F- ‘ange Commis-

sion’s equitable claims for disgorge °~ :t are subject to

the five-year statute of limitations in 28 U.S.C. 2462,

which applies to claims for “any civil fine, penalty, or

forfeiture.”

(1)

TABLE OF CONTENTS

Page

EN ch ticsctnldienatiieielaiccsinentesepeecsineismmsisieneas: cc. 1

ERE er a ey 1

Statutory provisions involved............. sievablalinciaibesiopsstiindcadunianniedéaasctl

Statement pri ee EE ee ee

LST EE eae ieee en ane 9

i ng TIER oi See ee aT ee 13

A. Disgorgement is not a “penalty” under Section

a vinmaneamuninmnimaiinidaiie eT 14

1. As used in Section 2462, a “penalty” is a

Si ee eee 14

“penalty” under Section 2462 lack merit........._. 25

B. Disgorgement is not a “forfeiture” under Section

Set lnlibtiiiciatiesiileiibebditetthiatiid alacant i 32

C. Extending Section 2462 to cover disgorgement

is inconsistent with the purposes of statutes of

limitations and would have harmful consequences...... 41

D. The canon of narrow construction reinforces the

conclusion that Section 2462 does not apply to

NTE ETD che 49

Conclusion tect tiaireitaeneensnenetidenasineteetinnreieietainbeeninannisiasiackes isa... tn

Appendix — Statutory ee

TABLE OF AUTHORITIES

Cases:

Adams v. Woods, 6 U.S. (2 Cranch) 336 (1805)............ 41, 50

Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975)......... 43

Alexander v. United States, 509 U.S. 544 ae 32

Austin v. United States, 509 U.S. 602 (1993).... 34, 35, 36, 38

BP Am. Prod. Co. v. Burton, 549 U.S. 84 (2006).......... 29, 49

Badaracco v. Commissioner, 464 U.S. 386 ARE 50

Bell v. Hood, 327 U.S. 678 (1946) .....ccccceccccccccoceoeecseooecceece.., 18

(III)

Cases—Continued: Page

Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251

SN eriihiapliaicilapirpiadaiceaetaiailiisdsd Si alia e ae! 30

Brady v. Daly, 175 U.S. 148 (1899) ........ccceccccccccesceseoeeee 17, 26

Browning-Ferris Indus. of Vt., Inc. v. Kelco Dispos-

OE, Fe., SEB US. SBT (1G) oncacncceceneccccccecocesevevereecoveses 28, 34

California v. American Stores Co., 495 U.S. 271

Chattanooga Foundry & Pipe Works v. City of

Atlanta, 203 U.S. 390 (1906) .0.......ccccccccccececcecseceeecescessecesee. 26

Coghlan v. NTSB, 470 F.3d 1300 (11th Cir. 2006) ............. 28

Department of Revenue v. Kurth Ranch, 511 U.S.

RARE NRE nA Saabs Sig hnka he SIs eens 28

EI. Dupont De Nemours & Co. v. Davis, 264 U.S.

SE aceon 12, 42, 50

FTC v. Bronson Partners, LLC, 654 F.3d 359

RRR RSET Ac atse e 16

FTC v. Gem Merch. Corp., 87 F.3d 466 (11th Cir.

Air ahecesih di sellbnasstsnoxstiplbcatininalicadamichcisciaties date nsbiie:s« decdltoas 48

Gabelli v. SEC, 1383'S. Ct. 1216 (2013) .....ccccccececceceeeee passim

Hartford-Empire Co. v. United States, 323 U.S. 386

Sat ialeenDanintdiaauihchciunirsuctiemiacbaslsaitiAiisdunksoncinissecbanabtoedeunicte.ctounes 19

Hecht Co. v. Bowles, 321 U.S. 321 (1944) ooo...ccccccecccceseeeeeeeee 28

Holmberg v. Armbrecht, 327 U.S. 392 (1946) .....ccccceccceseee. 42

Hudson v. United States, 522 U.S. 93 (1997)............. setchinal 28

Huntington v. Attrill, 146 U.S. 657 (1892)..0.0...-ccccceceseeeee 15

Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996).............. 17, 44

Kansas v. Nebraska, 135 S. Ct. 1042 (2015) .o..cccccccccccccesee-. 18

Keene Corp. v. United States, 508 U.S. 200 (1998).......0....... 4

Kelly v. Robinson, 479 U.S. 36 (1986) ..........ccccc00000- 25, 26, 32

Landsberg, In re, 14 F. Cas. 1065 (E.D. Mich.

intact ER IE RENE Es st ED Lk ee 4,14, 15

Cases—Continued: Page

Life & Cas. Ins. Co. of Tenn. v. McCray, 291 U.S. 566

(1GBA) ...ceccscnceceesesescoecnssnssensreserssssssensssnenanssansnesannareasceseseecn: 14

Luis v. United States, 136 S. Ct. 1083 (2016) ......-.-...2-- 42

Louisville Joint Stock Land Bank v. Radford,

Martin v. United States SEC, 734 F.3d 169 (2d Cir.

DITB) .cececcncvocecconcesevseserseccesesesncoonenrersrssnsnansonsessnserocsssseserernees 22

McDonnell v. United States, 136 S. Ct. 2355 a 34

Meeker v. Lehigh Valley R.R., 236 U.S. 412

(1915) ...scccccscrcssescesssessessensetsnessansnessenenssenenannens 10, 11, 14, 27, 33

Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S.

288 (1960).........-.-... FN a asedeseeentitaiondneneeitt 18

O'Sullivan v. Feliz, 233 U.S. 318 (1914).....0.----eeeereneeenens 14

Occidental Life Ins. Co. v. EEOC, 432 U.S. 359

(1977) cecececcocssssssocessencesessssssosensnneasssnonsnovennsesensnsasenncersseseseseess 43

Official Comm. of Unsecured Creditors of World-

Com, Inc. v. SEC, 467 F.3d 73 (2d Cir. 2006)......---------0« 23

Order of R.R. Telegraphers v. Railway Express

Agency, 321 U.S. 342 (1944)...---ssssesssserssnessssnssnsennensenensess 46

Pasquantino v. United States, 544 U.S. 349 (2005)........... 32

Peisch v. Ware, 8 U.S. (4 Cranch) 347 (1808) .......--------- 34

Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct.

1962 (ZOU) .....ccecececeresscnseseeenseeversarssrsensrensnsesaessenensannnsnnsareees 45

Porter v. Warner Holding Co., 328 U.S. 395

(1946) ....ccccecccecescesesserecssersnenenseesensnnsnssesnsnsneserans 2, 18, 26, 27, 41

Priebe & Sons, Inc. v. United States, 332 U.S. 407

(1947) ..2..-ceccecascscecssessocessssessnsecssnsesncnssnncsncnssnsnvensenacsssncnresenees 28

Riordan v. SEC, 627 F.3d 1230 (D.C. Cir. 2010)... 44

SEC v. Amerindo Inv. Advisors, 639 Fed. Appx. 752

(2d Cir.), cert. denied, 136 S. Ct. 2429 -_ 19

SEC v. Bhagat, No. C 01-21073, 2008 WL 4890890

(N.D. Cal. Nov. 12, 2008)........-.----------1-ceeesee cererteereeeres fe

Cases—Continued: Page

SEC v. Blatt, 583 F.2d 1325 (5th Cir. 1978) ..occcccccccscccseseeces 19

SEC v. Capital Gains Research Bureau, Inc.,

I a 5

SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006)............. 16, 18

SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90

I 2, 16, 17,2

SEC v. Crawford, No. 11-ev-3656 (D. Minn.)

(filed Dee. 21, 2011)... TRS Snstisnilenseiaadeaae

SEC v. Custable, 796 F. ad 653 (Tth Cir. 2015)... REESE ROO Oe bee 20

SEC v. First City Fin. Corp., 890 F.2d 1215

iments 22, 30

SEC v. Fischbach Corp., 133 F.3d 170 (2d Cir

SER NSE SSC ae 19, 20

SEC v. Graham:

21 F. Supp. 3d 1300 (S.D. Fla. 2014), aff’d in part,

rev'd in part, and remanded, 823 F.3d 1357

A SSA A cr 48

823 F.3d 1357 (11th Cir. 2016)... ceccccececcccccceccecseeees 42

SEC v. Leslie, No. C 07-3444, 2010 WL 2991038

re I IN I oc desiicsssosceniscniasonidscencevedenemenese 17

SEC v. Lorin, 869 F. Supp. 1117 (S.D.N.Y. 1994)........ 22, 30

SEC v. Lund, 570 F. Supp. 1397 (C.D. Cal. 1983).............. 19

SEC v. Manor Nursing Cntrs., Inc., 458 F.2d 1082

EERE a Se SD a 30

SEC v. Mantria Corp., No. 09-cv-2676, 2012 WL

3778286 (D. Colo. Aug. 30, 2012) oo... oe ccccceceersersceeeee. 3

SEC v. Moran, No. 92-cv-5209, 2012 WL 19386

(S.D.N.Y. Jan. 3, 2012)... cae SHAS CE EOSTNO

SEC v. Palmisano, 135 F.3d 860 (2d Cir. *

cert. denied, 525 U.S. 1023 (1998) .0.000000000 occ ccceeeeee cee. 21

SEC v. Rind, 991 F.2d 1486 (9th Cir.), cert. denied,

es 42, 43, 44, 45

Vil

Cases—Continued: Page

SEC v. Tambone, 550 F.3d 106 (2008), reh’g en bane

granted and opinion withdrawn, 573 F.3d 54 (2009),

reinstated in relevant part, 597 F.3d 436 (1st Cir.

ED vcccdiciscctnsecssisintusvieaiaasssnitiiadaiipisaeaieie ata a ane 44

SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301

(2d Cir.), cert. denied, 404 U.S. 1005 (1971)............... 22, 47

SEC v. Wyly:

950 F. Supp. 2d 547 (S.D.N.Y. 20138) ..0..0.......ccccceeseeseeeee 47

56 F. Supp. 3d 394 (S.D.N.Y. 2014) —0. cece. 43

117 F. Supp. 3d 381 (S.D.N.Y. 2015) ....2.000200oc eee eeeees 48

Salman v. United States, 1387S. Ct. 420 (2016).................. 29

Schine Chain Theatres, Inc. v. United States,

ee a Se Ce niintitniesetrectimebiaciciel abe 17, 18

Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S.

I: :ccrncdscctccccsagsniidhissitsitanicaniiantinns:cxaieandeaadinamienaaae 15, 18

Solem v. Helm, 463 U.S. 277 (19838) ........0....ccsssccesessesssscesees 28

Stevens v. Gladding, 58 U.S. (17 How.) 447 (1855) ...... 19, 37

Taylor v. United States, 44 U.S. (8 How.) 197 (1845)........ 36

Telsey, In re, 144 B.R. 563 (Bankr. S.D. Fla. 1992)........... 30

3M Co. v. Browner, 17 F.3d 1453 (D.C. Cir. 1994) ..0.000000..... 4

Tull v. United States, 481 U.S. 412 (1987) ......ccccccccccecceeeees 24

United States v. 92 Buena Vista Ave., 507 U.S. 111

RRR nO TE 35, 40

United States v. Bajakajian, 524 U.S. 321

CEE ciicnsccsimsnsnenetinestininnsitiiinitadniaideeimaiaamadiaialiae 35, 36, 40

United States v. Chouteau, 102 U.S. 603 (1881)................. 15

United States v. Crescent Amusement Co., 323 U.S.

STE Ce sctectconssespnthianinninianieimpsnatiseemaatamadesneie ane 18

United States v. Hoar, 26 F. Cas. (D. Mass. 1821) ............ 29

United States v. Mann, 26 F. Cas. 1153 (C.C.D.N.H.

Be Ci Rien ncstnitieniscniiieninteaigleacetommarmons 32, 35, 36

Vill

Cases—Continued: Page

United States v. Maillard, 26 F. Cas. 1140 (S.D.N-Y.

EO SESS 4

United States v. Mayo, 26 F. Cas. 1230 (C.C.D.

SS 50

United States v. Reisinger, 128 U.S. 398 (1888)........... 15, 33

United States v. Rodgers, 466 U.S. 475 (1984) —.. 41

United States v. Telluride Co., 146 F.3d 1241

EE ES EE 41

United States v. Thompson, 98 U.S. 486 (1879) ...........0000 29

United States v. Universal Mgmt. Servs., Inc., 191

F.3d 750 (6th Cir. 1999), cert. denied, 530 U.S. 1274

Se 48

United States v. Ursery, 518 U.S. 267 (1996) ............... 28, 36

United States v. Whited & Wheless, Ltd., 246 U.S.

SE 47

United States ex rel. Marcus v. Hess, 317 U.S. 537

NEELYS ESSENSE ARS a 38

United States SEC v. Quan, 817 F.3d 584 (8th Cir.

i csnenemneenennn 19, 22

Zacharias v. SEC, 569 F.3d 458 (D.C. Cir. 2009)......... 16, 30

Constitution, statutes and regulations:

U.S. Const.:

Amend. V, Double Jeopardy Clause.............................. 36

Amend. VIII, Excessive Fines Clause.......................... 36

Act of Apr. 30, 1790, ch. 9, § 32, 1 Stat. 119........00000000000....4

Act of Mar. 2, 1799, ch. 22, § 89, 1 Stat. 695 ........00000000..... ae

Act of Mar. 26, 1804, ch. 40, § 3, 2 Stat. 290.000.0000. 4

Act of Mar. 1, 1823, ch. 21, § 35, 3 Stat. 739....................... 3

Act of Feb. 28, 1839, ch. 36, § 4, 5 Stat. 322 oe. 3

Statutes and regulations—Continued: Page

Bankruptcy Code, 11 U.S.C. 101 et seq.:

Re Re 25, 30

Insider Trading and Securities Fraud Enforcement

Act of 1988, Pub. L. No. 100-704, ¢ 5(b)(2), 102 Stat.

Pg ER een 44, 19a

Insider Trading Sanctions Act of 1984, Pub. L. No.

OT EG IT circorcensenuipbonctnieennstesentisionsisgihadgipmemenacnen 23

Investment Advisers Act of 1940, 15 U.S.C. 80b-1

et seq... (initanvinintneniamenennntmnatniniainessnetenenimin

15 U. g. C. 80b-3(K\(5)... iitenhileaaiitiesvineptnlieinaaaiial

ee siiilasteiianilnistplalicnainaiia 6

a IIIT cinicicsteilinisecitcisia ees aeticapaineetiiaeinaitestaaininienag 2

Investment Company Act of 1940, 15 U.S.C. 80a-1

EE seni vticncnianatinnietniticeeseesennianinataninnaninsinmnsautiinpiitinnlasiicniainiatiis 2

SERIALS Peon ee EL ee 24

15 U.S.C. 80a-41(d).......000.0--.00000 inci eesti 2

Private Securities Litigation Reform Act of 1995,

Pub. L. No. 104-67, § 103(b)(2), 109 Stat. 756

Ce i Se eirieitstiieninienecsnsnininscnishicintnnnenmamienioes 44, 8a

a es Oe I iactactriiernicignienntenntncsnnninenininermeniionieiinmnian 4

Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204

116 Stat. 745:

§ 305(b), 116 Stat. 779 (15 U.S.C. T8u(d)(5))..........00 3, 24

§ 308, 116 Stat. 784 (15 U.S.C. 7246) ............... 20, 24, 17a

§ 308(a), 116 Stat. 784 (15 U.S.C. 7246(a))...... 21, 27, 17a

§ 308(c)(1), 116 Stat. 785 (15 U.S.C.

I tcinrennecessnsnpscatesnninnsinocetbienmmnnmmamens 3, 45, 18a

§ 803(3) 116 Stat. 801 (11 U.S.C. 523(a)(19))................. 31

Securities Enforcement Remedies and Penny Stock

Reform Act of 1990, Pub. L. No. 101-429, 104 Stat.

Statutes and regulations—Continued: Page

Securities Exchange Act of 1934, 15 U.S.C. 78a

0b OU caiscentatiintsinsittatitininipncerneniammmrneninmnanineninerreeneiates 2

Be hs SE ccntncicccemnccsinninunnennnsenmeunnsinnatictii 3, 19a

Fe EE Hi i icncccrnicucrinensessestninienntientioniionanentennaneds 23, 24, la

Be ee ID ceteterincsccscsssscsccnsmnncninines 2, 3, 18, 41, 4a

fe 8 RI I OS 17, 23, 24, 5a

Fe aa iciiscicaninidscnsemmisinncenti anvsianaiainaie 3, 8a

es Be icriccitincncisnrcainncqinemnnnctiiitiaonts 18, 24, 41, 8a

ee 3, 45

Se a innscinscscctieomupetinieanmiecieperinnianeetail 2

ee 24, 25

Tax Reform Act of 1969, Pub. L. No. 91-172, Tit. [X,

§ 902(a), 83 Stat. 710 (26 U.S.C. 162(f)) ............ccceceeeeeseeees 31

Wall Street Transparency and Accountability Act of

2010, Pub. L. No. 111-203, Tit. VII, § 744, 124 Stat.

