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

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No. 16-529 MAR 3 - 201

- STE OPTHE SEEK

In The

Supreme Court of the Anited States

Qreneeeeoe

CHARLES R. KOKESH,

Petitioner,

v.

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

+

On Writ Of Certiorari To The

United States Court Of Appeals

For The Tenth Circuit

+ —— =

BRIEF OF AMICUS CURIAE

SECURITIES INDUSTRY AND

FINANCIAL MARKETS ASSOCIATION

IN SUPPORT OF PETITIONER

¢--

IRA D. HAMMERMAN MICHAEL J. DELL

KEVIN M. CARROLL Counsel of Record

SECURITIES INDUSTRY ALAN R. FRIEDMAN

AND FINANCIAL ARIELLE WARSHALL KATZ

MARKETS ASSOCIATION KRAMER LEVIN NAFTALIS

1101 New York Avenue, NW & FRANKEL LLP

Washington, D.C. 20005 1177 Avenue of the Americas

(202) 962-7300 New York, New York 10036

(212) 715-9100

mdell@kramerlevin.com

Counsel for Amicus Curiae Securities

Industry and Financial Markets Association

TABLE OF CONTENTS

Page

INTEREST OF AMICUS CURIAE...................... 1

SUMMARY OF ARGUMENT ......................ccceeees 5

I isccchestincdusdtacctanpcecmtihnabieotaneumactuaniaiins 8

I.

II.

SECTION 2462’S FIVE-YEAR STATUTE

OF LIMITATIONS APPLIES TO SEC AC-

TIONS FOR DISGORGEMENT................

A.

B.

D.

The Disgorgement Order is Punitive

and a “Penalty” Under Section 2462 .....

The Disgorgement Order is a “Forfei-

ture” Within the Meaning of Section

SE saieiteicticidaipadbaitemmioincetionddbiekalinaine madras

The SEC Has Previously Taken the

Position that Disgorgement is a “Pen-

NE MN ls ict etetetainsinnnsdecns

The Decision Below is Inconsistent

i

THE TENTH CIRCUIT'S EXEMPTION OF

DISGORGEMENT CLAIMS FROM SEC-

TION 2462’°S LIMITATIONS WOULD CRE-

ATE UNCERTAINTY AND INSTABILITY

IN THE FINANCIAL MARKETS ...............

A.

B.

The Decision Below Undermines the

Enforcement of the Securities Laws by

Promoting Stale Claims ......................

The Decision Below Undermines the

Principles of Repose and Certainty.....

