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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0720%3A07

## Record

- **Collection:** Supreme Court brief
- **Document type:** Respondents Brief
- **Published:** January 1, 2017

## Text

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)

TV

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

Vv

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

VI

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

IX

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.

X

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

XI

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
v.
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)

2

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

3

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,

4

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).

5

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

6

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.

7

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

8

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-

9

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

10

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-

11

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

12

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-

13

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

14

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-

15

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
copyright-infringement case would “giv[e] to the copyright propri-
etor profits which are not attriputable to the infringement”); see
also generally Note, Developments in the Law—Statutes of Limi-

16

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”).

17

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).

18

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-

19

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.

20

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

21

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).

22

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.

23

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

24

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-

25

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.

26

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.

27

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”).

28

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).

29

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).

30

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).

31

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-

32

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-

33

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’”).

34

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

35

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).

36

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.”).

37

“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.

38

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

39

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.

40

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).

41

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.

42

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-

43

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.

44

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-

45

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-

46

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).

47

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

48

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).

AY

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

50

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

51

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)

Za

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

3a

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.

(c) Judicial enforcement of investigative power of
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

4a

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

5a

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

6a

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

7a

(bb) such violation directly or indirectly
resulted in substantial losses or created a
significant risk of substantial losses to other
persons.

(C) PROCEDURES FOR COLLECTION.—

(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

Sa

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-

Ga

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 C

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0720%3A07. Public record. Not legal advice.