1735 (7 U.S.C. 1Ba-1(ANB)) «.aae..ccccccccescocccnccssecsnscseresesneceeees 24

"RRND RSE er Sepsseeiei ches toe ea enonerouoes 2

el ciiaaoel 39

Ee ee eee: 46

i casumemnaiieeniniieenehicind 39

I ressanitpantiiatanteindimmanail 41

I iuseeeumuaieameninebads 40

I nlauaienniiamadbind 31

ke eee 4

a csniebeisietenigpianaih rl

SB UC. RUUD Cemmpep. TT 12GB) anna eneeens 43

CR) Shas, PCR, oon ieaes ez 45

SSG er ae 37

I I ici act enedinssicheninianivadiiaisaddbaenibiscinetials pusstin, la

Regulations—Continued: Page

17 C.F.R.:

i asietsiniatceneasiademeeasiaeainiaia’ 21

iT a niseneneamnmneeneaseaiaeiaiaas 22

Miscellaneous:

Jeremy Bentham, The Rationale of Punishment

(AT EEE LS Det I DE RE RU a 42

Black’s Law Dictionary (Ast ed. 1891).............. 14, 32, 33, 36

2 Bouvier’s Law Dictionary (1852) .............cccceeeeeseeeeeeeereees 15

2 Burrill’s Law Dictionary (1871) .........cccccccceecceeececereeeeeeees 15

Stefan D. Cassella, Asset Forfeiture Law in the

United States (2d ed. 2013)... SEL eee

Steven R. Glaser, Statutes of Stesieatiais for Equi-

table and Remedial Relief in SEC Enforcement

Actions, 4 Harv. Bus. L. Rev. 129 (2014) ....................0.... 42

J. Gould & G. Tucker, Notes on the Revised Statutes

of the United States and the Subsequent Legisla-

ar a icitcincninviiccineetesscciinaniinninntesscrnninees 15

6 Thomas Lee Hazen, Treatise on the Law of Securi-

ties Regulation (6th ed. Supp. 2015).............cccceeccceeeeeveees 16

H.R. Rep. No. 308, 80th Cong., Ist Sess. (1947)............. 4, 37

H.R. Rep. No. 355, 98th Cong, Ist Sess. (1983)...............0. 23

H.R. Rep. No. 616, 101st Cong., 2d Sess. (1990) ...... 2, 23, 45

Samuel Johnson et al., Johnson’s English Diction-

I ilantisiniiaiiiiincsiinnecscsapusinibniaiisidmme in sesinbtatibdtauvenioteaneneen 33

Mitchell A. Lowenthal et al., Special Project, Time

Bars in Specialized Federal Common Law:

Federal Rights of Action and State Statutes of

Limitations, 65 Cornell L. Rev. 1011 (1980) ................... 44

Catherine E. Maxson, Note, The Applicability of

Section 2462's Statute of Limitations to SEC

Enforcement Suits In Light of the Remedies

Act of 1990, 94 Mich. L. Rev. 512 (1995)........c.cccseseeeeeees 42

XII

Miscellaneous—Continued: Page

Thomas D. Moffitt, Office of Chief Counsel, IRS,

Memorandum No. 201619008, at 1 (Jan. 29, 2016),

https:/Awww.irs.gov/pub/irs-wd/

201619008.pdf.... aid Lescipadebinineitbaps aed

60 N.Y. Jur. 2d Fettiures ond ‘Peale

UN hail ac iaiaiariescn ania ndnimamaaaiaiabaiopmdnmmnarssioie: 38

Note, Developments in the Law—Statutes of Limi-

tations, 63 Harv. L. Rev. 1177 (1950)... ta cas

Press Release, U.S. SEC, VimpelCom . pues $795

million in Global Settlement for FCPA Violations

(Feb. 18, 2016), www.sec.gov/news/pressrelease/

2016-34.html (last visited Mar. 26, 2017)..........ccc00ccseeeee 21

2 Restatement (Third) of Restitution and Unjust

aa encecteaiesiiainieinmpinnaseinnseates 16

S. Rep. No. 205, 107th Cong., 2d Sess. (2002)............. dokaatd 24

S. Rep. No. 337, 101st Cong., 2d Sess. (1990) ............220004 23

SEC, Select SEC and Market Data (2005-2016),

https://www.sec.gov/reports (last visited Mar. 26,

ER EERE EE ER ANE SP eRe SE PLLW SS Sy we SO St Ope CEA 4

Walter Scott, Lay of the Last Minstrel, Canto VI

I a ashiieameinaoteleneeavtnntrten 38

3 St. George Tucker, Blackstone’s Commentaries:

with Notes of Reference, to the Constitution and

Laws, of the Federal Government of the United

States; and of the Commonwealth of Virginia

U.S. SEC, FY 2015 Annual Performance Report &

FY 2017 Annual Performance Plan,

https://www.sec.gov/about/reports/sec-fy2015-

fy2017-annual-performance.pdf (last visited Mar.

RL Se AS AE RESIS SR GA AE 2 SRA RR 46

XIII

Miscellaneous——Continued: Page

Urska Velikonja, Public Compensation for Private

Harm: Evidence from the SEC’s Fair Fund

Distributions, 67 Stan. L. Rev. 331 (2015)................c000008 20

Noah Webster, An American Dictionary of the

English Language (1828):

TOTES Ih -socuscindicsiicinndeteanascnaniciicednbiiiiatdndinataniannietviaeccceicaninaaivaein 37

Jn the Supreme Court of the United States

No. 16-529

CHARLES R. KOKESH, PETITIONER

SECURITIES AND EXCHANGE COMMISSION

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

BRIEF FOR THE RESPONDENT

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1la-

19a) is reported at 834 F.3d 1158. The opinion of the

district court (Pet. App. 20a-47a) is not published in

the Federal Supplement but is available at 2015 WL

11142470.

JURISDICTION

The judgment of the court of appeals was entered

on August 23, 2016. The petition for a writ of certio-

rari was filed on October 18, 2016, and was granted on

January 13, 2017. The jurisdiction of this Court rests

on 28 U.S.C. 1254(1).

STATUTORY PROVISIONS INVOLVED

Relevant statutory provisions are reproduced in an

appendix to this brief. App., infra, la-21a.

(1)

STATEMENT

1. a. Congress has authorized the Securities and

Exchange Commission (SEC or Commission) to bring

civil enforcement actions seeking injunctive relief for

violations of (inter alia) the Securities Exchange Act

of 1934 (Exchange Act), 15 U.S.C. 78a et seqg., the

Investment Advisers Act of 1940 (Advisers Act), 15

U.S.C. 80b-1 et seg., and the Investment Company Act

of 1940 (Investment Company Act), 15 U.S.C. 80a-1 et

seq. See 15 U.S.C. 78u(d)(1); 15 U.S.C. 80b-9(d); 15

U.S.C. 80a-41(d). For decades, district courts have

ordered defendants in such actions to “disgorge” the

amount of profits “acquired in violation” of the securi-

ties laws. Porter v. Warner Holding Co., 328 U.S. 395,

398-399 (1946); see, e.g., SEC v. Commonwealth Chem.

Sec., Inc., 574 F.2d 90, 95, 102-103 (2d Cir. 1978)

(Friendly, J.).

In 1990, Congress authorized the Commission to

seek civil monetary penalties in such actions. See

H.R. Rep. No. 616, 101st Cong., 2d Sess. 13 (1990)

(1990 House Report). Congress provided for several

tiers of penalties, depending on the nature of the

wrongdoing and the losses it caused. See Securities

Enforcement Remedies and Penny Stock Reform Act

of 1990 (Enforcement Remedies Act), Pub. L. No. 101-

429, 104 Stat. 931. Congress also authorized the

Commission to order “accounting and disgorgement”

in administrative proceedings. See 15 U.S.C. 77h-1(e),

78u-3(e), 80b-3(k)(5).

In 2002, Congress provided that, “|iJn any action or

proceeding brought or instituted by the Commission

under any provision of the securities laws, * * * any

Federal court may grant[] any equitable relief that

may be appropriate or necessary for the benefit of

investors.” Sarbanes-Oxley Act of 2002, Pub. L. No.

107-204, § 305(b), 116 Stat. 779; see 15 U.S.C.

78u(d)(5). District courts rely on that provision in

ordering disgorgement, see, e.g., SEC v. Mantria

Corp., No. 09-ev-02676, 2012 WL 3778286, at *1 (D.

Colo. Aug. 30, 2012); see also 15 U.S.C. 78u(d)(1), a

remedy that Congress has referenced in a number of

enactments, see, e.g., 15 U.S.C. 7T8u(d)(4), 78t-1(b)(2),

7246(¢)(1).

b. Congress has not specified a statute of limita-

tions for SEC actions alleging a violation of the Ex-

change Act, the Advisers Act, or the Investment

Company Act (except with respect to actions seeking

civil penalties for insider trading, see 15 U.S.C. 78u-

1(d)(5)). A general statute of limitations, 28 U.S.C.

2462, however, governs “penalty provisions through-

out the U.S. Code.” Gabelli v. SEC, 133 S. Ct. 1216,

1219 (2013).

The “origins” of Section 2462 “date back to at least

1839.” Gabelli, 133 S. Ct. at 1219. In that year, Con-

gress enacted a provision stating that “no suit or

prosecution shall be maintained, for any penalty or

forfeiture, pecuniary or otherwise, accruing under the

laws of the United States, unless the same suit or

prosecution shall be commenced within five years

from the time when the penalty or forfeiture accrued,”

provided that “[t]he person of the offender or the

property liable for such penalty or forfeiture” was

within the United States during that period. Act of

Feb. 28, 1839, ch. 36, § 4, 5 Stat. 322.' That provision

' Congress had previously enacted provisions placing time limits

on suits for penalties or forfeitures, but those provisions differ

from the 1839 enactment in wording or scope (or both), and some-

times conflicted with each other. See Act of Mar. 1, 1823, ch. 21,

was carried forward, with minor changes, in the Re-

vised Statutes enacted in 1874, see Rev. Stat. § 1047,

18 Stat. 193, and in a 1926 codification, see 28 U.S.C.

791 (1926); see also 28 U.S.C. 791 (1940).

In 1948, when Congress comprehensively revised

the judicial code, Section 2462 “took on its current

form.” Gabelli, 133 S. Ct. at 1219. The 1948 reviser’s

note explained that the provision was “[bJased on

* * * RS. 1047[]. Changes were made in phraseolo-

gy.” H.R. Rep. No. 308, 80th Cong., Ist Sess. A191

(1947) (1947 House Report); see Keene Corp. v. Unit-

ed States, 508 U.S. 200, 209 (1993) (Court “dofes] not

presume that the [1948] revision worked a change in

the underlying substantive law unless an intent to

make such a change is clearly expressed”) (brackets,

citation, and internal quotation marks omitted). As

then revised, and today, the provision states:

Except as otherwise provided by Act of Congress,

an action, suit or proceeding for the enforcement of

any civil fine, penalty, or forfeiture, pecuniary or

otherwise, shall not be entertained unless com-

menced within five years from the date when the

claim first accrued if, within the same period, the

offender or the property is found within the United

States in order that proper service may be made

thereon.

28 U.S.C. 2462.

§ 35, 3 Stat. 739; Act of Mar. 26, 1804, ch. 40, § 3, 2 Stat. 290; Act

of Mar. 2, 1799, ch. 22, § 89, 1 Stat. 695; Act of Apr. 30, 1790, ch. 9,

§ 32, 1 Stat. 119; see also 3M Co. v. Browner, 17 F.3d 1453, 1458

n.7 (D.C. Cir. 1994) (“ancestor of the Act of 1839” is “unclear”);

United States v. Maillard, 26 F. Cas. 1140, 1141-1142 (S.D.N-Y.

1871) (discussing conflict between early provisions); /n re Lands-

berg, 14 F. Cas. 1065, 1066-1067 (E.D. Mich. 1870).

In Gabelli, this Court considered the applicability

of Section 2462 in an SEC action involving civil mone-

tary penalties, which “go beyond compensation, are

intended to punish, and label defendants wrongdoers.”

133 S. Ct. at 1223; see id. at 1224. The Court held that

the five-year period for seeking civil penalties began

to run when the defendant’s allegedly fraudulent con-

duct occurred, not when the government knew or

should have known of the violation. /d. at 1220-1224.

The Court further noted that “[t]he SEC also sought

injunctive relief and disgorgement, claims the District

Court found timely on the ground that they were not

subject to [Section] 2462.” Jd. at 1220 n.1. The Court

explained that “[t]hose issues are not before us.” /bid.

2. Petitioner owned and controlled two Commis-

sion-registered investment advisers (collectively, the

Advisers). See Pet. App. 3a. The Advisers conducted

the day-to-day operations of four business develop-

ment companies (collectively, the Funds) that “raised

money from” tens of thousands of small investors

“through public securities offerings” and invested it in

“private start-up companies.” /d. at 2a-3a; see D. Ct.

Doc. 162, at 73, 111 (Nov. 11, 2014) (investors were

limited partners in the Funds). The Advisers owed

the Funds a fiduciary duty “of utmost good faith|] and

full and fair disclosure.” SEC v. Capital Gains Re-

search Bureau, Inc., 375 U.S. 180, 194 (1968) (cita-

tions omitted).

Each Fund had a contract with the Advisers,

signed (and largely written) by petitioner. See Pet.

App. 3a; see also D. Ct. Doc. 162, at 74-75. The con-

tracts prescribed how the Advisers would be compen-

sated, barred certain kinds of reimbursements, and

“prohibited any payments to the Advisers that were

not expressly specified.” Pet. App. 3a-4a. Those re-

strictions were consistent with the Advisers Act,

which places limits on compensating advisers “on the

basis of a share of capital gains.” 15 U.S.C. 80b-5(a);

see Pet. App. 3a.

Beginning in 1995, and continuing through 2006,

petitioner misappropriated $34.9 million from the

Funds, either keeping that money himself or directing

it to cover Advisers-related expenses that he other-

wise would have had to pay. See Pet. App. 3a, 5a.

From 1995 through 2006, petitioner directed the Ad-

visers’ treasurer to take $23.8 million from the Funds

to reimburse the Advisers for salaries and bonuses

paid to the Advisers’ officers (including petitioner).

See id. at 3a. During the same period, he directed the

treasurer to take $5 million from the Funds to make

reimbursements for the Advisers’ office rent. See

ibid. And in 2000, he “caused the Advisers to take

$6.1 million” from the Funds—an amount that peti-

tioner told the SEC was for “tax distributions” but

that largely went directly to petitioner (even though

he paid “only $10,304 in federal taxes that year”). 7d.

at 3a-4a.

Those payments “violated the contracts between

the Advisers and the Funds” and exceeded the statu-

tory limitations on compensation for investment ad-

visers. Pet. App. 4a. They also drained money from

investors. For instance, while petitioner paid himself

and a fellow officer $8.4 million in total bonuses be-

tween 2000 and 2005, the Funds lost money in all but

one of those years, for total losses of $85 million. See

C.A. Record on Appeal (ROA) 1542-1544; SEC Trial

Ex. 396.

Petitioner took various steps to conceal the illicit

payments. See Pet. App. 4a; id. at 22a-24a. For ex-

ample, he misstated the salary and bonus payments in

false proxy statements distributed to investors, hid

payments from the Funds’ directors, and caused the

filing of dozens of false reports with the Commission

through 2007. See id. at 22a-24a. Because infor-

mation about the flow of money from the Funds was

available to very few people, see C.A. ROA 1288-1239,

1544, petitioner was able to hide his wrongdoing for a

lengthy period.

3. a. In 2009, the SEC brought this civil enforce-

ment action against petitioner, alleging violations of

the Exchange Act, the Advisers Act, and the Invest-

ment Company Act. See Pet. App. la-2a; SEC C.A.

Br. 7-8. The evidence at trial established that peti-

tioner had controlled all aspects of the Advisers’ busi-

ness and the Funds’ accounts. It also established that

he had knowingly engaged in fraud, and had concealed

that fraud, in order to benefit himself and to keep up

appearances at the Advisers, harming large numbers

of small investors in the process. See, é.g., D. Ct. Doe.

162, at 56-63, 73-83, 99-100, 112-118. Petitioner used

his illicit gains to maintain an extravagant lifestyle,

including by purchasing a gated mansion, buying and

renovating a private polo ground, and keeping a per-

sonal stable of more than 50 horses. See id. at 26, 66-

71, 117-118.

The jury found violations of all three statutes. The

jury determined that petitioner had “knowingly and

willfully converted the Funds’ assets to his own use or

to the use of another,” and that he had “knowingly and

substantially assisted the Advisers in defrauding the

Funds, in filing false and misleading reports with the

SEC, and in soliciting proxies using false and mislead-

ing proxy statements.” Pet. App. 4a-5a.

b. The SEC sought entry of final judgment order-

ing petitioner to “disgorge the amounts that [he| mis-

appropriated in violation of [the] securities laws.”