SI iceincnsiniassicctnbdasendsndioctinncadatsesamenadusignincsats

14

20

21

23

23

i

TABLE OF AUTHORITIES

Page

CASES

3M Co. (Minn. Mining & Mfg.) v. Browner,

17 F.3d 1453 (D.C. Cir. 1994) .......... Ge Rs 22, 24

62 Cases, More or Less, Each Containing Six

Jars of Jam v. United States,

GRE REC eam ae 18

Adams v. Woods,

6 US. (2 Cranch) 336 (1805)..........................000.. 6, 22

Badaracco v. Comm’r of Internal Revenue,

I as doneuaie 17

Bd. of Governors of the Fed. Reserve Sys. v. Di-

mension Fin. Corp..,

I IE IE innicisiccuiccciecpitsiebensndappuabdipanehiencannneee 17

Cent. Bank of Denver, N.A. v. First Interstate

Bank of Denver, N.A.,

UE i 24, 29

Coghlan v. NTSB,

470 F.3d 1300 (11th Cir. 2006)..........0000000000. 9,10,11

Collins Sec. Corp. v. SEC,

ee Se CP, I UD OD caccicicccandsevensecuacascescceniee 9

CTS Corp. v. Waldburger,

SN I I I go ccipsceaaciica cs sccbescletebonen 17, 29

Duncan v. Walker,

REE eae eae cae Mena ie 18

Fed. Mar. Comm’n v. Seatrain Lines, Inc.,

Se SN I cs ears emauainicucnoawadessomidaas 19

ii

TABLE OF AUTHORITIES — Continued

Page

ETC. v. Bronson Partners, LLC,

re Be ee te Ge ED vveccccsecicecsccsesecsvecscconcscoser 10

Gabelli v. SEC, 133 S. Ct. 1216 (2013)............... passim

Gompers v. Buck’s Stove & Range Co.,

Ey IIE sissies src rox cuichrdpneniaancnsbedsbeuanieiuenl 10

Johnson v. SEC,

87 F.3d 484 (D.C. Cir. 1996) .............. 9, 10, 13, 20, 27

Lamie v. United States Trustee,

eo a 0s ahs oanbaivtinemmiceaneaiads 18

Market Co. v. Hoffman,

IT 5. ccc iestleraan acicabepnaenidsdheubbesabil 18

Pinter v. Dahl,

I a delheionileeinaeeiailn 29

Riordan v. SEC,

627 F.3d 1230 (D.C. Cir. 2010) ..................0. 2, 12,13

SEC v. Contorinis,

TER Cee Be Ce CAS, BOTA) ............2..00ccccscscescesees 10, 15

SEC v. First City Fin. Corp. Ltd..,

re oe Be CER, Gee FED ccnvicceveccceccescceesees 11, 14

SEC v. Fischbach Corp.,

ee Se CR ANS ED evccnncavcunsscsesccsvescesensecsees 10

SEC v. Gann,

566 F.3d 932 (Sth Cir. 2OOD)..........cccccecrccccecsesccecseees 13

SEC v. Graham,

21 F. Supp. 3d 1300 (S.D. Fla. 2014)................. 16, 19

SEC v. Graham,

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

iv

TABLE OF AUTHORITIES — Continued

Page

SEC v. JT Wallenbrock & Assocs.,

440 F.3d 1109 (9th Cir. 2006).................cccccesceceseseee 14

SEC v. Tambone,

Be Se Oe Aa BID vinsicveccovvecicseccvossnccovens 2,12

SEC v. Telsey,

144 B.R. 563 (Bankr. S.D. Fla. 1992) ...00 000.0. 20

SEC v. Teo,

Fe ae Be Ce GE BIE) no ccccnscenssscissncsencecvdcccenerereis 25

SEC v. Wyly,

860 F. Supp. 2d 275 (S.D.NLY.

SAMA pene ahi et oR RTE aeApatene ee om m NR c sae sO] 10

Short v. Belleville Shoe Mfg. Co.,

Be ee RA COU GARE CP i ceceencs svecconsccsnccvonvsectans 30

Tull v. United States,

8D, TALS mar RSM AI 10, 11

United States v. Kubrick,

A I ee io ee Reena 24

United States v. Nat'l Broiler Mktg. Ass’n,

WD MT EEE IEE, NUE O Pnccces vescncickcccncvesvcccssctdece 17

United States v. Ursery,

gs LR AREER einer artes er 15

United States v. Webber,

ae Fee OO C7 Clr, BOOB)..........cccccvcccceccccsecseccscsess 15

Wilson v. Garcia,

SN Se IID 5d, sc cuisines sbeaioniedeunwndesscreimensueh 28

Vv

TABLE OF AUTHORITIES ~ Continued

Page

STATUTES AND REGULATIONS

ee ee eed cas achnnidasintidendddanaiontonats passim

gC, Ecce RES Re Dre SRR p EE Cm REN, fs pete 26

a caliaieiniieslidlaniianl 12

yee Be ESB ER nee nee eee Bree 12

OTHER AUTHORITIES

148 Cong. Rec. 87419 (daily ed. July 26, 2002)

CRaNRORNS CE HOR. LAG) cc cvcccccsvccccscsesccsoessccvcosses 26

Arthur B. Laby & W. Hardy Callcott, Patterns of

SEC Enforcement Under the 1990 Remedies

Act: Civil Money Penalties, 58 Alb. L. Rev. 5

SE csecitecedesbisidsepeasniesindaibatavesnaiuetniontanmacascnsdibeiiates 25

Black’s Law Dictionary (10th ed. 2014)............... 11, 15

Catherine E. Maxson, Note, SEC Enforcement

Suits: The Applicability of Section 2462’s Stat-

ute of Limitations to SEC Enforcement Suits

in Light of the Remedies Act of 1990, 94 Mich.

ee a ia cass cetisgrincpacebmiionaamibenansiete 29

Edward Brodsky & Scott A. Eggers, The Statute

of Limitations in SEC Civil Enforcement Ac-

tions, 23 Sec. Reg. L.J. 123 (1995)...............cceecceeeees 11

Edward Brodsky, Statute of Limitations and

Civil Enforcement: Corporate and Securities

Litigation, N.Y.L.J., Sept. 21, 1993, at 21............... 15

IRS Chief Counsel Mem. 201619008 (May 6,

AES EARS SSRSNSS SR RE REP Bb ASD: OF APOE NON 20

vi

TABLE OF AUTHORITIES — Continued

25 Marc I. Steinberg & Ralph C. Ferrara, Secu-

rities Practice: Federal and State Enforcement

SS EINE dudeciesndssccabentepuindasedsesionciidheniontanerehis

Robert F. Zielinski & Vito Petretti, Records Re-

tention: What Banks Don’t Know Can and

Likely Will Hurt, 119 Banking L.J. 350 (2002)

Russell G. Ryan, The Equity Facade of SEC Dis-

gorgement, 4 Harv. Bus. L. Rev. Online, at 5

SIIIIINAd acs scocairiscidicimideoneneiidateiadatiiah Samciiegeemnsaliaacnnnsn

SEC Div. of Enforcement, Enforcement Manual

a a

Strengthening the SEC’s Vital Enforcement Re-

sponsibilities: Hearing Before the Subcomm.

On Securities, Insurance, and Investment of

the S. Comm. On Banking, Housing, and Ur-

ban Affairs, 111th Cong. 46 (2009) (Statement

of Robert Khuzami, Director, SEC) ..................

Steven R. Glaser, Statutes of Limitations for Eq-

uitable & Remedial Relief in SEC Enforcement

Page

Actions, 4 Harv. Bus. L. Rev. 129 (2014)............26, 27

1

INTEREST OF AMICUS CURIAE

The Securities Industry and Financial Markets

Association (“SIFMA”) is an association of hundreds of

securities firms, banks and asset managers, including

many of the largest financial institutions in the United

States. SIFMA’s mission is to support a strong finan-

cial industry, investor opportunity, capital formation,

job creation and economic growth, while building trust

and confidence in the financial markets. SIFMA’s

members operate and have offices in all fifty states.

SIFMA has offices in New York and Washington, D.C.

and is the U.S. regional member of the Global Finan-

cial Markets Association. SIFMA often appears as ami-

cus curiae in cases that raise legal issues of vital

concern to participants in the securities industry.’

28 U.S.C. § 2462 (1948), the default statute of lim-

itations for federal civil enforcement actions, sets a

five-year statute of limitations for government actions

to enforce “any civil fine, penalty, or forfeiture, pecuni-

ary or otherwise”:

Except as otherwise provided by Act of

Congress, an action, suit or proceeding for the

enforcement of any civil fine, penalty, or for-

feiture, pecuniary or otherwise, shall not be

1 SIFMA has submitted to the Clerk letters from all parties

consenting to this filing. This brief was not authored in whole or

in part by counsel for any party. No such counsel or any party

made a monetary contribution to fund the preparation or submis-

sion of this brief. No person or entity other than SIFMA, its mem-

bers, or its counsel made a monetary contribution to the

preparation or submission of this brief.

2

entertained unless commenced within five

years from the date when the claim first ac-

crued.

28 U.S.C. § 2462.

In Gabelli v. SEC, 133 S. Ct. 1216 (2013), this

Court unanimously held that the five-year limitations

period in Section 2462 applies to Securities and Ex-

change Commission (“SEC”) claims for civil money

penalties. The Court rejected the SEC’s request to add

a “discovery rule” that would have exposed defendants

to government enforcement actions “not only for five

years after their misdeeds, but for an additional uncer-

tain period into the future.” /d. at 1223. The Court rec-

ognized that statutes of limitations play a vital role in

cases where the government seeks to punish alleged

wrongdoers by (1) providing repose to potential defend-

ants; (2) protecting defendants from the prejudice

caused by stale claims and unreliable evidence; and

(3) creating certainty about a defendant’s potential li-

abilities. Jd. at 1221.

Following Gabelli, the Eleventh Circuit held that

Section 2462’s five-year limitations period applies to

SEC claims for disgorgement, because disgorgement is

a “forfeiture” within the plain meaning of the statute.

SEC v. Graham, 823 F.3d 1357, 1363 (11th Cir. 2016).

However, the Tenth Circuit, in the ruling below, joined

the pre-Gabelli opinions of the First and D.C. Circuits

that Section 2462 does not apply to the SEC’s disgorge-

ment claims. Pet. App. 2a; SEC v. Tambone, 550 F.3d

106, 148 (1st Cir. 2008); Riordan v. SEC, 627 F.3d 1230,

3

1234 (D.C. Cir. 2010). The Tenth Circuit reasoned that

disgorgement is traditionally treated as an “equitable”

remedy that it is “remedial” and not a “penalty” under

Section 2462, and that Section 2462’s reference to for-

feiture should be read narrowly to refer to in rem pro-

ceedings and not to SEC disgorgement claims. That

ruling is inconsistent with Gabelli and the plain lan-

guage of Section 2462 and overlooks the bedrock prin-

ciples underlying that statute.