Pet. App. 24a. The district court ordered petitioner to

“disgorge” $34,927,329, plus prejudgment interest.

Id. at 46a-47a. The court rejected petitioner’s argu-

ment that the disgorgement remedy constituted a

“penalty” covered by Section 2462. The court ex-

plained that disgorgement covered only “ill-gotten

gains earned by the defendant while in violation of

securities laws,” id. at 41a (citation omitted), and that

such a remedy is “remedial” and “equitable” rather

than punitive, id. at 42a; see id. at 43a-45a.

The district court also enjoined petitioner from vio-

lating specific provisions of the securities laws and

ordered him to pay a civil monetary penalty for con-

duct within Section 2462’s five-year limitations period.

See Pet. App. 24a-32a, 36a-40a, 45a-47a. The court

found petitioner’s actions to be “egregious,” noting

that he had caused “substantial losses to investors”

through a “vast” fraud with a “high degree of scien-

ter,” had used the proceeds to live “an extravagant

lifestyle,” had “specifically targeted smaller investors

* * * because they would be less likely to sue if they

discovered his schemes,” and had shown no remorse.

Id. at 30a-3la, 39a. The court imposed a “third-tier”

penalty of $2,354,593, reflecting the fact that petition-

er’s offense had involved fraud and caused serious

harm. /d. at 45a.

ce. On appeal, petitioner contended that Section

2462’s five-year statute of limitations barred the dis-

gorgement order. The Tenth Circuit rejected that ar-

gument. See Pet. App. 10a-17a.

First, the court of appeals held that disgorgement

is not a “penalty.” Pet. App. 10a-13a. The court ex-

plained that “the disgorgement remedy does not in-

flict punishment,” but “leaves the wrongdoer in the

position he would have occupied had there been no

misconduct.” Jd. at lla (citation and internal quota-

tion marks omitted). While recognizing that “dis-

gorgement serves a deterrent purpose,” the court

observed that “it does so only by depriving the

wrongdoer of the benefits of wrongdoing.” J/bid.; see

id. at 12a.

Second, the court of appeals held that disgorge-

ment is not a “forfeiture.” Pet. App. 13a-17a. The

court stated that, “[w]hen the term forfeiture is linked

in [Section] 2462 to the undoubtedly punitive actions

for a civil fine or penalty, it seems apparent that

Congress was contemplating the meaning of forfeiture

in [a] historical sense.” Jd. at 15a. As used in that

sense, the court explained, “forfeiture” referred to an

in rem procedure to seize property without regard to

whether the owner was “innocent” or whether “the

value of the property” had any “relation to any loss to

others or gain to the owner.” /d. at 14a. The court

concluded that “[t]he nonpunitive remedy of dis-

gorgement does not fit in that company,” particularly

given that any ambiguity in Section 2462 must be

resolved “in the government’s favor to avoid a limita-

tions bar.” Jd. at 15a, 16a.

SUMMARY OF ARGUMENT

This Court has already construed the terms “penal-

ty” and “forfeiture” as those words are used in Section

2462: “The words ‘penalty or forfeiture’ in this section

refer to something imposed in a punitive way for an

infraction of a public law.” Meeker v. Lehigh Valley

R.R., 236 U.S. 412, 423 (1915) (interpreting predeces-

sor to Section 2462); see Gabelli v. SEC, 133 S. Ct.

1216, 1223 (2013). The disgorgement remedy in SEC

actions is not punitive, and Section 2462 therefore

does not apply to it.

A. Disgorgement in SEC actions is not a “penalty”

under Section 2462 because it is not a punishment.

Penalties can be imposed regardless of whether a

defendant realizes a financial benefit from a violation

of law. They can and usually do deprive the defendant

of money to which he has a lawful entitlement, thus

leaving him worse off than he would have been if he

had committed no violation. The equitable remedy of

disgorgement, by contrast, simply prevents unjust

enrichment by forcing a defendant to give up funds

that he acquired unlawfully, thereby placing him in

the same position that he would have occupied but for

the securities-law violation. Disgorgement is thus

analogous to restitution and to the divestiture remedy

in an antitrust case, neither of which is a penalty. And

while a remedy need not be compensatory in order to

avoid being penal, disgorgement in SEC actions is

often compensatory, and thus unambiguously non-

punitive, because district courts frequently return

disgorged funds to injured investors. In enacting

various civil-penalty provisions over the last few dec-

ades against the backdrop of the well-established

disgorgement remedy, Congress has demonstrated its

understanding that disgorgement is not itself a penal-

ty.

B. Disgorgement in SEC actions also is not a Sec-

tion 2462 “forfeiture.” Like “penalty,” the word “for-

feiture” in Section 2462 refers to something punitive.

See Meeker, 236 U.S. at 423. That is particularly

apparent given the other terms on the list of remedies

to which Section 2462 applies, since those additional

remedies (“civil fine” and “penalty”) are both punitive

measures. Accordingly, for all of the same reasons

that disgorgement is not a “penalty” under Section

2462, disgorgement likewise is not a Section 2462

“forfeiture.”

Neither the 1839 Congress nor the 1948 Congress

that enacted the current version of the statute-of-lim-

itation provision would have envisioned that “forfei-

ture” could cover a personal judgment for disgorge-

ment of ill-gotten gains. Petitioner has not identified

any form of historical forfeiture that resembled the

disgorgement remedy in an SEC action. At the rele-

vant points in time, “forfeiture” would have been un-

derstood to refer either to in rem forfeiture, directed

at property that was contraband or the instrumentali-

ty of a crime, or to a fine. Disgorgement is fundamen-

tally different from both those remedies. It was not

until the 1970s that existing forfeiture provisions were

expanded to allow for im personam criminal forfeiture

and to cover criminal “proceeds.” Congress’s more

expansive use of the term “forfeiture” in statutes that

long postdate Section 2462 has no meaningful bearing

on the proper interpretation of that statute or its

predecessors.

C. Extending Section 2462 to cover disgorgement

in SEC actions would be inconsistent with the purpos-

es of statutes of limitations and would have harmful

consequences. Although penalties are virtually always

subject to time limits, government suits involving

other kinds of relief may be unrestricted by any time

bar. Rather, in determining whether the equitable

remedy of disgorgement is appropriate in particular

cases, courts may take into account the passage of

time, along with other facts and circumstances. That

has been the status quo with respect to disgorgement

for nearly half a century.

During that period, Congress has mentioned dis-

gorgement approvingly in statutory enactments, and

it has imposed time limits on particular government

and private securities actions without ever placing

such restrictions on disgorgement. Petitioner fails to

identify any abuses resulting from that state of af-

fairs, and the SEC has strong incentives to bring suit

as quickly as possible notwithstanding the inapplica-

bility of Section 2462 to claims for disgorgement.

Applying Section 2462 to disgorgement would not

spare wrongdoers from having to defend themselves

in SEC enforcement. actions, since the SEC could

continue to sue without any time restriction to obtain

remedial injunctions, or could sue within five years

after the end of the wrongdoing for at least some

amount of disgorgement (and civil penalties). That

interpretation of the statute would simply allow de-

fendants like petitioner to keep all or a substantial

portion of the money that they stole from investors,

thus increasing the financial incentives to violate the

law and to hide any violations from authorities.

D. This Court has often applied the interpretive

canon that “(s|tatutes of limitation sought to be ap-

plied to bar rights of the Government, must receive a

strict construction in favor of the Government.” #./.

Dupont De Nemours & Co. v. Davis, 264 U.S. 456, 462

(1924). That narrow-construction rule reinforces the

conclusion that claims for disgorgement are not sub-

ject to Section 2462’s five-year limit. At the least,

neither “penalty” nor “forfeiture” clearly encompasses

a remedy that, like disgorgement, is not “intended to

punish,” Gabelli, 133 S. Ct. at 1223, but simply pre-

vents a defendant from retaining money acquired

through a violation of the law for which he has been

found liable. The narrow-construction canon—which

rests on the principle that the sovereign is subject

only to a statute of limitations to which it clearly con-

sents—is therefore a sufficient basis to conclude that

disgorgement in an SEC action falls outside the scope

of the “penaltfies]” and “forfeiture[s]” that Section

2462 covers.

ARGUMENT

Section 2462 cannot be reasonably read to encom-

pass all forms of monetary relief ordered by a court in

a government action. For instance, as petitioner con-

cedes (e.g., Br. 28-32), Section 2462 does not cover a

compensatory damages award. The government

therefore would have unlimited time under that provi-

sion (in the absence of some other applicable statute

of limitations) to sue for compensatory damages for

itself or on behalf of some private party. The omission

of such damages from the specific list of remedies set

forth in Section 2462—“civil fine, penalty, or forfei-

ture”—highlights the fact that Congress used those

terms to refer to discrete, historically defined catego-

ries, and not as a way of capturing any kind of order

requiring the payment of money that a court might

issue in a suit in which the government is the plaintiff.

Petitioner has not contended that the disgorgement

remedy in SEC actions is a “fine.” The only question,

then, is whether the remedy is a “penalty” or a “forfei-

ture” as Congress would have understood those terms

at the relevant point in time. The disgorgement rem-

edy does not fall into either category.

A. Disgorgement Is Not A “Penalty” Under Section 2462

I. As Used In Section 2462, A “Penalty” Is A Punish-

ment

The word “penalty” is “a term of varying and un-

certain meaning.” Life & Cas. Ins. Co. of Tenn. v.

McCray, 291 U.S. 566, 574-575 (1934); see Black’s Law

Dictionary 883-884 (ist ed. 1891) (“The terms ‘fine,’

‘forfeiture,’ and ‘penalty’ are often used loosely, and

even confusedly.”) (citation omitted). As used in Sec-

tion 2462, however, this Court has construed the word

“penalty” to mean a punishment—‘“something im-

posed in a punitive way for an infraction of a public

law.” Meeker v. Lehigh Valley R.R., 236 U.S. 412, 423

(1915) (interpreting predecessor to Section 2462); see

ibid. (“strictly remedial” order is not punitive); see

also Gabelli v. SEC, 133 S. Ct. 1216, 1223 (2013) (stat-

ing that, under Section 2462, “penalties * * * go

beyond compensation, are intended to punish, and

label defendants wrongdoers”); O'Sullivan v. Felix,

233 U.S. 318, 324 (1914) (interpreting predecessor to

Section 2462 and stating that “‘penalty’ involves the

idea of punishment for the infraction of the law, and is

commonly used as including any extraordinary liabil-

ity to which the law subjects a wrongdoer in favor of

the person wronged, not limited to the damages suf-

fered”).

That interpretation is consistent with nineteenth-

century understandings of the term. In /n re Lands-

berg, 14 F. Cas. 1065 (E.D. Mich. 1870), the court

construed the term “penalty” in the 1839 predecessor

to Section 2462 to mean a “fixed pecuniary mulct in-

curred by the violation of some law.” /d. at 1067; see

J. Gould & G. Tucker, Notes on the Revised Statutes

of the United States and the Subsequent Legislation

of Congress 350 (1889) (relying on Landsberg to define

“nenalty” as used in the 1874 predecessor to Section

2462); see also, e.g., United States v. Reisinger, 128

U.S. 398, 402 (1888) (“the words ‘penalty,’ ‘liability,’

and ‘forfeiture’ * * * have been used by the great

masters of crown law and the elementary writers as

synonymous with the word ‘punishment’”); Hunting-

ton v. Attrill, 146 U.S. 657, 666-667 (1892) (stating

that “[s]trictly and primarily,” the words “penal” and

“penalty” mean “punishment, whether corporal or

pecuniary”) (citing, inter alia, United States v.

Chouteau, 102 U.S. 603 (1881)). Dictionaries from the

relevant period reflect the same understanding. See,

e.g., 2 Burrill’s Law Dictionary 286 (1871) (“A pun-

ishment; a punishment imposed by statute as a conse-

quence of the commission of a certain specified of-

fense.”); 2 Bouvier’s Law Dictionary 324 (1852) (“By

penalty is understood, also, the punishment inflicted

by law for its violation.”); 2 Noah Webster, An Amert-

can Dictionary of the English Language 32 (1828)

(Webster’s Dictionary) (defining “penalty” as “(tlhe

suffering in person or property which is annexed by

law or judicial decision to the commission of a crime,

offense or trespass, as a punishment”) (cited in Pet.

Br. 24).”

2 The accepted understanding of “penalty” was the same when

Section 2462 was enacted in 1948. See, eg., Sheldon v. Metro-

Goldwyn Pictures Corp., 309 U.S. 390, 399-400 (1940) (“penalty” in

etor profits which are not attriputable to the infringement”); see

also generally Note, Developments in the Law—Statutes of Limi-

2. Disgorgement In SEC Actions Is Not A “Penaity”

Under that approach, disgorgement of an amount

obtained through violation of the securities laws is not

a “penalty.” Penalties can and typically do deprive

defendants of money to which they are lawfully enti-

tled, thereby punishing them by rendering them

worse off financially than they would have been if they

had committed no violation. Disgorgement, by con-

trast, simply prevents unjust enrichment by forcing a

defendant to divest funds that he acquired unlawfully.

a. Disgorgement deprives the defendant of the

benefit of his wrongdoing, thus returning him to the

position he would have occupied absent the illegal

conduct. From the defendant’s perspective, dis-

gorgement “restore[s] the status quo,” Gabelli, 133

S. Ct. at 1223 (citation omitted), by taking away the

amounts by which he was unjustly enriched. See SEC

v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d

Cir. 1978); see also, e.g., SEC v. Cavanagh, 445 F.3d

105 (2d Cir. 2006); FTC v. Bronson Partners, LLC,

654 F.3d 359 (2d Cir. 2011). But it does not deprive

the defendant of anything he was rightfully entitled to

in the first place, and it is not divorced from the dam-

age to society from the defendant’s bad acts. It there-

fore does not punish. See Zacharias v. SEC, 569 F.3d

458, 471-473 (D.C. Cir. 2009); see also 6 Thomas Lee

Hazen, Treatise on the Law of Securities Regulation

§ 16.2|2][D][1], at 64 (6th ed. Supp. 2015) (“[rlemedies

as disgorgement and restitution are not punitive”); cf.

2 Restatement (Third) of Restitution and Unjust En-

richment § 51 emt. (k), at 222 (2011) (“Disgorgement

tations, 63 Harv. L. Rev. 1177, 1266 n.736 (1950) (Section 2462 “has

received a narrow interpretation”).

of wrongful gain is not a punitive remedy. While the

remedy will be burdensome to the defendant in prac-

tice * * * [he] is ideally left in the position he would

have occupied had there been no misconduct.”).*

The non-punitive character of disgorgement is il-

lustrated by the fact that disgorgement will some-

times be inappropriate even when a securities-law

violation has been proved. A defendant can violate

those laws without obtaining any money from his

unlawful acts, in which ease a disgorgement order

would be impermissible. See, e.g., SEC v. Leslie, No.

C-07-3444, 2010 WL 2991038, at *39 (N.D. Cal. July

29, 2010). In contrast, a punishment for violating the

law may be imposed regardless of whether the de-

fendant profits. See, e.g., 15 U.S.C. 78u(d)(3).

Disgorgement is instead remedial—intended to

lessen the effects of a violation. It is analogous to

restitution to an injured party, “by which [a] defend-

ant is made to disgorge ill-gotten gains or to restore

the status quo, or to accomplish both objectives.”

Commonwealth, 574 F.2d at 95 (citation omitted). It

is also analogous to the divestiture remedy in an anti-

trust case, which requires a defendant to divest busi-

nesses that it has unlawfully acquired. See Schine

Chain Theatres, Inc. v. United States, 334 U.S. 110,

128 (1948) (“To require divestiture of theatres unlaw-

fully acquired is not to add to the penalties that Con-

gress has provided in the antitrust laws.”). Divesti-

ture of wrongfully acquired property “merely deprives

* The existence of a punishment must be determined objectively.

A plainly remedial order—for instance, an award of damages that

makes an injured party whole—may nevertheless be experienced

by the defendant as costly or painful. See Brady v. Daly, 175 U.S.

148, 155 (1899); Johnson v. SEC, 87 F.3d 484, 488 (D.C. Cir. 1996).

a defendant of the gains from his wrongful conduct,”

thus “undoling|] what could have been prevented had

the defendants not outdistanced the government in

their unlawful project.” /bid.; see California v. Aniwr-

ican Stores Co., 495 U.S. 271, 295 (1990); U/uited

States v. Crescent Amusement Co., 323 U.S. 173, 189

(1944); see also, e.g., Cavanagh, 445 F.3d at 117-118

{analogizing to the remedy of accounting).

Consistent with disgorgement’s remedial charac-

ter’, district courts in securities cases regularly order

that relief in the exercise of their equitable powers.

See 15 U.S.C. 78u(d)(1) and (5). “When Congress

entrusts to an equity court the enforcement of [statu-

tory] prohibitions,” it invokes “the historic power of

equity to provide complete relief.” Mitchell v. Robert

DeMario Jewelry, fne., 361 U.S. 288, 291-292 (1960).

“(AJlctling| in the public interest by restoring the

status quo” is “within the recognized power and within

the highest tradition of a court of equity.” Porter v.

Warrier Holding Co., 328 U.S. 395, 400, 402 (1946); see

Beli v. Hood, 327 U.S. 678, 684 (1946). And when “the

public interest is involved” in a suit brought by the

government, the court’s “equitable powers assume an

even broader and more flexible character than when

only a private controversy is at stake.” Mitchell, 361

U.S. at 291 (quoting Porter, 328 U.S. 398).

As an equitable remedy, disgorgement is both dis-

cretionary and flexible. Cf. Kansas v. Nebraska, 135

S. Ct. 1042, 1058 (2015) (stating that “disgorgement

need not be all or nothing” and that “flexibility is

inherent in equitable remedies”) (brackets and cita-

tion omitted); Sheldon v. Metro-Goldwyn Pictures

Corp., 309 U.S. 390, 399 (1940) (recovery of profits by

injured parties is “appropriate equitable relicf inci-

dent to a decree for an injunction,” given “not to inflict

punishment but to prevent an unjust enrichment”).

See, e.g., Hartford-Empire Co. v. United States, 323

U.S. 386, 435 (1945) (“relief in equity is remedial, not

penal”); Louisville Joint Stock Land Bank v. Radford,

295 U.S. 555, 579 (1935); Stevens v. Gladding, 58 U.S.

(17 How.) 447, 452-455 (1855).

b. Contrary to petitioner’s suggestion (e.g., Br. 26-

27), disgorgement often is used in an unambiguously

compensatory manner. Although compensation is not

the test for whether a remedy is non-punitive, and

therefore not a penalty, see pp. 25-27, infra, a com-

pensatory remedy is necessarily non-penal.

i. When the SEC successfully requests disgorge-

ment in cases involving victimized investors, those

funds generally are not paid directly to the Treasury.

Rather, they are paid “to the district court, which has

discretion over how to disburse them.” United States

SEC v. Quan, 817 F.3d 584, 594 (8th Cir. 2016). If

feasible, the district court may distribute disgorged

funds to a defendant’s victims—and it is the Commis-

sion’s “policy wherever possible * * * to recommend

a distribution plan by which a defendant’s unlawful

gains are paid out to defrauded investors.” SEC vy.

Fischbach Corp., 133 F.3d 170, 174 (2d Cir. 1997)

(citation and internal quotation marks omitted). The

court may give a “receiver or trustee * * * the task

of locating those members of the public who were

injured by the illegal activity” and of “payling] each

injured party an amount determined by the trustee to

be fair and equitable.” SEC v. Lund, 570 F. Supp.

1397, 1404 (C.D. Cal. 1983); see, e.g., SEC v. Amerindo

Inv. Advisors, 639 Fed. Appx. 752, 755 (2d Cir.) (re-

ceiver), cert. denied, 136 S. Ct. 2429 (2016); SEC v.

Blatt, 583 F.2d 1325, 13835 n.30 (5th Cir. 1978) (trus-

tee).

To be sure, cases arise in which returning money to

victims would be infeasible and the district court

therefore orders that the disgorged money be sent to

the Treasury. That has happened in cases in which an

attempted distribution to vietims “would produce

more waste than benefit,” SKC v. Bhayat, No. C-01-

21075, 2008 WL 4890890, at *2 (N.D. Cal. Nov. 12,

2008), such as when “the victims can’t he located,”

SEC vy. Custable, 796 F.3d 653, 656 (7th Cir. 2015): see.

e.g., SEC v. Moran, No. 92-civ.-5209, 2012 WL 19386.

at “1 (S.D.N.Y. Jan. 3, 2012) (citing “relatively small

sum at issue” and “diffuse nature of the underlying

fraud”); see also Fischbach, 133 F.3d at 176 (distribu-

tion that would have been “windfall” to uninjured

party was inappropriate). But district courts order

distribution of disgorged funds to victims in a signifi-

cant percentage of cases. One study—considering

distributions of “fair funds” (which include civil penal-

ties, see 15 U.S.C. 7246) but not accounting for distri-

butions consisting solely of disgorgement—found that,

between 2002 and 2013, courts distributed to defraud-

ed investors nearly $9 billion in funds obtained by

SEC enforcement actions, including nearly $3 billion

in disgorgement, amounting to an “extensive and

sustained effort by a public agency to compensate the

victims of misconduct.” Urska Velikonja, Public Com-

pensation for Private Harm: Evidence from the SEC’s

Fair Fund Distributions, 67 Stan. L. Rev. 331, 333-

334, 352 (2015).*

* In addition, amounts are returned to injured investors through

receiverships in SEC actions, see, ¢.g., 01-cvy-11282 Docket entry

No. 283, SEC vy. Shiv (S.D.N.Y. Mar. 24, 2009) (stating that portion

ii. Petitioner’s contrary description of how dis-

gorgement works is incorrect. First, petitioner states

(Br. 26-27) that disgorgement amounts cannot be used

to compensate victims unless a civil penalty is also

collected. A so-called “fair fund” under the Sarbanes-

Oxley Act of 2002, which authorizes distribution of

civil penalties to injured investors, is created for a

particular case only if a civi] penalty is awarded. See

15 U.S.C. 7246(a). But district courts can and do dis-

tribute disgorged money to victims, just as they did

before 2002, even when no civil penalty is awarded and

no “fair fund” exists. See, e.g., 99-cv-289 Docket entry

No. 31, SEC v. Lu (N.D. Cal. Dee. 8, 2005); 07-ev-537

Docket entry No. 39, SEC v. Longs (E.D. Ark. 2009).

Petitioner’s description rests on his misreading of a

regulation that relates only to “fair funds” and applies

only in administrative proceedings. See 17 C.F.R.

201.1100.

Second, petitioner argues (Pet. 27) that “[i}n all

eases * * * the SEC has discretion not to compen-

sate victims when it deems compensation infeasible.”

of disgorgement order was “satisfied” by receiver’s distribution of

assets), and through parallel criminal proceedings, see, e.g., SEC v.

Palmisano, 135 F.3d 860, 863-864 (2d Cir.) (discussing effect on

disgorgement obligation of payments made pursuant to criminal

restitution order), cert. denied, 525 U.S. 1023 (1998). A meaningful

portion of the disgorgement amounts in SEC actions that do not

get distributed to investors is attributable to large awards in a

limited number of Foreign Corrupt Practices Act (FCPA) cases, in

which the defendants are unjustly enriched by obtaining business

through bribery but the injury to investors is diffuse and hard to

identify. See, e.g., U.S. SEC, Press Release, VimpelCom to Pay

$795 million in Global Settlement for FCPA Violations (Feb. 18,

2016), www.sec.gov/news/pressrelcase/2016-34.html (last visited

Mar 26, 2017).

But the regulation he cites relates only to administra-

tive proceedings, in which the SEC itself decides the

feasibility question. See 17 C.F.R. 201.1102; Martin

vy. United States SEC, 734 F.3d 169, 170 (2d Cir. 2013)

(per curiam). In judicial proceedings, the SEC rec-

ommends distribution if feasible, but the district court

controls what happens to the funds. See Quan, 817

F.3d at 594.°

Petitioner correctly observes (Br. 27) that compen-

sation is not the “primary purpose of disgorgement.”

Commonwealth, 574 F.2d at 102. When the SEC

seeks disgorgement, it acts in the public interest, to

remedy harm to the public at large, rather than stand-

ing in the shoes of particular injured parties. See, ¢.g.,

SEC v. Lorin, 869 F. Supp. 1117, 1128-1130 (S.D.N_Y.

1994). It is nevertheless clear that, in practice, dis-

gorgement in SEC enforcement actions has a signifi-

cant compensatory aspect.

ec. The text and history of the securities laws dem-

onstrate Congress’s understanding that the disgorge-

ment remedy in SEC actions is not a penalty because

it is not punitive.

By the 1980s, district courts had for some time

been ordering disgorgement, under their injunctive

powers, in SEC suits. See, eg. SEC v. Teras Gulf

Sulphur Co., 446 F.2d 1301, 1307-1308 (2d Cir.), cert.

denied, 404 U.S. 1005 (1971); SEC v. First City Fin.

Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989), But Con-

gress was concerned that “[djisgorgement of illegal

profits * * * merely restores a defendant to his

* In this case, the district court did not specify what should hap-

pen to the amount ordered to be disgorged. See Pet. App. 47a.

Petitioner argued that he was insolvent, see D. Ct, Doc. 180. at 3

(Jan. 7, 2015), and he is therefore unlikely to pay anything.

original position without extracting a real penalty for

his illegal behavior.” H.R. Rep. No. 355, 98th Cong.,

Ist Sess. 7 (1983) (1983 House Report). Congress

therefore authorized the Commission to obtain in

insider-trading cases a “civil penalty” that “shall not

exceed three times the profit gained or loss avoided as

a result of such unlawful purchase or sale.” Insider

Trading Sanctions Act of 1984, Pub. L. No. 98-376, § 2,

98 Stat. 1264; see 1983 House Report 8 (stating that

“It]he new penalty may be used in addition to existing

remedies,” including “disgorgement of ill-gotten

gains”).

In 1990, Congress expanded the Commission’s pow-

er to seek civil penalties to cover securities-law mat-

ters outside the insider-trading context. See 15

U.S.C. 78u(d)(3); Enforeement Remedies Act, Pub. L.

101-429, 104 Stat. 931. The House Report explained

that, while securities-law violators could “reap enor-

mous profits,” such violators were subject only to “an

order of disgorgement,” which “merely requires the

return of wrongfully obtained profits; it does not re-

sult in any actual economic penalty or act as a finan-

cial disincentive to engaging in securities fraud.” 1990

House Report 17; see ibid. (“even a violator who is

caughtis * * * no worse off financially than if he had

not violated the law”); S. Rep. No. 337, 101st Cong., 2d

Sess. 9 (1990) (similar); Official Comm. of Unsecured

Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73, 81

(2d Cir. 2006) (Sotomayor, J.). Congress therefore

deemed civil penalties “necessary for the deterrence

of securities law violations that otherwise may provide

great financial returns.” 1990 House Report 17.

In 2002, Congress added to 15 U.S.C. 78u a subsec-

tion stating that, “[iJn any action or proceeding

brought or instituted by the Commission under any

provision of the securities laws, the Commission may

seek, and any Federal court may grant, any equitable

relief that may be appropriate or necessary for the

benefit of investors.” 15 U.S.C. 78u(d)(5); see Sar-

banes-Oxley Act of 2002, Pub. L. 107-204, § 305(b), 116

Stat. 779; see also S. Rep. No. 205, 107th Cong., 2d

Sess. 27 (2002) (discussing disgorgement). Congress

did not place that subsection under the existing head-

ing in 15 U.S.C. 78u for “[m]oney [p]enalties in [c]ivil

{ajetions.” 15 U.S.C. 78u(d)(3). Rather, Congress

placed the provision in a separate part of Section 78u

and gave it its own heading: “le]quitable [rlelief.”

Sarbanes-Oxley Act § 305(b), 116 Stat. 779; see 15

U.S.C. 78u(d)(5); Tull v. United States, 481 U.S. 412,

425 (1987).°

Thus, over the lengthy period in which courts have

regularly ordered disgorgement at the Commission’s

behest, Congress has indicated its understanding that

disgorgement cannot appropriately be termed a “pen-

alty.” See 15 U.S.C. 7246 (referring separately to

“disgorgement” and “civil penalty”); 15 U.S.C. 80a-

9(e) (same); see also pp. 44-45, infra (noting various

statutory references to disgorgement in SEC ac-

tions).' If Congress had viewed disgorgement as

® Petitioner states (Br. 25) that, in a provision outside the securi-

ties laws and not relevant to this case, authorization for disgorge-

ment appears in a subsection in a section on “civil penalties.” But

disgorgement—along with restitution, which is plainly not a penalty—

is described in that provision as an “[e]quitable remed[y].” Pub. L.

No. 111-203, Tit. VII, § 744, 124 Stat. 1735 (2010); see 7 U.S.C. 13a-

1(d)(3).

* Petitioner regards 15 U.S.C. 78u-6(b)(1), which allows whistle-

blowers to receive an amount “equal to” (rather than derived from)

money collected from the defendant in some SEC cases, as evi-

punitive, it might have concluded that civil-penalty

provisions were not necessary in the first place.

3. Petitioner’s Arguments That Disgorgement Is A

“Penalty” Under Section 2462 Lack Merit

a. Petitioner’s primary argument is that every non-

compensatory remedy is a penalty. That understand-

ing is flawed.

i. Petitioner rests his argument largely on Kelly v.

Robinson, 479 U.S. 36 (1986), in which this Court

interpreted a Bankruptcy Code provision enacted in

1978 that makes nondischargeable a debt that is for a

“fine, penalty, or forfeiture payable to and for the

benefit of a governmental unit, and is not compensa-

tion for actual pecuniary loss.” 11 U.S.C. 523(a)(7);

see Pet. Br. 28. This Court held that “any condition a

state criminal court imposes as part of a criminal

sentence,” including a restitution order, is nondis-

chargeable under that provision. Kelly, 479 U.S. at

50.

That conclusion is not relevant to interpreting the

word “penalty” in Section 2462. In Kelly, the Court

considered “the language of” the bankruptcy provision

“in light of” considerations specific to bankruptcy law

and to the status of the restitution order as part of a

state-court criminal judgment. 479 U.S. at 43-44. The

Court emphasized that courts had traditionally “re-

fused to allow a discharge in bankruptcy to affect the

judgment of a state criminal court,” id. at 45; noted

that “Congress enacted the Code in 1978 against the

dence that Congress views “penalties” and “disgorgement” as in-

terchangeable. Br. 28. Section 78u-6(b)(1) lists those remedies

separately, and otherwise expresses no view about the relationship

between them.

background of [that] established judicial exception,”

id. at 46; and stated that “{olur interpretation * * *

must reflect * * * a deep conviction that federal

bankruptcy courts should not invalidate the results of

state criminal proceedings,” which have punitive goals

and involve “an important aspect of the sovereignty

retained by the States,” id. at 47; see id. at 49, 51.

None of those considerations is implicated here.

Petitioner also invokes what he describes (Br. 29)

as a “long line of cases establishing that * * * non-

compensatory remedies are ‘penalties.’” But those

decisions establish only that a compensatory remedy

is not a penalty because it is not punitive. In Brady v.

Daly, 175 U.S. 148 (1899), for example, the Court

ruled that a suit seeking “damages” under a copyright

statute was not “an action to recover for a forfeiture

or penalty” because the copyright statute did not

“speak of punishment or penalties” but instead used

language “providling] for the recovery * * * of full

compensation from the wrongdoer.” /d. at 152, 154;

see id. at 155. In Chattanooga Foundry & Pipe

Works v. City of Atlanta, 203 U.S. 390 (1906), the

Court ruled that the limitations period under a prede-

cessor to Section 2462 did not apply to an injured

party’s suit for damages in an antitrust case. See id.

at 395-397. And in Porter v. Warner Holding Co., 328

U.S. 395 (1946), the Court stated that the equitable

“disgorgement” remedy sought by the government in

that case, which would have resulted in the defendant

refunding money to injured parties, “differs greatly

from the damages and penalties which may be award-

ed” under a separate provision of the relevant statute.

Id. at 402; see id. at 396-397." But the fact that a com-

pensatory remedy is not a penalty does not mean that

every non-compensatory remedy is a penalty. Wheth-

er a penalty exists depends on whether the remedy is

“punitive,” Meeker, 236 U.S. at 423, not (or not exclu-

sively) on whether it is compensatory.

ii. In any event, disgorgement in SEC actions is of-

ten used to compensate victims of securities-law viola-

tions. See pp. 19-22, supra. Petitioner’s approach

logically implies that disgorgement is not a penalty

when the district court orders the funds distributed to

victims, but is a penalty when the court finds such

distribution infeasible. That approach would substan-

tially complicate the application of Section 2462 to

particular cases, and it would give defendants who

victimize large numbers of small investors (as peti-

tioner did), thus making distribution of any disgorge-

ment amount more difficult, a greater chance of keep-

ing unlawful gains. It would also imply that even

amounts that Congress has labeled “civil penalties”

could sometimes be considered non-penal for statute-of-

limitations purposes, because those penalties may like-

wise be distributed to injured parties. See 15 U.S.C.

7246(a).