SIFMA’s members have a strong interest in the

Yourt’s application of Section 2462’s five-year limita-

tions period to any SEC claims that are functionally

fines, penalties or forfeitures — including disgorgement

claims — because SIFMA’s members are regulated un-

der the securities laws and require certainty and pre-

dictability. SIFMA and its members believe the text of

Section 2462 and the Court’s rationale for its ruling in

Gabelli compel the application of the five-year limita-

tions period to SEC disgorgement claims for the follow-

ing reasons:

First, disgorgement, however labeled, is a punitive

remedy that falls within the statute’s express refer-

ence to a “penalty” or “forfeiture.” Disgorgement orders

are monetary judgments payable to the government to

punish a wrongdoer, not compensatory remedies. Their

primary function is ensuring that a wrongdoer does

not profit and deterring violations of the securities

laws. Indeed, the SEC has argued that disgorgement

obligations should be treated as non-dischargeable

debts precisely because they are punitive and consti-

tute a “penalty” or “forfeiture” within the meaning of

4

the Bankruptcy Code. The SEC should not take a con-

trary position here. Doing so would undermine Section

2462 and the effective enforcement of the law. The

Tenth Circuit’s decision violates the long-settled prin-

ciple that words in statutes should be given their ordi-

nary meaning. It would allow the SEC to shield actions

for a disgorgement penalty or forfeiture from Section

2462’s five-year limitations period merely by charac-

terizing the sanction as “equitable.” SIFMA and its

members recognize the importance of applying laws as

they are written by Congress, not based on subjective

assertions of legislative purpose that do not take ac-

count of the objectives Congress weighed in drafting

particular provisions. That is essential to ensure pre-

dictability. And predictability is crucial for the effective

and efficient functioning of the markets because it al-

lows participants to understand how to comply with

the law and how it will be enforced. This Court should

restore the focus to Section 2462’s text and correct the

Tenth Circuit’s interpretation that strays from its

plain language and structure. A failure to do so

would risk encouraging courts around the country to

depart from text in a misguided effort to divine intent

and policy.

Second, the Tenth Circuit’s ruling is inconsistent

with Gabelli. This Court recognized in Gabelli that

settled principles of certainty, repose and elimination

of stale claims require the application of Section

2462’s five-year limitations period as a check on the

government’s power to punish through civil enforce-

ment penalties. Creating a government “exception” to

5

Section 2462 for disgorgement would undermine that

ruling.

Finally, the Tenth Circuit’s ruling, by permitting

the government to seek disgorgement in perpetuity,

would create uncertainty and instability in the finan-

cial markets. SIFMA’s members rely on the fair, con-

sistent and timely enforcement of the securities laws

to deter and remedy wrongdoing. One key component

is the consistent application of statutes of limitations

that are a critical part of those laws. By establishing a

definitive outside time limit for exposure to govern-

ment enforcement efforts, Section 2462 provides the

markets with a measure of certainty and finality, sets

a time after which participants are free from lingering

liabilities and stale claims, and ensures that claims

can be adjudicated based on evidence that is fresh.

SIFMA’s members and their investors and customers

depend upon such finality in their financial planning

and operations. The decision below would undermine

the important values and goals that Section 2462

serves and should be reversed.

¢

SUMMARY OF ARGUMENT

This appeal presents the fundamental question

whether the dispositive principles of law this Court ar-

ticulated in Gabelli should be sub silentio limited, and

Section 2462’s five-year period for the government to

bring an action fer a “penalty” or “forfeiture” should be

judicially bypassed when the SEC characterizes its

6

“disgorgement” claim as “equitable.” SIFMA supports

Petitioner’s argument that SEC enforcement actions

seeking disgorgement are governed by Scction 2462’s

five-year limitations period regardless of the manner

in which the SEC characterizes them. The disgorge-

ment sought by the SEC in this case — grounded on

conduct dating back to 1995, fourteen years before the

SEC filed suit in 2009 — is both a “penalty” and a “for-

feiture” within the plain meaning of Section 2462.’

The ruling below would allow the government to

avoid Section 2462’s five-year limitations period

merely by labeling the disgorgement it seeks as “equi-

table.” That distinction is not tenable. This Court’s de-

cision in Gabelli made clear that the core principles

underlying Section 2462 (and all statutes of limita-

tions) — certainty, repose and elimination of stale

claims -- must be applied to government penalty or for-

feiture actions. There is nothing about disgorgement

claims that makes them less subject to Section 2462

than any other “civil fine, penalty, or forfeiture, pecu-

niary or otherwise.” As Chief Justice Marshall ob-

served centuries ago, “liJn a country where not even

treason can be prosecuted after a lapse of three years,

it could scarcely be supposed that an individual would

remain forever liable to a pecuniary forfeiture.” Adams

v. Woods, 6 U.S. (2 Cranch) 336, 342 (1805).

2 SIFMA does not take a position on the merits of the SEC’s

allegations against Petitioner.

7

SIFMA’s members recognize that the appropriate

exercise by the SEC of the investigative and enforce-

ment powers granted to it by Congress plays an im-

portant role in the regulation of the nation’s financial

markets. However, Congress has also concluded that

the pursuit of old and stale claims poses a particularly

acute threat of government overreaching. Accordingly,

Congress has established statutes of limitations and

repose for actions involving alleged violations of the

federal securities laws. Section 2462’s five-year statute

of limitations gives the SEC abundant time to discover

and investigate violations of the securities laws and

bring actions for disgorgement.

Belated enforcement efforts after Section 2462’s

five-year limitations period has run would have signif-

icant adverse consequences for businesses and inves-

tors, as well as all market participants. By expanding

the government’s ability to impose punitive disgorge-

ment sanctions years and decades after alleged mis-

conduct, the decision below would create uncertainty,

unpredictability and an indefinite threat of exposure

to government enforcement actions and thereby under-

cut the very purpose of statutes of limitations. This

Court should apply Section 2462 in accordance with its

text and reverse the decision below.

°

8

ARGUMENT

I. SECTION 2462’S FIVE-YEAR STATUTE OF

LIMITATIONS APPLIES TO SEC ACTIONS

FOR DISGORGEMENT

Section 2462 imposes a default five-year limita-

tions period whenever the government seeks to enforce

“any civil fine, penalty, or forfeiture, pecuniary or oth-

erwise.” 28 U.S.C. § 2462. The Tenth Circuit’s ruling is

inconsistent with the plain meaning of that statute. It

would allow the government, merely by labeling dis-

gorgement an “equitable” sanction, to sidestep the lim-

itations period in Section 2462 and seek disgorgement

for conduct that occurred more than five years earlier

— in this case, disgorgement of approximately $35 mil-

lion, plus an additional $18 million in prejudgment in-

terest, for conduct as long ago as fourteen years before

the SEC filed suit.’ But it is the effect of the sanction,

not the label-of-convenience attached to it by a govern-

ment enforcer, that determines whether Section 2462’s

limitations period applies. Section 2462 applies to

3 On October 27, 2009, the SEC filed a civil enforcement ac-

tion against Petitioner seeking, inter alia, disgorgement in con-

nection with alleged securities law violations between 1995

through 2007. Pet. App. 2a, 21a. There is no dispute that if Section

2462’s limitations period applied, the SEC could not seek relief for

the period prior to October 27, 2004 (five years before the SEC

filed its complaint). Id. at 26a. In November 2014, following a five-

day jury trial, the district court ordered Petitioner to disgorge

$34.9 million, of which the SEC conceded only approximately $5

million was the result of conduct that occurred on or after October

27, 2004. Id. at 21a, 45a. The district court ordered Petitioner to

pay an additional $18 million in prejudgment interest on the dis-

gorgement. /d. at 45a.

9

the disgorgement ruling the SEC obtained against

Petitioner below because it is both a “penalty” and a

“forfeiture” within the meaning of the statute.

A. The Disgorgement Order is Punitive

and a “Penalty” Under Section 2462

A “penalty” under Section 2462 is “a form of pun-

ishment imposed by the government for unlawful or

proscribed conduct, which goes beyond remedying the

damage caused to the harmed parties by the defen-

dant’s action.” Coghlan v. NTSB, 470 F.3d 1300, 1305

(11th Cir. 2006) (per curiam) (quoting Johnson v. SEC,

87 F.3d 484, 488 (D.C. Cir. 1996)) (emphasis added). As

this Court has explained, a penalty is “something im-

posed in a punitive way for an infraction of a public

law.” Gabelli, 133 S. Ct. at 1223 (quoting Meeker v.

Lehigh Valley R. Co., 236 U.S. 412, 423 (1915)).

Because the disgorgement order below was “im-

posed in a punitive way” at the request of the SEC “for

an infraction of a public law,” it is a “penalty” within

the meaning of Section 2462. However, the Tenth Cir-

cuit ruled to the contrary, after determining that dis-

gorgement has traditionally been treated as an

“equitable” remedy. Pet. App. 10a-lla. Courts have

cautioned, however, that “[s]uch labels are likely to re-

flect conclusions rather than analyses, and in any

event are not determinative.” Collins Sec. Corp. v. SEC,

562 F.2d 820, 825 (D.C. Cir. 1977), abrogated by Stead-

man v. SEC, 450 U.S. 91 (1981). The applicability of

Section 2462 depends on the purpose and effect of

10

disgorgement. See Johnson, 87 F.3d at 491 (determin-

ing Section 2462’s scope based on “the effect of the

SEC’s action”); Coghlan, 470 F.3d at 1305; Johnson, 87

F.3d at 491; see also Gompers v. Buck’s Stove & Range

Co., 221 U.S. 418, 441 (1911) (“It is not the fact of pun-

ishment, but rather its character and purpose that of-

ten serve to distinguish between” remedial and

punitive relief ).

Disgorgement is punitive under Section 2462 par-

ticularly where, as here, a defendant is required to dis-

gorge more than he actually personally profited. Pet.

App. 45a; see, e.g., SEC v. Contorinis, 743 F.3d 296, 309

(2d Cir. 2014) (Chin, J., dissenting) (disgorgement is

punitive when “profits were not [defendant’s]” and

“were never in his possession or control” because “they

were earned by the fund by which he was employed”);

SEC v. Wyly, 860 F. Supp. 2d 275, 277 (S.D.N.Y. 2012)

(“awards that exceed the defendant’s gains are puni-

tive and beyond the court’s equitable powers”); see also

Tull v. United States, 481 U.S. 412, 423-24 (1987) (dis-

gorgement is “a more limited form of penalty than a

civil fine”; court “impose[d] punishment” by ordering

disgorgement that exceeded profits).

Such disgorgement is designed both to punish a

wrongdoer and “to deter” future violations, which is the

touchstone of a punitive remedy. See, e.g., SEC v. Fisch-

bach Corp., 133 F.3d 170, 175 (2d Cir. 1997); see also

ET:C. v. Bronson Partners, LLC, 654 F.3d 359, 373

(2d Cir. 2011) (“[W]hen a public entity seeks disgorge-

ment it does not claim any entitlement to particular

property; it seeks only to deter violations of the laws

ll

by depriving violators of their ill-gotten gains.”) (inter-

nal quotation marks and alterations omitted); SEC v.

First City Fin. Corp. Ltd., 890 F.2d 1215, 1232 n.24

(D.C. Cir. 1989) (“in the context of an SEC enforcement

suit, |] deterrence is the key objective”); Edward Brod-

sky & Scott A. Eggers, The Statute of Limitations in

SEC Civil Enforcement Actions, 23 Sec. Reg. L.J. 123,

135-36 (1995) (“[Dlisgorgement serves a primary func-

tion of deterring violations of the securities laws, not

compensation.”). Although the SEC attempts to char-

acterize disgorgement as an “equitable” remedy, “the

language of ‘deterrence’ is not the language of equity.”

Id. at 136.

Disgorgement is also punitive because, as is true

of penalties, the SEC’s primary purpose is not to com-

pensate victims. Relief that “goes beyond remedying

the damage caused to the harmed parties” is punitive.

Coghlan, 470 F.3d at 1305 (internal quotation marks

omitted); see also Penalty, Black’s Law Dictionary

(10th ed. 2014) (a “penalty” is “[p]unishment imposed

on a wrongdoer ... as distinguished from compensa-

tion for the injured party’s loss”); 25 Marc I. Steinberg

& Ralph C. Ferrara, Securities Practice: Federal and

State Enforcement § 4:22 (2016) (collecting authorities

and concluding that “the primary purpose of disgorge-

ment is punitive: to punish based on violations of the

securities laws rather than to compensate the vic-

tims”). The SEC’s disgorgement orders “go beyond

compensation, are intended to punish, and label de-

fendants wrongdoers.” See Gabelli, 133 S. Ct. at 1223;

see also Tull, 481 U.S. at 422 (penalties are “intended

12

”

to punish culpable individuals,” not “to extract com-

pensation or restore the status quo”). The SEC’s own

rules expressly permit disgorged funds to go to the

United States Treasury instead of to victims. Although

the SEC may compensate victims through a Fair Fund,

such funds are permitted only when the SEC obtains

civil money penalties which are subject to Section

2462’s five-year statute of limitations. See SEC Rules

of Practice: Fair Fund and Disgorgement Plans, 17

C.F.R. §§ 201.1100, 201.1102(b).

The Tenth Circuit reasoned, however, that despite

these quintessentially punitive characteristics, dis-

gorgement is not a “penalty” under Section 2462

because it is “remedial” and “does not inflict punish-

ment.” Pet. App. 10a-1la. According to the Tenth Cir-

cuit, disgorgement is non-punitive because it “just

leaves the wrongdoer in the position he would have oc-

cupied had there been no misconduct.” Jd. at 11a (in-

ternal citation and internal quotation marks omitted).