8 Petitioner reads Porter to hold that the remedy available to the

government under Section 205(e) of the relevant statute was a pen-

alty “precisely because it went to the Treasury.” Br. 31. Porter

says no such thing. The Court’s passing references to the govern-

ment’s remedy under Section 205(e) as “damages in the nature of

penalties,” see 328 U.S. at 401-402, were most likely due to Section

205(e)’s provision for recovery that far exceeded the amount of the

relevant “overcharge” (by trebling that amount and adding a fine).

See id. at 406 n.9 (Rutledge, J., dissenting); see also id. at 406

(describing statutory recovery by injured person as “damages with

penalty”).

b. Petitioner suggests (Br. 23) that any remedy

with a deterrent purpose or effect is a “penalty” under

Section 2462. But “provisions for damages are, of

course, deterrents of default,” Priebe & Sons, Inc. v.

(/nited States, 332 U.S. 407, 413 (1947), and “(t]he

historic injunctive process was designed to deter, not

to punish,” Heehkt Co. v. Bowles, 321 U.S. 321, 329

(1944). Thus, even an “obvious deterrent purpose” is

not alone sufficient to “mark| |” a remedy “as a form of

punishment,” although it may be relevant to that de-

termination. Department of Revenue v, Kurth Ranch,

511 U.S. 767, 780 (1994); ef. Hudson v. United States,

522 U.S. 93, 102 (1997) (explaining that a “test for

determining whether a particular sanction is ‘puni-

tive’” for double jeopardy purposes that turns on

whether it is “‘solely’ remedial (7.e., entirely nondeter-

rent)” has “proved unworkable”); United States v.

l7rsery, 518 U.S. 267, 291-292 (1996); Coghlan v.

NTSB, 470 F.3d 1300, 1305-1307 (11th Cir. 2006).

¢. Petitioner also argues (Br. 32-35) that his view

of disgorgement is supported by a tradition of guard-

ing against the “danger” of government-inflieted pen-

alties. But tracing ancient English provisions specifi-

cally relating to penal laws (¢.y., Br. 33-34) does not

help to decide whether disgorgement is punitive in the

relevant sense. That is particwarly true given that

the “amercements” to which petitioner points were

“criminal sanction|[s],” Solem v. Helm, 463 U.S. 277,

284 & n.8 (1983), and the restrictions ultimately placed

on those sanctions under English law—requiring the

kind of proportionality embodied in the Constitution’s

Excessive Fines Clause—applied only in criminal

cases, see Browning-Ferris Indus. of Vt., Inc. v. Kelco

Disposal, Inc. , 492 U.S. 257, 272 (1989).

This case implicates another principle that would

have been well known to the drafters of the 1839 stat-

ute: the rule that a sovereign is not subject to a limi-

tations period unless it expressly consents to one.

See, e.g., BP Am. Prod. Co. v. Burton, 549 U.S. 84, 95-

96 (2006) (tracing that canon to “the traditional rule

quod nullum tempus occurrit regi—time does not run

against the King”); United States v. Thompson,

98 U.S. 486, 489-490 (1879); United States v. Hoar, 26

F. Cas. 329, 329-330 (D. Mass. 1821) (Story, J.). If

Congress chooses to impose time limits when the

government pursues penal remedies, but not when it

pursues disgorgement, that is Congress’s prerogative.

That choice makes particular sense with respect to

SEC actions, where no special “danger” exists be-

cause disgorgement amounts in such actions are often

directed away from “the government’s coffers.” Pet.

Br. 32.

Petitioner suggests (Br. 35-37) that courts in some

SEC cases have conceived of disgorgement so broadly

as to go beyond the core purpose of preventing unjust

enrichment. The disgorgement order in this case does

not implicate that concern, but rather involves money

that petitioner stole from small investors and directed

in ways that benefited him.’ More generally, defend-

ants are protected by the various equitable limitations

that courts have placed or the use and scope of the

® Petitioner’s suggestion that the disgorgement amount in this

ease includes money taken by other people is wrong. Petitioner

used he stolen money not only by funai z his own extravagant

lifestyle but also by divecting money *s the Advisers, which he

owned and controlled, to pay expenses for which he would other-

wise have been responsible. Cf. Salman v. United States, 137

S. Ct. 420 (2016).

disgorgement remedy. See, e.g., SEC v. Manor Nurs-

ing Ctrs., Inc., 458 F.2d 1082, 1104-1105 (2d Cir. 1972)

(order to disgorge income earned on ill-gotten gains

was punitive and therefore outside the court’s equity

powers); First City, 890 F.2d at 1231 (disgorgement

may be ordered only in an amount “causally connect-

ed” to the wrongdoing). The lact that “the burden of

uncertainty in calculating ill-gotten gains falls on the

wrongdoers who create that uncertainty,” Zacharias,

569 F.3d at 478 (citation omitted); see, e.g., Bigelow v.

RKO Radio Pictures, Inc., 327 U.S. 251, 265 (1946),

does not render disgorgement punitive.

d. Finally, petitioner contends that the govern-

ment has taken inconsistent positions on whether dis-

gorgement constitutes a penalty. But none of the

positions to which petitioner points involved Section

2462, which must be interpreted in light of its specific

language and context.

i. As petitioner explains (Br. 37-38), the govern-

ment argued in the 1990s that disgorgement is a “fine,

penalty, or forfeiture” under 11 U.S.C. 523(a)(7). As

noted above, however, interpretation of that Bank-

ruptcy Code provision is governed by principles that

have no application here. See pp. 25-26, supru.'° And

in any event, in 2002, Congress amended Section 523

by adding to the list of non-dischargeable debts any

debt that is for “the violation of any of the Federal

securities laws” and results from “any court or admin-

istrative order for any damages, fine, penalty, citation,

'° One of the bankruptcy decisions on which petitioner relies (Br.

37)—I/n re Telsey, 144 B.R. 563 (Bankr. S.D. Fla. 1992)—has been

vacated at the SEC’s request. See SEC Reply Br., SEC v. Gra-

ham, No. 14-13562 (11th Cir.), Addendum 5-9; see also Lorin, 869

F. Supp. at 1124-1125 (distinguishing Telsey).

restitutionary payment, disgorgement payment,

* * * or other payment owed by the debtor.”

11 U.S.C. 523(a)(19); see Sarbanes-Oxley Act § 803(3),

116 Stat. 801. That provision treats “disgorgement” in

securities cases as separate from both “fine[s]” and

“nenalt[ies],” while making clear that debts arising

from disgorgement orders are non-dischargeable.

ii. Petitioner next asserts (Br. 38) that the gov-

ernment has treated securities-law disgorgement

orders as falling within the scope of a tax provision

that prohibits deductions for “any fine or similar pen-

alty paid to a government for the violation of any law.”

26 U.S.C. 162(f). He points only to a non-precedential

2016 IRS “advice” memorandum. Thomas D. Moffitt,

Office of Associate Chief Counsel, IRS, Memorandum

No. 201619008, at 1 (Jan. 29, 2016), https://www.irs.

gov/pub/irs-wd/201619008.pdf (Memorandum); see 26

U.S.C. 6110. That memorandum takes the position

that disgorgement may or may not qualify as a “fine

or similar penalty” under the tax law depending “on

the facts and circumstances of a particular case.” /d.

at 8.

Nothing in that determination contradicts the con-

clusion that disgorgement in securities cases is not a

“penalty” within the meaning of Section 2462. Section

2462 traces back to the early 1800s; Section 162(f) was

enacted in 1969. See Pub. L. No. 91-172, Tit. IX,

§ 902(a), 83 Stat. 710. While the two provisions both

use the words “fine” and “penalty,” they otherwise

have different language, and they have wholly differ-

ent purposes. In addition, under the tax law a pay-

ment can qualify as a “fine or similar penalty” even if

it does not “punish[]” but merely deters. Memoran-

dum 6-7 (citation omitted). The meaning of “penalty”

under Section 2462 is very different.

iii. Petitioner also suggests that the government

has taken an inconsistent position by characterizing

criminal forfeiture of criminal proceeds as “monetary

punishment.” Br. 39; see fd. at 25-26. Petitioner is

mistaken. The brief in opposition on which he rclies

merely echoes this Court’s conclusion that an “vv

persona criminal forfeiture” that includes criminal!

proceeds “is clearly a form of monetary punishment.”

Alewander vy. United States, 509 U.S. 544, 558 (1993).

The government’s use of the word “punishment” to

deseribe a forfeiture imposed as part of the sentence

for a crime has no hearing on whether disgorgement

in an SEC civil suit is a “penalty” under Section 2462.

Cf Pasgnantina v. United States, 544 U.S, 349, 365

(2005) (stating that “[t]he purpose of awarding resti-

tution in” a criminal prosecution is “te mete out ap-

propriate criminal punishment for [the defendant’s|

conduct”); Kelly, 479 U.S. at 53 (construing 11 U.S.C.

§23(a)(7) in light of the fact that “criminal proceedings

focus on the State’s interests in rehabilitation and

punishment, rather than the victim’s desire for com-

pensation”).

B. Disgorgement Is Not A “Forfeiture” Under Section

2462

1. Like “penalty,” the word “forfeiture” can have

different meanings in different contexts. See, ¢.9.,

United States v. Manu, 26 F. Cas. 1158, 1154

(C.C.D.N.H. 1812) (No. 15,718) (Story, J.); Black's

Law Dictionary 885-884 (1st ed. 1891). As with “pen-

alty.” however, this Court has already interpreted

“forfeiture” as it is used in the provision at issue here,

as part of a limited list of remedies to which the five-

year statute of limitations applies. For purposes of

Section 2462, “forfeiture,” too, means a punishment.

As this Court explained in Meeker, supra, interpret-

ing a predecessor to Section 2462, “|t]he words ‘penal-

ty or forfeiture’ in this section refer to something

imposed in a punitive way for an infraction of a public

law.” 236 U.S. at 423; ef. Gabelli, 133 S. Ct. at 1223.

That interpretation is consistent with pertinent

definitions of “forfeiture.” In St. George Tucker’s ear-

ly American edition of Blackstone, published in 1803,

“forfeiture” was described as “a punishment for some

erime or misdemeanor[] in the party forfeiting.” 3 St.

George Tucker, Blackstone’s Commentaries with

Notes of Reference, to the Constitution and Laws, of

the Federal Government of the United States; and of

the Commonwealth of Virginia 420 (1803); see ibid.

(stating that “goods and chattels may be acquired and

lost * * * by forfeiture” as a punishment and de-

scribing fines as “forfeitures”); id. at 267 (forfeiture of

property is “a punishment annexed by law to some

illegal act or negligence, in the owner of lands, tene-

ments, or hereditaments”). Other nineteenth-century

definitions were similar. See, e.g., Samuel Johnson et

al., Johnson’s English Dictionary 400 (1834) (defining

the noun “forfeit” as “[sJomething lost by the commis-

sion of a crime; a fine; a mulct,” the adjective “forfeit”

as “{I]iable to penal seizure; alienated by a crime,” and

the noun “forfeiture” as “[t]he thing forfeited; a mulct,

a fine”) (cited in Pet. Br. 13); Black’s Law Dictionary

507-508 (1st ed. 1891); see also Reisinger, 128 U.S. at

402 (“the words ‘penalty,’ ‘liability,’ and ‘forfeiture’

* * * have been used by the great masters of crown

law and the elementary writers as synonymous with

the word ‘punishment’”).

That interpretation is also consistent with the way

that the terms “fine, penalty, or forfeiture” are used

together in Section 2462. See Pet. App. 15a; MceDou-

nell v. linited States, 136 S. Ct. 2355, 2368 (2016) (ex-

plaining that “the familiar interpretive canon moscitier

a sociis.” under whieh “a word is known by the com-

pany it keeps,” is “often wisely applied where a word

is capable of many meanings in order to avoid the

giving of unintended breadth to the Acts of Con-

gress”) (citation and internal quotation marks omit

ted). As explained above, a “penalty” is inherently

punitive. So too is a “fine,” which can be assessed as a

punishment for a violation of the law regardless of the

profit made, the harm caused, or a defendant’s partic-

ular circumstances. See Browning-Ferris, 492 U.S. at

265 (“the word ‘fine’ was understood to mean a pay-

ment to a sovereign as punishment for some offense”).

Because the term “forfeiture” is readily—indeed,

most naturally—understood to refer to a punitive

measure, see, e.g., Austin v. United States, 509 U.S.

602, 612-614, 618, 621 (1993) (“We conclude * * *

that forfeiture generally and statutory in rem forfei-

ture in particular historically have been understood,

at least in part, as punishment.”); Peisch v. Ware, 8

U.S. (4 Cranch) 347, 364 (1808) (forfeiture of goods

under customs statute “punishes”), it should bear that

meaning when joined in a list with two other terms

that are traditionally associated with punishment.

For purposes of Section 2462, disgorgement therefore

is not a “forfeiture” for the same reasons it is not a

“penalty.”

2. When Congress enacted the 1839 provision that

ultimately became Section 2462, the word “forfeiture”

would have been understood (as the court of appeals

correctly explained, see Pet. App. 14a) to refer to in

rem forfeitures that “punished” guilty property. It

also would have been understood as a synonym for a

fine. In no event would the 1839 Congress—or the

1948 Congress that enacted the current version of the

statute-of-limitation provision—have envisioned that

“forfeiture” could cover a personal judgment for dis-

gorgement of ill-gotten gains.

a. “Three kinds of forfeiture were established in

England at the time the Eighth Amendment was rati-

fied in the United States: deodand, forfeiture upon

conviction for a felony or treason, and statutory forfei-

ture.” Austin, 509 U.S. at 611." Only the third kind

“took hold” in this country: in rem “statutory forfei-

tures of offending objects used in violation of the cus-

toms and revenue laws.” /d. at 612-613 (citation omit-

ted); see, e.g., United States v. 92 Buena Vista Ave.,

507 U.S. 111, 118-123 (1993) (opinion of Stevens, J.).

An 1839 statutory reference to “forfeiture” would

have been understood as referring to such in rem

forfeiture. Indeed, Justice Story observed in United

States v. Mann, 26 F. Cas. 1153 (C.C.D.N.H. 1812)

(No. 15,718), that statutes “frequently” use “the word

‘forfeiture’” to mean “forfeitures in rem.” /d. at 1154.

That kind of forfeiture is punitive in the relevant

sense. It was conceived of as punishing the property

itself, regardless of the guilt or innocence of the prop-

erty’s owner. See Austin, 509 U.S. at 615-616 (col-

lecting cases); United States v. Bajakajian, 524 U.S.

'' “At common law the value of an inanimate object directly or in-

directly causing the accidental death of a King’s subject was for-

feited to the Crown as a deodand.” Austin, 509 U.S. at 611 (cita-

tion omitted).

321, 329-330 (1998). It also had the practical effect of

punishing the owner for any negligence he may have

shown in allowing his property to become associated

with illicit activity. See Austin, 509 U.S. at 616-618;

see also id. at 611 (explaining that all three kinds of

forfeiture known to the Founders were “understood,

at least in part, as imposing punishment”); id. at 612-

614 (stating that in rew forfeiture was considered

“nenal” by Blackstone, and that “the First Congress

viewed forfeiture as punishment”). Cf. Bajakajian,

524 U.S. at 330-331 (stating that “traditional civil in

rem forfeitures * * * were historically considered

nonpunitive” as to the owner of the property, although

punitive as to the property itself).’”

In 1839, the term “forfeiture” also could have been

understood to mean a fine—a fixed “pecuniary mulct.”

Mann, 26 F. Cas. at 1154; see, e.g., Austin, 509 U.S. at

614 & n.7 (noting that “forfeit” was the word used for

“fine” in a 1789 statute, and that “[dlictionaries of the

time confirm that ‘fine’ was understood to include

‘forfeiture’ and vice versa”); Black’s Law Dictionary

508 (ist ed. 1891) (forfeiture involves a “loss of land,”

" Petitioner quotes Taylor v. United States, 44 U.S. 8 How.)

197, 210 (1845), as stating that seizure of offending goods under

the customs laws was “truly ... remedial.” Br. 14. But Taylor

also states that, “{iJn one sense, every law imposing a penalty or

forfeiture may be deemed a penal law.” 44 U.S. (3 How.) at 210.

Compare Austin, 509 U.S. at 612-622 (discussing Excessive Fines

Clause), with Ursery, 518 U.S. at 270-271, 274 (discussing Double

Jeopardy Clause); see id. at 295 (Kennedy, J., concurring) (“For-

feiture, then, punishes an owner by taking property involved in a

crime, and it may happen that the owner is also the wrongdoer

charged with a crimina! offense. But the forfeiture is not a second

in personam punishment for the offense, which is all the Double

Jeopardy Clause prohibits.”).