The court below cited the D.C. and First Circuits’ deci-

sions that disgorgement was not a “penalty” under Sec-

tion 2462. Id. at 10a-11a; Riordan v. SEC, 627 F.3d

1230, 1234 (D.C. Cir. 2010) (“disgorgement is not a civil

penalty” and “not subject to the five-year statute of

limitations”) (internal quotation marks omitted); SEC

v. Tambone, 550 F.3d 106, 148 (1st Cir. 2008) (Section

2462 “applies only to penalties sought by the SEC, not

its request for ... disgorgement”). But the D.C. and

First Circuits made those rulings before this Court’s

decision in Gabelli and they cannot be reconciled with

its teaching that orders that “go beyond compensation,

13

are intended to punish, and label defendants wrongdo-

ers” are “penalties” under Section 2462.4 133 S. Ct. at

1223. Moreover, the Tenth Circuit overlooked all of the

punitive characteristics of disgorgement. See also

Johnson, 87 F.3d at 491 n.11 (“It is clearly possible for

a sanction to be ‘remedial’ in the sense that its purpose

is to protect the public, yet not be ‘remedial’ because it

imposes a punishment going beyond the harm inflicted

by the defendant.”).

Further, although an SEC enforcement action for

disgorgement is sometimes labeled as “equitable” or

“remedial,” in practice district courts apply very little

discretion in awarding disgorgement. Once a defen-

dant is found liable, disgorgement follows almost auto-

matically without regard for the damages suffered by

a wronged party. Unlike SEC requests for injunctive

relief, for which district courts perform a multi-factor

analysis to determine whether the SEC has estab-

lished a reasonable likelihood of future violations, see,

e.g., SEC v. Gann, 565 F.3d 932, 940 (5th Cir. 2009)

(“[i]Jn imposing a permanent injunction, the district

court must consider a number of factors”), the SEC’s

burden when it seeks disgorgement is simply to show

* Riordan is also distinguishable because the disgorgement

award there could be viewed as compensatory. In Riordan, the de-

fendant broker allegedly engaged in a scheme to defraud the citi-

zens of the State of New Mexico by paying kickbacks to the state

treasurer in exchange for obtaining securities transactions from

the New Mexico State Treasurer’s Office. 627 F.3d at 1231. The

D.C. Circuit explained that “the disgorged moneys will apparently

be returned to the New Mexico State Government and not re-

tained by the U.S. Government.” Jd. at 1234, n.1.

14

that the amount to be disgorged “reasonably approxi-

mates” the defendant’s illicit profits; the burden then

shifts to the defendant to rebut the presumption that

the profits are illegal, a “near-impossible” task. SEC v.

First City Fin. Corp. Ltd., 890 F.2d at 1231-32 (“sepa-

rating legal from illegal profits exactly may at times be

a near-impossible task”). Similarly, a defendant is of-

ten required to “disgorge” without receiving any credit

for expenses. Pet. App. 12a; see also SEC v. JT Wallen-

brock & Assocs., 440 F.3d 1109, 1114-15 (9th Cir. 2006)

(defendant was not entitled to deduct business and op-

erating expenses from the amount of his disgorgement

because “it would be unjust to permit the defendants

to offset” such amounts); Russell G. Ryan, The Equity

Facade of SEC Disgorgement, 4 Harv. Bus. L. Rev.

Online 1, 5 (2013), http://www.hblr.org/?p=3528 (dis-

gorgement’s “resemblance to a truly equitable remedy

largely disappears” and the punitive attributes of dis-

gorgement “call into question whether the label of eq-

uity accurately describes disgorgement”). Accordingly,

when the SEC seeks disgorgement, it seeks a “penalty”

and Section 2462 applies.

B. The Disgorgement Order is a “Forfeiture”

Within the Meaning of Section 2462

There is also no meaningful difference between

disgorgement and forfeiture. As the Eleventh Circuit

correctly concluded, “under the plain meaning” of Sec-

tion 2462, “forfeiture and disgorgement are effectively

synonyms.” Graham, 823 F.3d at 1363-64 (“disgorge-

ment is imposed as redress for wrongdoing and can be

15

considered a subset of forfeiture”); see also Edward

Brodsky, Statute of Limitations and Civil Enforcement:

Corporate and Securities Litigation, N.Y.L.J., Sept. 21,

1993, at 21 (“An SEC civil enforcement action seeking

disgorgement of illegally-obtained profits is in the

nature of a forfeiture action.”). “Disgorgement” is the

“act of giving up something (such as profits illegally

obtained) on demand or by legal compulsion.” Dis-

gorgement, Black’s Law Dictionary (10th ed. 2014).

Similarly, a “forfeiture” is the “loss of a right, privilege,

or property because of a crime, breach of obligation, or

neglect of duty.” Forfeiture, Black’s Law Dictionary

(10th ed. 2014). The Tenth Circuit acknowledges this

much, Pet. App. 13a (forfeiture and disgorgement “cap-

ture similar concepts”).

Courts have long used the terms “disgorgement”

and “forfeiture” interchangeably to describe orders

that require a defendant to give up ill-gotten profits.

See United States v. Ursery, 518 U.S. 267, 284 (1996)

(forfeiture is “designed primarily to confiscate property

used in violation of the law, and to require disgorge-

ment of the fruits of illegal conduct”) (emphasis added),

United States v. Webber, 536 F.3d 584, 602-03 (7th Cir.

2008) (“Forfeiture, in contrast [to restitution], is puni-

tive; it seeks to disgorge any profits that the offender

realized from his illegal activity”) (emphasis added);

see also Contorinis, 742 F.3d at 310 (Chin, J., dissent-

ing) (the terms are “largely the same. . . . [b]oth forfei-

ture and disgorgement seek to force a defendant to give

up — that is, to forfeit or to disgorge — what he has

wrongfully gained;” collecting cases using the terms

16

synonymously). As the district court concluded in Gra-

ham, “the disgorgement of all ill-gotten gains realized

from the alleged violations of the securities laws — 7.e.,

requiring defendants to relinquish money and prop-

erty — can truly be regarded as nothing other than a

forfeiture (both pecuniary and otherwise), which rem-

edy is expressly covered by § 2462.” SEC v. Graham, 21

F. Supp. 3d 1300, 1310-11 (S.D. Fla. 2014), aff'd in part

and rev’d in part, 823 F.3d 1357 (11th Cir. 2016).

There can be no question that the disgorgement

order here, which requires Petitioner to give up all ill-

gotten gains, is a forfeiture. However, despite acknowl-

edging the overwhelming similarities between dis-

gorgement and forfeiture, the court below adopted a

“narrow” reading of Section 2462 to define forfeiture in

a “historical sense.” According to the Tenth Circuit,

“forfeiture” as used in Section 2462 refers to in rem

proceedings — dating back to the “early days of the Re-

public” — to take “tangible property used in criminal

activity.” Pet. App. 14a. In substituting its own view of

the purpose of Section 2462 for the text of the statute,

the Tenth Circuit pointed to historical examples of for-

feiture such as “the seizure of ships engaged in piracy”

and illegal “distilleries,” and reasoned that disgorge-

ment “does not fit in that company.” /d. at 14a.

However, these efforts to artificially distinguish “dis-

gorgement” from “forfeiture” flout Congressional in-

tent as expressed in the plain language of Section

2462.

The Tenth Circuit’s decision violates the long-set-

tled principle that words in statutes “should be given

17

their ordinary, popular meaning unless Congress

clearly meant the words in some more technical sense.”

United States v. Nat'l Broiler Mktg. Ass’n, 550 F.2d

1380, 1386 (5th Cir. 1977), aff'd, 486 U.S. 816 (1978);

see Graham, 823 F.3d at 1364 (“We find no indication

that in enacting § 2462’s widely applicable statute of

limitations, Congress meant to adopt the technical def-

initions of forfeiture and disgorgement the SEC urges

over the words’ ordinary meanings.”). A dominant

theme of this Court’s jurisprudence is that legislation

must be enforced in accordance with its plain lan-

guage, and not based on a judicial assessment of how

best to effectuate a perceived legislative purpose.

When Congress crafts legislation and statutes of limi-

tations, it inevitably balances competing policy goals.

See, e.g., CTS Corp. v. Waldburger, 134 S. Ct. 2175,

2185 (2014) (“[AJlmost every statute might be de-

scribed as remedial in the sense that all statutes are

designed to remedy some problem,” but “‘no legislation

pursues its purposes at all costs.’” (quoting Rodriguez

uv. United States, 480 U.S. 522, 525-26 (1987) (per cu-

riam))); see also Bd. of Governors of the Fed. Reserve

Sys. v. Dimension Fin. Corp., 474 U.S. 361, 374 (1986)

(“[T]he final language of the legislation may reflect

hard-fought compromises. Invocation of the ‘plain pur-

pose’ of legislation at the expense of the terms of the

statute itself takes no account of the processes of com-

promise and, in the end, prevents the effectuation of

congressional intent.”). This Court has repeatedly re-

minded courts not to “rewrite a statute because they

might deem its effects susceptible of improvement” to

carry out perceived legislative purposes. Badaracco v.

18

Comm’r of Internal Revenue, 464 U.S. 386, 398 (1984).

Untethering statutory construction from the plain lan-

guage of the statute, and relying instead on subjective

judicial speculation about how best to accomplish Con-

gressional policy, would infringe on the role of our

elected legislators. See Lamie v. United States Trustee,

540 U.S. 526, 538 (2004).

Moreover, by limiting the definition of forfeiture in

the statute to in rem proceedings, the Tenth Circuit ef-

fectively erased the words “pecuniary or otherwise”

from Section 2462. While in rem proceedings are by

definition actions against “tangible property,” Pet. App.

14a, “pecuniary” actions are monetary. If Congress had

intended forfeiture to apply only to non-pecuniary in

rem actions, it would not have included the phrase “pe-

cuniary or otherwise” immediately following the words

“any civil fine, penalty, or forfeiture” in Section 2462.

The Tenth Circuit erred by impermissibly treating the

words “pecuniary or otherwise” in the statute as super-

fluous. See, e.g., Duncan v. Walker, 533 U.S. 167, 174

(2001) (“It is our duty to give effect, if possible, to every

clause and word of a statute. ... We are thus reluctant

to treat statutory terms as surplusage in any setting.”)

(internal citation and quotation marks omitted);

Market Co. v. Hoffman, 101 U.S. 112, 115-16 (1879)

(“As early as in Bacon’s Abridgment, sect. 2, it was said

that ‘a statute ought, upon the whole, to be so con-

strued that, if it can be prevented, no clause, sentence,

or word shall be superfluous, void, or insignificant.’”);

see also 62 Cases, More or Less, Each Containing Six

Jars of Jam v. United States, 340 U.S. 593, 596 (1951)

19

(explaining that courts must look to “what Congress

has written. ... neither to add nor to subtract, neither

to delete nor to distort”). As the Eleventh Circuit ex-

plained in rejecting the SEC’s artificial attempt to dis-

tinguish forfeiture and disgorgement by focusing on

technical definitions, rather than the words’ ordinary

meanings: “Had Congress wished unique or special-

ized meanings to attach to any of these terms, it read-

ily could have taken the obvious and usual step either

of including a specialized meaning in the definitions

section of the statute or by using clear modifying lan-

guage in the text of the statute.” Graham, 823 F.3d at

1364 (internal citation and question marks omitted).

Furthermore, as this Court has explained,

“catchall” provisions like Section 2462 “are to be read

as bringing within a statute categories similar in type

to those specifically enumerated.” Fed. Mar. Comm’n v.

Seatrain Lines, Inc., 411 U.S. 726, 734 (1973). The

Tenth Circuit’s narrow (and arcane) reading of Section

2462 makes little sense because the statute “applies to

a wide variety of agency actions and contexts.” Gra-

ham, 823 F.3d at 1364. Whether forfeiture and dis-

gorgement are synonymous, or disgorgement is a

subset of forfeiture, the effect on a defendant is the

same. Thus, the most natural reading of Section 2462

is that disgorgement is a “forfeiture.” See Gabelli at

1220. “To hold otherwise would be to open the door to

Government plaintiffs’ ingenuity in creating new

terms for the precise forms of relief expressly covered

by the statute in order to avoid its application.” Gra-

ham, 21 F. Supp. 3d at 1311.

20

C. The SEC Has Previously Taken the

Position that Disgorgement is a “Pen-

alty” or “Forfeiture”

It is incongruous for the SEC to deny that dis-

gorgement is a “civil fine, penalty or forfeiture” under

Section 2462 when it has asserted that disgorgement

is a “penalty” or “forfeiture” in other contexts. In SEC

v. Telsey, the SEC argued that a disgorgement order is

a “fine, penalty or forfeiture” within the meaning of the

Bankruptcy Code and not a debt subject to discharge.

144 B.R. 563, 564-65 (Bankr. S.D. Fla. 1992) (“The

S.E.C. contends that its debt arising from the District

Court [disgorgement] order is excepted from discharge

... to the extent such debt is for a fine, penalty, or for-

feiture payable to and for the benefit of a governmental

unit, and is not compensation for actual pecuniary

loss.”). The Telsey court was persuaded that “the deter-

rence purpose of the disgorgement order [is] suffi-

ciently penal to characterize it as a ‘fine, penalty, or

forfeiture,” and therefore not dischargeable in bank-

ruptcy. /d. at 565; see also Johnson, 87 F.3d at 484 n.10

(“The SEC’s own position on what constitutes a pen-

alty appears to vary with the context.... The SEC

never explains why the position it took in [Telsey]

should not apply here as well.”).°

* The IRS has taken a similar position that a disgorgement

payment by an entity-taxpayer to the SEC for alleged FCPA vio-

lations is “primarily punitive” and is therefore a “fine or similar

penalty paid to a government for the violation of any law” that is

nondeductible under Section 162(f) of the Tax Code. See IRS Chief

Counsel Mem. 201619008, at 8, 10 (May 6, 2016) (disgorgement in

21

D. The Decision Below is Inconsistent

with Gabelli

The ruling below should also be reversed because

it conflicts with the principles set out by the Court in

Gabelli. In Gabelli, this Court unanimously held that

Section 2462 bars the SEC from seeking civil monetary

penalties for violations that occurred more than five

years before the SEC brought an enforcement action.