“loss of goods or chattels,” or a fine); 1 Wehster’s Dic-

tionary 8G (1828) (defining the noun “forfeiture” as

“an estate forfeited; a fine or mulct. The prince en-

riched his treasury by fines and forfeitures.”) (cited in

Pet. Br. 13). A fine is itself a penalty, and “fine” inde-

pendently appears in the current version of the limita-

tions provision. See 28 U.S.C. 2462.'*

Disvorgement is very different from an im ream for-

feiture or fine. Disgorgement cloes not punish either

the defendant or his property; it does not extend be-

yond the amount of a defendant’s unjust enrichment;

it does not derive from uacdmiralty law, customs law, or

criminal law; and it is equitably and flexibly applied.

Cf. Gladding, 58 U.S. (17 How.) at 453-455 (distin-

guishing between an accounting for profits and “for-

feiture”). Accordingly, disgorgement is not a “forfei-

ture” within the meaning of Section 2462."

b. Petitioner contends (Br. 12-13) that “forfeiture”

in Section 2462 has a far broader meaning, covering

“any order to turn over money to the government, as

sovereign, as a result of a legal transgression.” That

sweeping definition does not withstand scrutiny. In

any event, petitioner has not identified any form of

historical forfeiture that resembled disgorgement.

‘S Petitioner points out (Br. 20) that 28 U.S.C. 2461, which dates

from 1948, see 1{47 House Report A190, refers separately to a

“pecuniary forteiture” and a “forfeiture of property.” The term

“pecuniary forfeiture” is readily understood ty encompass a fine.

“ Petitioner identifies (Br. 22) a few stray sentences in which

courts have referred to disgorgement as a forfeiture, or vice-versa.

Those passages simply reflect the collaquial meanings of those

words, and in particular the loose sense that something given hack

or given up has heen disgorged. They have no bearing on whether

the disgoergement remedy in SEC actions falls within the seape of

“forfeiture” in Section 2462.

Petitioner acknowledges (Br. 14-15) that “forfei-

ture” encompasses fines and in rem forfeitures (al-

though he characterizes the latter as purely remedial).

To justify his expansive definition of forfeiture, how-

ever, he includes two other categories as well. First,

he contends (Br. 14) that “forfeiture” refers to “forfei-

ture of estate,” Austin, 509 U.S. at 613, requiring

criminals to give all their real and personal property

to the sovereign. But since forfeiture of estate was

outlawed in the United States from this country’s

inception (see Br. 14), it is unlikely that Section 2462

was intended to provide a statute of limitations that

covered it.

Second, petitioner states (Br. 15) that “forfeiture”

refers to early customs statutes requiring a party to

“forfeit and pay” a sum that is a multiple of the value

of goods unlawfully imported or sold. But the mere

existence of the word “forfeit” in the statute does not

make the amount in question a “forfeiture.” This

Court explained in United States ex rel. Marcus v.

Hess, 317 U.S. 587 (1943), that “[s]pecial consequence

cannot be drawn from the use of the word ‘forfeit’”

since “[t]he words ‘forfeit and pay’ are wholly con-

sistent with a civil action for damages,” id. at 551

(citation omitted)—an action that petitioner would not

describe as a forfeiture. See Pet. Br. 12-13; see also

60 N.Y. Jur. 2d Forfeitures and Penalties § 1 (2d ed.

2016) (“A statute that provides that upon its violation

the offender ‘forfeits’ a certain sum of money pre-

scribes, in reality, a penalty, rather than imposing a

forfeiture, as that term is properly used.”) (footnote

omitted); see generally Walter Scott, Lay of the Last

Minstrel, Canto VI, at 176 (5th ed. 1806) (“The

wretch, concentrated all in self, * * * shall forfeit

fair renown.”). The statutes to which petitioner refers

are better understood as having imposed either penal-

ties or a form of liquidated damages for the losses the

government “accru[ed] from the evasion of customs

duties.” Bajakajian, 524 U.S. at 342. Indeed, in dis-

cussing those statutes this Court has referred to

“payment of monetary penalties proportioned to the

goods’ value.” Jd. at 340; see id. at 341 (referring to

payments as “forfeitures” with the word in quotation

marks); id. at 345 (Kennedy, J., dissenting) (referring

to a “six-century-long tradition of in personam cus-

toms fines equal to one, two, three, or even four times

the value of the goods at issue”).

Whether or not those remedies are “forfeiture(s]”

within the meaning of Section 2462, petitioner does

not claim to have identified any historic form of “for-

feiture” equivalent to disgorgement. His only effort

to compare disgorgement to some long-ago type of

forfeiture (Br. 17-19) is to point to the statutes requir-

ing defendants to pay multiples of some unlawful

property’s value. There is an obvious difference, how-

ever, between a remedy that is limited to a defend-

ant’s ill-gotten gains and a remedy defined as a fixed

multiple of that amount. Provisions involving such

multiples may be justified as penalties, or (at least in

some instances) as reasonable liquidated damages.

Unlike disgorgement, however, they are not equitable

remedies analogous to restitution.

c. As petitioner recognizes (Br. 16), it was not until

the 1970s that existing forfeiture provisions wore

expanded to allow for in personam criminal forfeiture

and to cover “proceeds” of a crime, which include both

the criminal’s illicit gains and any profits earned on

those gains. See, e.g., 18 U.S.C. 1963(a)(3); 18 U.S.C.

981(a)(1)(C); see also Bajakajian, 524 U.S. at 332 &

n.7 (“The First Congress [in 1790] explicitly rejected

in persouane torteitures as punishments for federal

crimes, and Congress reenacted this ban several times

over the course of two centuries.”) (citation omitted);

92 Buena Vista Ave., 507 U.S. at 121-123 & n.16 (opin-

ion of Stevens, J.); Stefan D. Cassella, Asset Forfei-

ture Law in the United States § 25-4, at 900 (2d ed.

2013) (Cassella) (stating that forfeiture of proceeds is

a “relatively recent innovation”). Thus, when Section

2462 and its predecessors were enacted, the word

“forfeiture” would not have been understood to in-

clude a remedy like disgorgement, which makes a

defendant personally liable for payment of the amount

of the gains he realized through securities violations

(but not for any profits realized from those gains).

It is true thal, when Congress decided to strip ccr-

tain criminals of the proceeds of their crimes, it called

that measure a “forfeiture.” That enabled the new

sanction to be implemented using established forfei-

ture procedures, both in criminal cases as part of a

sentence and in civil in rem proceedings.” But Con-

gress’s use of the term “forfeiture” in statutes that

long postdate Section 2462 has no meaningful bearing

on the proper interpretation of that statute or its

predecessors. See Cassella § 2-1, at 28 (“laws and

concepts that developed slowly * * * were greatly

expanded in the last 20 years”); id. § 2-4, at 33 (chang-

es in the 1970s to encompass proceeds were “entirely

new” and “a dramatic expansion”).

'© Such forfeiture proceedings have their own statute of limita-

tions separate from Section 2462. See, e.g., 19 U.S.C. 1621 (statute

of limitations governing civil forfeiture, which includes a discovery

rule); 18 U.S.C. 981(d).

To be sure, Section 2462 is not limited to the “spe-

cific set of circumstances that may have precipitated

its passage.” United States v. Rodgers, 466 U.S. 475,

480 (1984) (cited in Pet. Br. 17). Section 2462 applies

to government claims for fines, penalties, or forfei-

tures for violating newly enacted statutory prohibi-

tions, just as it applies to financial punishments for

violating longstanding legal norms. But the term

“forfeiture” in Section 2462 retains the meaning it had

when that provision was enacted, and disgorgement

would not have been considered a “forfeiture” at that

time. Petitioner has not challenged (and did not chal-

lenge below) the district court’s authority to order

disgorgement in securities-law cases as “an equitable

adjunct to an injunction decree,” Porter, 328 U.S. at

399, or a “restorative injunction,” United States v.

Telluride Co., 146 F.3d 1241, 1247 (10th Cir. 1998); see

15 U.S.C. 78u(d)(1) and (5). In any event, disgorge-

ment’s status as an equitable remedy reinforces the

conclusion that it is neither a penalty nor a forfeiture

within the meaning of Section 2462.

C. Extending Section 2462 To Cover Disgorgement Is

Inconsistent With The Purposes Of Statutes Of

Limitations And Would Have Harmful Consequences

1. In stressing “the importance of time limits on

penalty actions,” this Court in Gabelli relied on au-

thority “stating that it ‘would be utterly repugnant to

the genius of our laws’ if actions for penalties could ‘be

brought at any distance of time.’” 133 S. Ct. at 1223

(quoting Adams v. Woods, 6 U.S. (2 Cranch) 336, 342

(1805)). The same concern underlies Congress’s en-

actment of statutes of limitations for all but the most

serious federal crimes. See, e.g., 18 U.S.C. 3282.

By contrast, “there are few credible arguments

that a defendant should be permitted to retain his or

her ill-gotten gains, regardless of how much time has

elapsed since the misconduct in question.” Steven R.

Glaser, Statutes of Limitutions for Equitable and

Remedial Retief in SEC Enforcement Actions, 4

Harv. Bus. L. Rev. 129, 153 (2014). No principle of

fairness gives a “robber[(]” an absolute right to keep

his “loot” if only his wrongdoing remains hidden long

enough. Luis v. Uniled States, 136 5. Ct. 1083, 1090

(2016); see generally Jeremy Bentham, The Rationale

of Punishment 432 (1830) (“In crimes the object of

which is pecuniary profit, preseription [i.e., a limita-

tions period] ought not in any case to operate so as to

protect the delinquent in the enjoyment of his ill-

gotten acquisition.”).

The proper comparison therefore is not between

disgorgement and criminal penalties, see Pet. Br. 43,

but between disgorgement and other equitable reme-

dies granted in government civil suits. Such remedies

often are subject to no statute of limitations at all.

See generally E.J. Dupont De Nemours & Co. v. Da-

vis, 264 U.S. 456, 462 (1924) (“[A]n action on behalf of

the United States in its governmental capacity * * *

is subject to no time limitation, in the absence of con-

gressional enactment clearly imposing it.”); Holmberg

v. Armbrecht, 327 U.S. 392, 396-397 (1946); SEC v.

Rind, 991 F.2d 1486, 1491 (9th Cir.) (collecting exam-

ples), cert. denied, 510 U.S. 963 (1993); Catherine E.

Maxson, Note, The Applicability of Section 2462’s

Statute of Limitations to SEC Enforcement Suits in

Light of the Remedies Act of 1990, 94 Mich. L. Rev.

512, 513-514 (1995) (“Despite the existence of the

general statutes of limitations in title 28, many gov-

ernment suits remain unrestricted by any time bar.”);

see also 28 U.S.C. 1658 (Supp. II 1990). In Occidental

Life Ins. Co. v. EEOC, 432 U.S. 355 (1977), for exam-

ple, this Court held that no statute of limitations ap-

plied to EEOC enforcement actions under Title VII.

See id. at 367-373.

To be sure, even in the absence of a statutory time

bar, a court may take into account the passage of time

since the underlying violation in determining whether

particular equitable relief is appropriate. Courts that

have correctly found disgorgement to be outside the

scope of Section 2462 have recognized that “[a] court

can and should consider the remoteness of the defend-

ant’s past violations in deciding whether to grant the

requested equitable relief.” Rind, 991 F.2d at 1492;

see, eg., SEC v. Wyly, 56 F. Supp. 3d 394, 433

(S.D.N.Y. 2014); see generally Occidental, 432 U.S. at

373 (holding that a court’s discretionary power “‘to

locate “a just result” in light of the circumstances

peculiar to the case’” can be exercised “when the

EEOC is the plaintiff’) (quoting Albemarle Paper Co.

v. Moody, 422 U.S. 405, 424 (1975)). But the existence

of that equitable discretion does not support petition-

er’s contention that the district court was categorical-

ly barred from ordering disgorgement of funds that

petitioner wrongfully obtained more than five years

before this suit was filed.

2. a. The approach we advocate has been rejected

only by the Eleventh Circuit, which in 2016 became

the first court of appeals to rule that Section 2462

applies when the SEC seeks disgorgement. See SEC

v. Graham, 823 F.3d 1357 (11th Cir. 2016)."* All the

6 Petitioner does not adopt or defend Graham’s specific reason-

ing. See 823 F.3d at 1363-1364.

courts of appeals that had previously addressed the

question had found Section 2462 inapplicable to that

remedy. See, e.g., Riordan v. SEC, 627 F.3d 1230,

1234-1235 & n.1 (D.C. Cir. 2010); SEC v. Tambone,

550 F.3d 106, 148 (1st Cir. 2008), reh’g en banc grant-

ed and opinion withdrawn, 573 F.3d 54 (1st Cir. 2009),

reinstated in relevant part, 597 F.3d 436 (1st Cir.

2010); Johnson v. SEC, 87 F.3d 484, 491-492 (D.C. Cir.

1996); see generally Rind, 991 F.2d at 1490-1493;

Mitchell A. Lowenthal et al., Special Project, 72:me

Bars in Specialized Federal Common Law: Federal

Rights of Action and State Statutes of Limitations, 65

Cornell L. Rev. 1011, 1023 n.65 (1980).

For nearly half a century, then, courts have viewed

disgergement as a permissible remedy in SEC en-

foreement actions without regard to any statute of

limitations. During that period, Congress has enacted

statutory provisions that assume the availability of a

disgorgement remedy in SEC enforcement suits. See,

e.g., Pub. L. No. 104-67, § 103(b)(2), 109 Stat. 756

(1995) (stating that funds may be “disgorged as the

result of an action brought by the Commissien in Fed-

eral court” and placing a restriction on how those

funds may be “distributed” to “private parties”) (codi-

fied at 15 U.S.C. 78ufd)(4)); Pub. L. No. 100-704, §

5(b)(2), 102 Stat. 4681 (1988) (stating that defendant in

insider-trading case can offset “the amounts * * *

that such person may be required to disgorge, pursu-

ant to a court order obtained at the instance of the

Commission,” against a damages award) (codified at

15 U.S.C. 78t-1(b)(2)); Pub. L. No. 107-204, § 308(c)(1),

116 Stat. 785 (2002) (calling for study of “enforcement

actions by the Commission * * * that have included

proceedings to obtain * * * disgorgements to identi-

fy areas where such proceedings may be utilized to

efficiently, effectively, and fairly provide restitution

for injured investors”) (codified at 15 U.S.C.

7246(c)(1)); see also 1990 House Report 17. And Con-

gress has placed time limits on other types of relief

sought by the SEC, see, e.g., 15 U.S.C. 78u-1(d)(5)

(provision enacted in 1988 giving SEC five years from

transaction to seek civil penalties for insider trading

and stating that the limitation “shall not be construed

to bar or limit in any manner any action by the Com-

mission * * * under any other provision of this chap-

ter”), as well as on securities actions brought by pri-

vate parties, see 28 U.S.C. 1658(b) (provision enacted

in 2002 limiting time to assert “private right of action”

for certain claims “concerning the securities laws”).

But Congress has not acted to impose any time re-

strictions on disgorgement, or on SEC enforcement

actions more generally.

b. Petitioner has not shown that the prevailing ap-

proach to disgorgement has encouraged the SEC to

delay filing suit or has unduly impaired defendants’

ability to resist disgorgement claims. Because the

Commission bears the burden of proof in securities-

law enforcement actions, including the burden of es-

tablishing a causal connection between a violation and

a disgorgement amount, any dulling of memories or

loss of evidence is more likely to impede than to assist

the SEC’s litigation efforts. Cf. Petrella v. Metro-

Goldwyn-Mayer, Inc., 134 S. Ct. 1962, 1976-1977

(2014). The SEC thus has strong incentives to ferret

out fraud and other wrongdoing as quickly as possible,

despite its limited resources. See Rind, 991 F.2d at

1492 (“[S]ecurities fraud may involve multiple parties

and transactions of mind-boggling complexity. Mar-

ket manipulation is notoriously hard to detect.”).

Those incentives have been strengthened by Gabelli,

under which the SEC must bring suit within five years

of the relevant misconduct to obtain statutory penal-

ties. See Gabelli, 133 S. Ct. at 1223-1224,"

Adopting petitioner's proposed construction of See-

tion 2462, moreover, would not give any defendant the

“right to be free of” certain “claims.” Order of R.R.

Telegraphers v. Railway Express Agency, 321 U.S.

342, 349 (1944). Even if the passage of time after a

defendant’s defaleations barred the SEC from obtain-

ing disgorgement (as well as penalties), the agency

could still bring securities-law claims like the ones in

Tn fiseal year 2015, for example, the average Lime between the

start of an SEC investigation and the commencement of an SEC

enforcement action was 24 months. See U.S. SEC, FY 215 An-

vnal Performance Report & FY 2017 Anvued Performance Plan

37, https:/Avwww. sec. guv/about/reports/sec-. 92015-fy20 1 7-annual

performance.pdf (last visited Mar. 26, 2017), Petitioner suggests

(Br. 4-5) that Gabell?’s holding has resulted in the fling of stale

claims by the SEC. But all the cases he cites, including this onc,

were Mled before Gabelli was decided in 2013, and several of them

were filed within five years alter the defendants’ bad acts conelud-

ed. See, «y., Compl, SEC v. Waly, supra, No. 10-cv-5760 (filed

July 29, 2010); Compl., SEC v. Creefurd, No. 11-ev-3056 (D. Minn.)