133 S. Ct. 1216, 1220 (2013). The Court explained that

Section 2462 sets a fixed date when exposure to

government enforcement efforts ends, and thereby

advances the basic purpose of limitations periods: “re-

pose, elimination of stale claims, and certainty about a

plaintiff’s opportunity for recovery and a defendant's

potential liabilities.” Jd. at 1221 (citing Rotella v. Wood,

528 U.S. 549, 555 (2000)). Gabelli explicitly rejected the

SEC’s position that a “discovery rule” should apply to

Section 2462. As the Court made clear, the SEC’s ap-

proach would have eroded the core principles of all

statute of limitations provisions. Gabelli at 1221.

While the applicability of Section 2462 to SEC

claims for disgorgement was “not before” the Court in

Gabelli, nothing in the Court’s opinion suggests that

its rationale is limited to civil money penalties.

And nothing in the opinion suggests that the “vital”

concerns expressed by the Court about repose, stale

federal securities law cases may be primarily punitive or primar-

ily compensatory for federal tax law purposes depending on the

facts and circumstances of a particular case. When disgorgement

does not compensate victims, it should be treated as a non-deduct-

ible penalty).

22

evidence, and uncertainty would be somehow

remediated simply because the SEC styles its dis-

gorgement claim as “equitable” rather than punitive.

“Given the reasons why we have statutes of limita-

tions, there is no discernable rationale for applying

§ 2462 when” the SEC seeks a monetary penalty “but

not when” it seeks disgorgement. 3M Co. (Minn. Min-

ing & Mfg.) v. Browner, 17 F.3d 1453, 1457 (D.C. Cir.

1994). “The concern that after the passage of time

‘evidence has been lost, memories have faded, and wit-

nesses have disappeared’ pertains equally to” civil

money penalties and disgorgement. /d. (quoting Order

of R.R. Telegraphers v. Ry. Express Agency, Inc., 321

U.S. 342, 349 (1944)). The Tenth Circuit’s holding

would leave defendants exposed to government dis-

gorgement claims “not only for five years after their

misdeeds, but for an additional uncertain period into

the future.” Gabelli, 133 S. Ct. at 1223; see supra at 1-

2. As Chief Justice Marshall observed, such a result

would be “utterly repugnant to the genius of our laws.”

Gabelli, 133 S. Ct. at 1223 (quoting Adams, 6 U.S. (2

Cranch) at 342).

The logical ramification of Gabelli is that the SEC

may not impose punitive sanctions like disgorgement

if those sanctions are based on claims that accrued

more than five years before the SEC initiated an en-

forcement action. The Court should make clear that it

meant what it said in Gabelli and that the central pur-

pose of Section 2462 should not be undermined by cre-

ating an indefinite threat of government enforcement

actions.

23

If. THE TENTH CIRCUIT’S EXEMPTION OF

DISGORGEMENT CLAIMS FROM SECTION

2462’°S LIMITATIONS WOULD CREATE

UNCERTAINTY AND INSTABILITY IN

THE FINANCIAL MARKETS

Applying Section 2462 to all SEC enforcement ac-

tions makes sense and advances the important policy

reasons for statutes of limitations that this Court ar-

ticulated in Gabelli. The bright line Congress drew

when it enacted Section 2462’s five-year limitations

period serves a vital role in the administration of jus-

tice and provides markets with stability and certainty.

Requiring the SEC to bring disgorgement claims

within five years of an alleged violation promotes ef-

fective deterrence, protects against the specter of stale

claims, and provides fairness and efficiency in the

securities markets. The Tenth Circuit’s ruling would

undermine these important objectives by permitting

the government to bring civil disgorgement claims in

perpetuity.

A. The Decision Below Undermines the

Enforcement of the Securities Laws by

Promoting Stale Claims

The Tenth Circuit’s exemption of claims for dis-

gorgement penalties and forfeitures from the limita-

tions of Section 2462 has the potential to degrade the

efficient enforcement of the securities laws. This Court

explained in Gabelli that statutes of limitations pro-

vide “security and stability to human affairs” and are

“vital to the welfare of society.” 133 S.Ct. at 1221

24

(internal quotation marks and citations omitted). As

this Court has long recognized, “it does not follow that”

extending the reach of civil remedies in the securities

laws “better servels]” “the objectives of the statute.”

Cent. Bank of Denver, N.A. v. First Interstate Bank of

Denver, N.A., 511 U.S. 164, 188 (1994) (“mak[ing] the

civil remedy more far reaching. ... may disserve the

goals of fair dealing and efficiency in the securities

markets”).

Section 2462’s limitations period protects market

participants from the problems of proof that would

arise if long-delayed litigation were permissible. Dis-

gorgement claims based on conduct that occurred more

than five years before the claims were brought under-

mines the goals of fairness and efficiency in the secu-

rities markets. Cases brought years or decades after

the fact become shrouded in faded memories and lost

evidence. As this Court has cautioned, when claims are

“allowed to slumber” for that long, often “evidence has

been lost, memories have faded, and witnesses have

disappeared.” Gabelli, 133 S. Ct. at 1221 (quoting R.R.

Telegraphers, 321 U.S. at 348-49). Limitations periods

thus “promote justice by preventing surprises through

the revival of [such] claims.” Jd.; see also United States

v. Kubrick, 444 U.S. 111, 117 (1979) (“‘[The right to be

free of stale claims in time comes to prevail over the

right to prosecute them.’” (quoting R.R. Telegraphers,

321 U.S. at 349); 3M Co., 17 F.3d at 1457 (“Statutes of

limitations also reflect the judgment that there comes

a time when the potential defendant ‘ought to be se-

cure in his reasonable expectation that the slate has

25

been wiped clean of ancient obligations.’”) (internal

citation omitted); Arthur B. Laby & W. Hardy Callcott,

Patterns of SEC Enforcement Under the 1990 Remedies

Act: Civil Money Penalties, 58 Alb. L. Rev. 5, 52 (1994)

(“As the SEC ... bring|s] cases that are increasingly

distant from the time of the alleged violations, faded

memories and the disappearance of evidence may

make it harder for the SEC to prove violations (and

harder for some innocent defendants to demonstrate

their blamelessness)”). These concerns ring especially

true in the securities industry, which experiences high

employee turnover and cyclical downsizing. When the

SEC pursues an enforcement action more than five

years after an event has occurred, the relevant employ-

ees are less likely than in other industries to be per-

forming the same job for the same employer, which

makes investigations and trials more costly and less

reliable.