(filed Dee. 21, 2011). Indeed, petitioner anil his amici point to very

few cases in which the SEC has brought enforcement actiuns that

would he barred by Section 2462, despite the prevailing under-

standing that Section 2462 does not apply te actions for disgerge-

ment or injunctions. Petitioner also sugyests (Br. 5) that the

Cummission has increasingly resorted to disgorgement te cireum-

vent the time bar on penalties—bul statisties do not bear oul that

assertion, See SEC, Selevt SEC aud Market Data 2 (2005-2016)

(Thi. 1) (showing that the ratio of disgorgement tu penalties has

varied considerably over the past decade and that 2015, when

Gabelli was decided, did not mark a point of steady increase in that

ratio), https:// www.seec.gov/reperts Cast visited Mar. 21, 2017).

this case against that defendant and seek other forms

of injunctive relief, such as an order prohibiting a

defendant like petitioner from serving in the kind of

fiduciary capacity that enabled him to swindle inves-

tors. See generally United States v. Whited &

Wheless Ltd., 246 U.S. 552, 561, 563-564 (1918). And

in eases that involve a continuing course of conduct,

the SEC could file suit up to five years after the end of

the misconduct and, at a minimum, seek disgorgement

(and penalties) for any bad acts that had taken place

within that five-year look-back period.

Here, for example, the suit against petitioner was

brought within five years after some (but not all) of

his embezzlement. Petitioner therefore would have

been subject to the suit, and to a disgorgement reme-

dy, even under his own interpretation of Section 2462.

Adoption of petitioner’s proposed rule would simply

allow him to keep a significant amount of the money

that he stole from the investors who trusted him.

3. Adoption of petitioner’s expansive reading of

Section 2462 would increase the incentives for bad

actors to violate the securities laws, since those incen-

tives will be greater if the passage of time can shield

illicit gains from the possibility of recoupment. See

Texas Gulf Sulphur, 446 F.2d at 1308 (“It would se-

verely defeat the purposes of the Act if a violator of

Rule 10b-5 were allowed to retain the profits from his

violation.”); see also SEC v. Wyly, 117 F. Supp. 3d 381,

390 & n.40 (S.D.N.Y. 2015) (discussing the “pains”

defendants took to “hide the extent of their control”

over U.S. issuers to frustrate government investiga-

tion).'"* Petitioner’s approach would also reduce the

'§ Courts have interpreted the tolling doctrine of fraudulent

concealment narrowly in the wake of Gabelli’s rejection of the

likelihood that victims will be compensated through

distribution of disgorged funds. See, e.g., SEC v.

Graham, 21 F. Supp. 3d 1300 (S.D. Fla. 2014) (apply-

ing Section 2462 to prevent disgorgement of $300

million from Ponzi scheme), aff'd in part, rev’d in part,

and remanded, 823 F.3d 1357 (11th Cir. 2016). And

the adverse practical consequences of construing

Section 2462 to encompass disgorgement would not be

confined to securities-law cases, since the government

regularly seeks disgorgement in other contexts as

well, under general statutory grants of authority to

give equitable relief. See, e.g., United States v. Uni-

versal Mgmt. Servs., Inc., 191 F.3d 750, 760 (6th Cir.

1999) (Federal Food, Drug, and Cosmetic Act), cert.

denied, 530 U.S. 1274 (2000); FTC v. Gem Merch.

Corp., 87 F.3d 466, 469 (11th Cir. 1996) (Federal

Trade Commission Act).

4. Petitioner contends (Br. 40-41) that the dangers

of government abuse are great if no limitations period

applies to disgorgement. But because a disgorgement

remedy simply divests the defendant of his illicit

gains, it does not implicate the Gabelli Court’s con-

cern about punishing a defendant for long-ago viola-

tions. Petitioner asserts (Br. 41-42) that the absence

of a statute of limitations “is especially troubling”

because of “how the SEC enforces the law.” But peti-

tioner stole money while ostensibly acting as a fiduci-

ary for investors; that conduct is and has long been

obviously illegal.

Petitioner also contends (Br. 46) that the govern-

ment’s position is “capricious” because it treats dis-

discovery rule, finding that concealment is often part and parce! of

the fraud itself. See SEC v. Wyly, 950 F. Supp. 2d 547, 556-558

(S.D.N.Y. 2013).

gorgement differently from other remedies. Congress

has declined, however, to enact any statute of limita-

tions under which the passage of time could bar an

SEC enforcement action altogether. And Section

2462, the provision on which petitioner relies, is lim-

ited by its terms to specified remedies. There is noth-

ing “capricious” about Congress’s decision to limit the

time within which the government can seek punitive

sanctions, but not to limit the period for seeking an

equitable remedy that simply divests the defendant of

his illicit gains.

D. The Canon Of Narrow Construction Reinforces The

Conclusion That Section 2462 Does Not Apply To Dis-

gorgement

This Court has frequently applied the interpretive

rule that “[s|tatutes of limitation sought to be applied

to bar rights of the Government, must receive a strict

construction in favor of the Government.” £./.

Dupont De Nemours, 264 U.S. at 462; see, e.g., BP

Am., 549 U.S. at 95-96 (narrow-eonstruction rule

“erased” any “doubts” about meaning of the limita-

tions provision at issue). The narrow-construction

canon is fully applicable here because the parties’

dispute concerns the meaning of the terms “penalty”

and “forfeiture” as they appear in Section 2462.

Petitioner asserts that the narrow-construction

canon applies only “when [the government] sues to

vindicate its own rights to money and property.” Br.

46 (emphasis omitted). Petitioner cites no decision,

however, that has announced such a limit on the scope

of the interpretive rule. Nor would any such limit

follow logically from the rationale for the canon itself,

which rests on the government’s sovereignty, not on

the specific nature of its suit. See BP Am., 549 U.S. at

95-96; EL... Dupont De Nemours, 264 U.S. at 462; see,

e.g., Badaracco v. Commissioner, 464 U.S. 386, 390-

391 (1984) (invoking the rule in case involving gov-

ernment collection of tax penalties, not just unpaid tax

amounts).

Petitioner also relies on decisions construing statutes

of limitations in circumstances that undoubtedly in-

volved penalties. See Br. 47-48 (citing Adams v.

Woods, 6 U.S. (2 Cranch) 336 (1805), and United

States v. Mayo, 26 F. Cas. 1230 (C.C.D. Mass. 1813)).

In Adams, the Court found no statutory ambiguity

that would warrant the application of the narrow-

construction canon. See 6 U.S. (2 Cranch) at 341. The

Court also relied on the background understanding

that actions for “penalties” are generally subject to

some statute of limitations, see id. at 342, a premise

that provides no assistance in determining what the

statutory term “penalty” means. Mayo is similarly

inupposite. That decision recited the same penalty-

specific rationale as did Adams, see Mayo, 26 F. Cas.

at 1231, and it turned on a choice among several po-

tentially applicable limitations provisions. See ibid.

Finally, contrary to petitioner’s suggestion (Br.

48), the government does not contend that Section

2462 is limited to forms of relief that are specifically

identified as “fine{s], penaltfies], or forfeiture[s]” in

the statutes that authorize those remedies to be im-

posed. As explained above, courts have long viewed

disgorgement awards as permissible exercises of the

courts’ statutory authority to enter injunctive relief in

SEC enforcement suits. That derivation would not

render Section 2462 inapplicable if the term “penalty”

or “forfeiture” clearly encompassed disgorgement. At

the very least, however, it is not clear that either term

encompasses a remedy that is not “intended to pun-

ish,” Gabelli, 133 S. Ct. at 1223, but simply prevents

the defendant from retaining his illicit gains. Under

the narrow-construction canon, that is a sufficient

ground for rejecting petitioner’s interpretation of the

contested statutory language.

CONCLUSION

The judgment of the court of appeals should be

affirmed.

Respectfully submitted.

JEFFREY B. WALL

Acting Solicitor General

SANKET J. BULSARA MALCOLM L. STEWART

Acting General Counsel Deputy Solicitor General

MICHAEL A. CONLEY ELAINE J. GOLDENBERG

Solicitor Assistant to the Solicitor

General

JACOB H. STILLMAN

Senior Advisor to the

Solicitor

HOPE HALL AUGUSTINI

DANIEL STAROSELSKY

Senior Litigation Counsels

SARAH R. PRINS

Senior Counsel

Securities and Exchange

Commission

MARCH 2017

APPENDIX

l. 28 U.S.C. 2462 provides:

Time for commencing proceedings

Exeept as otherwise provided by Act of Congress,

an action, suit or proceeding for the enforcement of

any civil fine, penalty, or forfeiture, pecuniary or oth-

erwise, shall not be entertained unless commenced

within five years from the date when the claim first

accrued if, within the same period, the offender or the

property is found within the United States in order

that proper service may be made thereon.

2. 15 U.S.C. 78u (2012 & Supp. III 2015) provides:

Investigations and actions

(a) Authority and discretion of Commission to investi-

gate violations

(1) The Commission may, in its discretion, make

such investigations as it deems necessary to determine

whether any person has violated, is violating, or is

about to violate any provision of this chapter, the rules

or regulations thereunder, the rules of a national secu-

rities exchange or registered securities association of

which such person is a member or a person associated,

or, as to any act or practice, or omission to act, while

associated with a member, formerly associated with a

member, the rules of a registered clearing agency in

which such person is a participant, or, as to any act or

practice, or omission to act, while a participant, was a

participant, the rules of the Public Company Account-

ing Oversight Board, of which such person is a regis-

(la)

tered public accounting firm, a person associated with

such a firm, or, as to any act, practice, or omission to

act, while associated with such firm, a person formerly

associated with such a firm, or the rules of the Munic-

ipal Securities Rulemaking Board, and may require or

permit any person to file with it a statement in writing,

under oath or otherwise as the Commission shall de-

termine, as to all the facts and circumstances concern-

ing the matter to be investigated. The Commission is

authorized in its discretion, to publish information

concerning any such violations, and to investigate any

facts, conditions, practices, or matters which it may

deem necessary or proper to aid in the enforcement of

such provisions, in the prescribing of rules and regula-

tions under this chapter, or in securing information to

serve as a basis for recommending further legislation

concerning the matters to which this chapter relates.

(2) On request from a foreign securities authority,

the Commission may provide assistance in accordance

with this paragraph if the requesting authority states

that the requesting authority is conducting an investi-

gation which it deems necessary to determine whether

any person has violated, is violating, or is about to

violate any laws or rules relating to securities matters

that the requesting authority administers or enforces.

The Commission may, in its discretion, conduct such

investigation as the Commission deems necessary to

collect information and evidence pertinent to the re-

quest for assistance. Such assistance may be provided

without regard to whether the facts stated in the re-

quest would also constitute a violation of the laws of the

United States. In deciding whether to provide such

assistance, the Commission shall consider whether (A) the

requesting authority has agreed to provide reciprocal

assistance in securities matters to the Commission; and

(B) compliance with the request would prejudice the

public interest of the United States.

(b) Attendance of witnesses; production of records

For the purpose of any such investigation, or any

other proceeding under this chapter, any member of

the Commission or any officer designated by it is em-

powered to administer oaths and affirmations, subpena

witnesses, compel their attendance, take evidence, and

require the production of any books, papers, corre-

spondence, memoranda, or other records which the

Commission deems relevant or material to the inquiry.

Such attendance of witnesses and the production of any

such records may be required from any place in the

United States or any State at any designated place of

hearing.

Commission; refusal to obey subpena; criminal

sanctions

In case of contumacy by, or refusal to obey a subpena

issued to, any person, the Commission may invoke the

aid of any court of the United States within the juris-

diction of which such investigation or proceeding is

carried on, or where such person resides or carries on

business, in requiring the attendance and testimony of

witnesses and the production of books, papers, corre-

spondence, memoranda, and other records. And such

court may issue an order requiring such person to

appear before the Commission or member or officer

designated by the Commission, there to produce rec-

ords, if so ordered, or to give testimony touching the

matter under investigation or in question; and any

failure to obey such order of the court may be punished

by such court as a contempt thereof. All process in

any such case may be served in the judicial district

whereof such person is an inhabitant or wherever he

may be found. Any person who shall, without just

cause, fail or refuse to attend and testify or to answer

any lawful inquiry or to produce books, papers, corre-

spondence, memoranda, and other records, if in his

power so to do, in obedience to the subpena of the

Commission, shall be guilty of a misdemeanor and,

upon conviction, shall be subject to a fine of not more

than $1,000 or to imprisonment for a term of not more

than one year, or both.

(d) Injunction proceedings; authority of court to prohibit

persons from serving as officers and directors;

money penalties in civil actions

(1) Whenever it shall appear to the Commission that

any person is engaged or is about to engage in acts or

practices constituting a violation of any provision of this

chapter, the rules or regulations thereunder, the rules

of a national securities exchange or registered securi-

ties association of which such person is a member or a

person associated with a member, the rules of a regis-

tered clearing agency in which such person is a par-

ticipant, the rules of the Public Company Accounting

Oversight Board, of which such person is a registered

public accounting firm or a person associated with such

a firm, or the rules of the Municipal Securities Rule-

making Board, it may in its discretion bring an action in

the proper district court of the United States, the

United States District Court for the District of Co-

lumbia, or the United States courts of any territory or

other place subject to the jurisdiction of the United

States, to enjoin such acts or practices, and upon a

proper showing a permanent or temporary injunction

or restraining order shall be granted without bond.

The Commission may transmit such evidence as may be

available concerning such acts or practices as may

constitute a violation of any provision of this chapter or

the rules or regulations thereunder to the Attorney

General, who may, in his discretion, institute the nec-

essary criminal proceedings under this chapter.

(2) AUTHORITY OF COURT TO PROHIBIT PERSONS

FROM SERVING AS OFFICERS AND DIRECTORS.—In any

proceeding under paragraph (1) of this subsection, the

court may prohibit, conditionally or unconditionally,

and permanently or for such period of time as it shall

determine, any person who violated section 78j(b) of

this title or the rules or regulations thereunder from

acting as an officer or director of any issuer that has a

class of securities registered pursuant to section 781 of

this title or that is required to file reports pursuant to

section 780(d) of this title if the person’s conduct

demonstrates unfitness to serve as an officer or direc-

tor of any such issuer.

(3) MONEY PENALTIES IN CIVIL ACTIONS.—

(A) AUTHORITY OF COMMISSION.—Whenever it

shall appear to the Commission that any person has

violated any provision of this chapter, the rules or

regulations thereunder, or a cease-and-desist or-

der entered by the Commission pursuant to section

78u-3 of this title, other than by committing a vio-

lation subject to a penalty pursuant to section 78u-1

of this title, the Commission may bring an action in

a United States district court to seek, and the court

shall have jurisdiction to impose, upon a proper

showing, a civil penalty to be paid by the person

who committed such violation.

(B) AMOUNT OF PENALTY.—

(i) Fist TIER.—The amount of the penalty

shall be determined by the court in light of the

facts and circumstances. For each violation, the

amount of the penalty shall not exceed the

greater of (1) $5,000 for a natural person or

$50,000 for any other person, ov (II) the gross

amount of pecuniary gain to such defendant as a

result of the violation.

Gi) SECOND TIER.—Notwithstanding clause

(i), the amount of penalty fer each such violation

shall not exceed the greater of (1) $50,000 for a

natural person or $250,000 for any other person,

or (IJ) the gross amount of pecuniary gain to

such defendant as a result of the violation, if the

violation described in subparagraph (A) involved

fraud, deceit, manipulation, or deliberate or

reckless disregard of a regulatory requirement.

(iii) THIRD TIER.—Notwithstanding clauses

(i) and (ii), the amount of penalty for each

such violation shall not exceed the greater of

(1) $100,000 for a natural person or $500,000 for

any other person, or (II) the gross amount of

pecuniary gain to such defendant as a result of

the violation, if—

(aa) the violation described in subpara-

graph (A) involved fraud, deceit, manipulation,

or deliberate or reckless disregard of a reyula-

tory requirement; and

(bb) such violation directly or indirectly

resulted in substantial losses or created a

significant risk of substantial losses to other

persons.

(i) PAYMENT OF PENALTY TO TREASURY.—A

penalty imposed under this section shall be

payable into the Treasury of the United States,

except as otherwise provided in section 7246 of

this title and section 78u-6 of this title.

(ii) COLLECTION OF PENALTIES.—If a person

upon whom such a penalty is imposed shall fail to

pay such penalty within the time prescribed in

the court’s order, the Commission may refer the

matter to the Attorney General who shall re-

cover such penalty by action in the appropriate

United States district court.

(ii) REMEDY NOT EXCLUSIVE.—The actions

authorized by this paragraph may be brought in

addition to any other action that the Commission

or the Attorney General is entitled to bring.

(iv) JURISDICTION AND VENUE.—For pur-

poses of section 78aa of this title, actions under

this paragraph shall be actions to enforce a lia-

bility or a duty created by this chapter.

(D) SPECIAL PROVISIONS RELATING TO A VIO

LATION OF A CEASE-AND-DESIST ORDER.—In an ac-

tion to enforce a cease-and-desist order entered by

the Commission pursuant to section 78u-3 of this

title, each separate violation of such order shall be

a separate offense, except that in the case of a vi-

olation through a continuing failure to comply with

the order, each day of the failure to comply shall be

deemed a separate offense.

(4) PROHIBITION OF ATTORNEYS’ FEES PAID FROM

COMMISSION DISGORGEMENT FUNDS.—Except as oth-

erwise ordered by the court upon motion by the Com-

mission, or, in the case of an administrative action, as

otherwise ordered by the Commission, funds dis-

gorged as the result of an action brought by the Com-

mission in Federal court, or as a result of any Com-

mission administrative action, shall not be distributed

as payment for attorneys’ fees or expenses incurred by

private parties seeking distribution of the disgorged

funds.

(5) EQUITABLE RELIEF.—In any action or pro-

ceeding brought or instituted by the Commission under

any provision of the securities laws, the Commission

may seek, and any Federal court may grant, any equi-

table relief that may be appropriate or necessary for

the benefit of investors.

(6) AUTHORITY OF A COURT TO PROHIBIT PERSONS

FROM PARTICIPATING IN AN OFFERING OF PENNY

STOCK.—

(A) IN GENERAL.—In any proceeding under

paragraph (1) against any person participating in,

or, at the time of the alleged misconduct who was

participating in, an offering of penny stock, the

eourt may prohibit that person from participating

in an offering of penny stock, conditionally or un-

conditionally, and permanently or for such period

of time as the court shall determine.

(B) DEFINITION.—For purposes of this para-

graph, the term “person participating in an offer-

ing of penny stock” includes any person engaging

in activities with a broker, dealer, or issuer for

purposes of issuing, trading, or inducing or at-

tempting to induce the purchase or sale of, any

penny stock. The Commission may, by rule or

regulation, define such term to include other ac-

tivities, and may, by rule, regulation, or order,

exempt any person or class of persons, in whole or

in part, conditionally or unconditionally, from in-

clusion in such term.

(e) Mandamus

Upon application of the Commission the district

courts of the United States and the United States

courts of any territory or other place subject to the

jurisdiction of the United States shall have jurisdiction

to issue writs of mandamus, injunctions, and orders

commanding (1) any person to comply with the provi-

sions of this chapter, the rules, regulations, and orders

thereunder, the rules of a national securities exchange

or registered securities association of which such per-

son is a member or person associated with a member,

the rules of a registered clearing agency in which such

person is a participant, the rules of the Public Company

Accounting Oversight Board, of which such person is a

registered public accounting firm or a person associ-

ated with such a firm, the rules of the Municipal Secu-

rities Rulemaking Board, or any undertaking contained

in a registration statement as provided in subsection

(d) of section 780 of this title, (2) any national securities

exchange or registered securities association to enforce

compliance by its members and persons associated with

its members with the provisions of this chapter, the

rules, regulations, and orders thereunder, and the rules

10a

of such exchange or association, or (3) any registered

Gearing agency to enforce compliance by its partici-

pants with the provisions of the rules of such clearing

agency.

(f) Rules of self-regulatory organizations or Board

Notwithstanding any other provision of this chapter,

the Commission shall not bring any action pursuant to

subsection (d) or (ce) of this section against any person

for violation of, or to command compliance with, the

rules of a self-regulatory organization or the Public

Company Accounting Oversight Board unless it ap-

pears to the Commission that (1) such self-regulatory

organization or the Public Company Accounting Over-

sight Board is unable or unwilling to take appropriate

action against such person in the public interest and for

the protection of investors, or (2) such action is other-

wise necessary or appropriate in the public interest or

for the protection of investors.

(g) Consolidation of actions; consent of Commission

Notwithstanding the provisions of section 1407(a) of

litle 28, or any other provision of law, no action for equi-

tabic relief instituted by the Commission pursuant to the

securities laws shall be consolidated or coordinated with

other actions not brought by the Commission, even

though such other actions may involve common questions

of fact, unless such consolidation is consented to by the

Commission.

(h) Access to records

(1) The Right to Financial Privacy Act of 1978 [12

U.S.C. 3401 et seq.) shall apply with respect to the

Commission, except as otherwise provided in this

subsection.

lla

(2) Notwithstanding section 1105 or 1107 of the

Right to Financial Privacy Act of 1978 [12 U.S.C. 3405

or 3407], the Commission may have access to and obtain

copies of, or the information contained in financial

records of a customer from a financial institution

without prior notice to the customer upon an ex parte

showing to an appropriate United States district court

that the Commission seeks such financial records

pursuant to a subpena issued in conformity with the

requirements of section 19(b)' of the Securities Act of

1933, section 21(b) of the Securities Exchange Act of

1934 [15 U.S.C. 78u(b)], section 42(b) of the Investment

Company Act of 1940 [15 U.S.C. 80a-41(b)], or section

209(b) of the Investment Advisers Act of 1940 [15

U.S.C. 80b-9(b)], and that the Commission has reason

to believe that—

(A) delay in obtaining access to such financial

records, or the required notices, will result in—

(i) flight from prosecution;

(ii) destruction of or tampering with evidence;

(iii) transfer of assets or records outside the

territorial limits of the United States;

(iv) improper conversion of investor assets; or

(v) impeding the ability of the Commission to

identify or trace the source or disposition of funds

involved in any securities transaction;

(B) such financial records are necessary to iden-

tify or trace the record or beneficial ownership in-

terest in any security;

' See References in Text note below.

12a

investigation involve—

(i) the dissemination of materially false or

misleading information concerning any security,

issuer, or market, or the failure to make disclo-

sures required under the securities laws, which

remain uncorrected; or

(ii) a financial loss to investors or other per-

sons protected under the securities laws which

remains substantially uncompensated; or

(D) the acts, practices or course of conduct under

investigation—

(i) involve significant financial speculation in

securities; or

(ii) endanger the stability of any financial or

investment intermediary.

(3) Any application under paragraph (2) for a delay

in notice shall be made with reasonable specificity.

(4)(A) Upon a showing described in paragraph (2),

the presiding judge or magistrate judge shall enter an

ex parte order granting the requested delay for a

period not to exceed ninety days and an order prohib-

iting the financial institution involved from disclosing

that records have been obtained or that a request for

records has been made.

(B) Extensions of the period of delay of notice pro-

vided in subparagraph (A) of up to ninety days each

may be granted by the court upon application, but only

in accordance with this subsection or section 1109(a),

(b)(1), or (b)(2) of the Right to Financial Privacy Act of

1978 [12 U.S.C. 3409(a), (b)(1), or (b)(2)].

l3a

fication ordered under subparagraph (A) or (B), the

customer shall be served with or mailed a copy of the

subpena insofar as it applies to the customer together

with the following notice which shall describe with

reasonable specificity the nature of the investigation

for which the Commission sought the financial records:

“Records or information concerning your transac-

tions which are held by the financial institution named

in the attached subpena were supplied to the Securities

and Exchange Commission on (date). Notification was

withheld pursuant to a determination by the (title of

court so ordering) under section 21(h) of the Securities

Exchange Act of 1934 that (state reason). The pur-

pose of the investigation or official proceeding was

(state purpose).”

(5) Upon application by the Commission, all pro-

ceedings pursuant to paragraphs (2) and (4) shall be

held in camera and the records thereof sealed until

expiration of the period of delay or such other date as

the presiding judge or magistrate judge may permit.

(6) Repealed. Pub. L. 114-113, div. O, title VII,

§ 708, Dec. 18, 2015, 129 Stat. 3030.

(7)(A) Following the expiration of the period of de-

lay of notification ordered by the court pursuant to

paragraph (4) of this subsection, the customer may,

upon motion, reopen the proceeding in the district

court which issued the order. If the presiding judge or

magistrate judge finds that the movant is the customer

to whom the records obtained by the Commission

pertain, and that the Commission has obtained financial

records or information contained therein in violation of

l4a

this subsection, other than paragraph (1), it may order

that the customer be granted civil penalties against the

Commission in an amount equal to the sum of—

(i) $100 without regard to the volume of records

involved;

(ii) any out-of-pocket damages sustained by the

customer as a direct result of the disclosure; and

(iii) if the violation is found to have been willful,

intentional, and without good faith, such punitive

damages as the court may allow, together with the

costs of the action and reasonable attorney’s fees as

determined by the court.

(B) Upon a finding that the Commission has ob-

tained financial records or information contained

therein in violation of this subsection, other than par-

agraph (1), the court, in its discretion, may also or in

the alternative issue injunctive relief to require the

Commission to comply with this subsection with re-

spect to any subpoena which the Commission issues in

the future for financial records of such customer for

purposes of the same investigation.

mission has failed to comply with this subsection, other

than paragraph (1), and the court finds that the cir-

cumstances raise questions of whether an officer or

employee of the Commission acted in a willful and

intentional manner and without good faith with respect

to the violation, the Office of Personnel Management

shall promptly initiate a proceeding to determine

whether disciplinary action is warranted against the

agent or employee who was primarily responsible for

the violation. After investigating and considering the

ld5a

evidence submitted, the Office of Personnel Manage-

ment shall submit its findings and recommendations to

the Commission and shall send copies of the findings

and recommendations to the officer or employee or his

representative. The Commission shall take the cor-

rective action that the Office of Personnel Management

recommends.

(8) The relief described in paragraphs (7) and (10)

shall be the only remedies or sanctions available to a

customer for a violation of this subsection, other than

paragraph (1), and nothing herein or in the Right to

Financial Privacy Act of 1978 [12 U.S.C. 3401 et seq.|

shall be deemed to prohibit the use in any investigation

or proceeding of financial records, or the information

contained therein, obtained by a subpoena issued by the

Commission. In the case of an unsuccessful action un-

der paragraph (7), the court shall award the costs of the

action and attorney’s fees to the Commission if the

presiding judge or magistrate judge finds that the

customer’s claims were made in bad faith.

(9)(A) The Commission may transfer financial rec-

ords or the information contained thercin to any gov-

ernment authority if the Commission proceeds as a

transferring agency in accordance with section 1112 of

the Right to Financial Privacy Act of 1978 [12 U.S.C.

3412], except that the customer notice required under

section 1112(b) or (c) of such Act [12 U.S.C. 3412(b) or

(c)] may be delayed upon a showing by the Commission,

in accordance with the procedure set forth in para-

graphs (4) and (5), that one or more of subparagraphs

(A) through (D) of paragraph (2) apply.

(B) The Commission may, without notice to the

customer pursuant to section 1112 or the Right to

l6a

Financial Privacy Act of 1978 [12 U.S.C. 3412], transfer

financial records or the information contained therein

to a State securities agency or to the Department of

Justice. Financial records or information transferred

by the Commission to the Department of Justice or to a

State securities agency pursuant to the provisions of

this subparagraph may be disclosed or used only in an

administrative, civil, av criminal action or investigation

by the Department of Justice or the State securities

ugeney which arises out of or relates to the acts, prac-

tices, or courses of conduct investigated by the Com-

mission, except that if the Department of Justice or the

State securities agency determines that the infor-

mation should he disclosed or used for any other pur-

pose, it may do so if it notifies the customer, except as

otherwise provided in the Right to Financia) Privacy

Aet of 1978 [12 U.S.C. 3401 et seq.], within 30 days of its

determination, or complies with the requirements of

section 1109 of such Act [12 U.S.C. 3409] regarding

delay of notice.

(10) Any government authority violating paragraph

(9) shall be subject to the procedures and penalties

applicable to the Commission under paragraph (7)(A)

with respect to a violation by the Commission in ob-

taining financial records.

(11) Notwithstanding the provisions of this subsec-

tion, the Commission may obtain financial records from

a financial institution or transfer such records in ac-

cordance with provisions of the Right to Financial

Privacy Act of 1978 [12 U.S.C. 3401 et seq. |.

(12) Nothing in this subsection shall enlarge or re-

strict any rights of a financial institution to challenge

requests for records made by the Commission under

17a

existing law. Nothing in this subsection shall entitle a

customer to assert any rights of a financial institution.

(13) Unless the context otherwise requires, all

terms defined in the Right to Financial Privacy Act of

1978 [12 U.S.C. 3401 et seq.] which are common to this

subsection shall have the same meaning as in such Act.

(i) Information to CFTC

The Commission shall provide the Commodity Fu-

tures Trading Commission with notice of the com-

mencement of any proceeding and a copy of any order

entered by the Commission against any broker or

dealer registered pursuant to section 780(b)(11) of this

title, any exchange registered pursuant to section

78f(g) of this title, or any national securities association

registered pursuant to section 780-3(k) of this title.

3. 15 U.S.C. 7246 provides:

Fair funds for investors

(a) Civil penalties to be used for the relief of victims

If, in any judicial or administrative action brought by

the Commission under the securities laws, the Com-

mission obtains a civil penalty against any person for a

violation of such laws, or such person agrees, in set-

tlement of any such action, to such civil penalty, the

amount of such civil penalty shall, on the motion or at

the direction of the Commission, be added to and be-

come part of a disgorgement fund or other fund estab-

lished for the benefit of the victims of such violation.

18a

(b) Acceptance of additional donations

The Commission is authorized to accept, hold, ad-

minister, and utilize gifts, bequests and devises of

property, both real and personal, to the United States

for a disgorgement fund or other fund described in

subsection (a) of this section. Such gifts, bequests,

and devises of money and proceeds from sales of other

property received as gifts, bequests, or devises shall be

deposited in such fund and shail be available for allo-

cation in accordance with subsection (a) of this section.

(1) Subject of study

The Commission shall review and analyze—

(A) enforcement actions by the Commission over

the five years preceding July 30, 2002, that have in-

cluded proceedings to obtain civil penalties or dis-

gorgements to identify areas where such proceed-

ings may be utilized to efficiently, effectively, and

fairly provide restitution for injured investors; and

(B) other methods to more efficiently, effectively,

and fairly provide restitution to injured investors,

including methods to improve the collection rates for

civil penalties and disgorgements.

(2) Report required

The Commission shall report its findings to the

Committee on Financial Services of the House of

Representatives and the Committee on Banking,

Housing, and Urban Affairs of the Senate within 180

days after of’ July 30, 2002, and shall use such

' Soin original. The word “of” probably should not appear.

19a

findings to revise its rules and regulations as nec-

essary. The report shall include a discussion of re-

gulatory or legislative actions that are recommen-

ded or that may be necessary to address concerns

identified in the study.

4. 15U.8.C. 7&t-1 provides:

Liability to contemporaneous traders for insider trading

(a) Private rights of action based on contemporaneous

trading

Any person who violates any provision of this chap-

ter or the rules or regulations thereunder by purchas-

ing or selling a security while in possession of material,

nonpublic information shall be liable in an action in any

court of competent jurisdiction to any person who,

contemporaneously with the purchase or sale of secu-

rities that is the subject of such violation, has pur-

chased (where such violation is based on a sale of se-

curities) or sold (where such violation is based on a

purchase of securities) securities of the same class.

(b) Limitations on liability

(1) Contemporaneous trading actions limited to

profit gained or loss avoided

The total amount of damages imposed under

subsection (a) of this section shall not exceed the

profit gained or loss avoided in the transaction or

transactions that are the subject of the violation.

(2) Offsetting disgorgements against liability

The total amount of damages imposed against

any person under subsection (a) of this section shall

20a

be diminished by the amounts, if any, that such

person may be required to disgorge, pursuant to a

court order obtained at the instance of the Commis-

sion, in a proceeding brought under section 78u(d) of

this title relating to the same transaction or trans-

actions.

(3) Controlling person liability

No person shall be liable under this section solely

by reason of employing another person who is liable

under this section, but the liability of a controlling

person under this section shall be subject ‘to section

78t(a) of this title.

(4) Statute of limitations

No action may be brought under this section more

than 5 years after the date of the last transaction

that is the subject of the violation.

Any person who violates any provision of this chap-

ter or the rules or regulations thereunder by com-

municating material, nonpublic information shall be

jointly and severally liable under subsection (a) of this

section with, and to the same extent as, any person or

persons liable under subsection (a) of this section to

whom the communication was directed.

(d) Authority not to restrict other express or implied

rights of action

Nothing in this section shall be construed to limit or

condition the right of any person to bring an action to

enforce a requirement of this chapter or the availability

of any cause of action implied from a provision of this

chapter.

2la

(e) Provisions not to affect public prosecutions

This section shall not be construed to bar or

limit in any manner any action by the Commission

or the Attorney General under any other provision

of this chapter, nor shall it bar or limit in any man-

ner any action to recover penalties, or to seek any

other order regarding penalties.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.