Section 2462’s five-year limitations period is

therefore essential to the functioning of affirmative de-

fenses under the securities laws, which could other-

wise be undermined by the passage of time. This is

particularly true of disgorgement claims, where the

SEC is required to proffer only a “reasonable approxi-

mation” of profits to create a “presumption of illegal

profits.” SEC v. Teo, 746 F.3d 90, 105 (3d Cir. 2014). Ev-

identiary problems associated with stale claims are

particularly acute for defendants in rebutting this pre-

sumption. The ability to rebut disgorgement claims

with viable evidence deteriorates with the passage of

time. By subjecting defendants to the indefinite threat

26

of stale claims, the Tenth Circuit’s ruling would

deprive market participants the opportunity to gather

exculpatory evidence and mount a defense while facts

are still fresh.®

Setting a fixed date when exposure to government

enforcement efforts ends no matter what relief is re-

quested has the further salutary effect of encouraging

the SEC to focus on its central “mission” to “protect

investors and the markets by investigating potential

violations of the federal securities laws and litigating

the SEC’s enforcement actions.” SEC Div. of Enforce-

ment, Enforcement Manual at 1 (2016). As the SEC has

acknowledged, “|s|wift investigations generally are

most effective and enhance the public interest.” Id. at

32. “The public does not benefit from a framework in

which the SEC can wait as long as it pleases to impose

significant sanctions.” Steven R. Glaser, Statutes of

Limitations for Equitable and Remedial Relief in SEC

® The risk of stale and lost evidence for claims based on con-

duct that occurred more than five years ago is further com-

pounded by the fact that records retention policies for financial

services firms often correlate to the time periods in relevant stat-

utes and regulations, which — like Section 2462 — generally do not

exceed five years. See, e.g., 12 C.F.R. § 219.24 (records retention

period for domestic and international funds transfers and trans-

mittals of funds is five years); Robert F. Zielinski & Vito Petretti,

Records Retention: What Banks Don’t Know Can and Likely Will

Hurt, 119 Banking L.J. 350, 351-52 (2002); 148 Cong. Rec. 87419

(daily ed. July 26, 2002) (Statement of Sen. Leahy) (“[I]t is in-

tended that the SEC promulgate rules and regulations that re-

quire the retention of such substantive material ... for such a

period as is reasonable and necessary for effective enforcement of

the securities laws ... most of which have a five-year statute of

lunitations.”).

27

Enforcement Actions, 4 Harv. Bus. L. Rev. 129, 155

(2014). It is reasonable to “expect the SEC to focus its

efforts on bringing claims in a timely fashion” to pro-

tect market participants from being confronted with

old and stale claims brought by the SEC decades after

the alleged misconduct. Jd. A rule that allows the gov-

ernment to sleep on its rights for years or decades and

then bring a disgorgement claim when a defendant's

potential defenses have all but disappeared promotes

the wrong kind of incentives and defangs an important

check on government enforcement.

The passage of time also diminishes the deterrent

effect of disgorgement. See Johnson, 87 F.3d at 492

n.14 (“[T]he SEC argues that enforcing § 2462 would

‘hobble efforts to prevent future harm to the public.’ It

is equally likely, however, that once the SEC has de-

layed more than five years in proceeding against a |de-

fendant] it considers a grave threat to the public, the

bulk of the harm has already been done.” (internal ci-

tation omitted)); see also Strengthening the SEC’s Vital

Enforcement Responsibilities: Hearing Before the Sub-

comm. On Securities, Insurance, and Investment of the

S. Comm. On Banking, Housing, and Urban Affairs,

111th Cong. 46 (2009) (Statement of Robert Khuzami,

Director, SEC) (“[I)f there is a wide gap between con-

duct and atonement, then the message — to the invest-

ing public that the SEC is vigilant and effective, as well

as the message to those who might themselves be con-

sidering a step outside the law — is diluted... . |T]he

opportunity to achieve a permanent change in behav-

ior and culture is greatly reduced.”).

28

B. The Decision Below Undermines the

Principles of Repose and Certainty

Disgorgement awards gencrally dwarf the statu-

tory penalties imposed in government enforcement ac-

tions. In 2015 alone, the SEC obtained $1.2 billion in

civil monetary penalties but an additional $3 billon in

disgorgement orders. See SEC, Select SEC and Market

Data Fiscal 2015, 2 (2016).’ Repose and certainty are

accordingly especially important for disgorgement

claims because they expose defendants to potentially

crippling monetary awards. But the Tenth Circuit’s

construction of Section 2462 would create a permanent

cloud of potential liability over financial market

participants. Absent a “fixed date when exposure to

Government enforcement efforts ends,” businesses, in-

vestors, and securities professionals are stripped of the

repose that statutes of limitations are designed to pro-

vide. See Gabelli, 133 S. Ct. at 1221. Such never ending

liability would create significant uncertainty for those

whose careers, reputations and financial security are

at stake.

The Tenth Circuit’s ruling would have a destabi-

lizing effect on the efficient functioning of the securi-

ties markets by eliminating predictability and

undermining the ability of industry participants to act

based on reasoned assumptions about the possibility of

disgorgement claims and liability. See Wilson v. Garcia,

' The district court here ordered Petitioner to pay a mone-

tary penalty of $2.4 million. That was a small fraction of the dis-

gorgement award of approximately $35 million plus an additional

$18 million in prejudgment interest. Pet. App. 45a.

29

471 U.S. 261, 275 n.34 (1985) (“Defendants cannot

calculate their contingent liabilities, not knowing with

confidence when their delicts lie in repose.”). It has

long been recognized that securities law is “an area

that demands certainty and predictability.” Pinter v.

Dahl, 486 U.S. 622, 652 (1988). Claims that can be

made forever are “not a ‘satisfactory basis for a rule of

liability imposed on the conduct of business transac-

tions.’” Cent. Bank of Denver, N.A., 511 U.S. at 188

(quoting Blue Chip Stamps v. Manor Drug Stores, 421

U.S. 723, 755 (1975)). The uncertainty “can have ripple

effects” across the financial markets, “increas[ing]

costs incurred by professionals” which then “may be

passed on to their client companies, and in turn in-

curred by the company’s investors, the intended bene-

ficiaries of the statute.” Jd. at 189. Such open-ended

liability increases the cost of business transactions,

making due diligence more difficult and burdening

successor corporations with a predecessor’s miscon-

duct. See Catherine E. Maxson, Note, SEC Enforce-

ment Suits: 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, 529 (1995)

(“If SEC enforcement suits could impose staggering

fines on corporate entitics at any time, the transaction

costs of contracting would increase as parties would

have to compensate for this risk of liability.”).

In contrast, the enforcement of Section 2462

in SEC disgorgement actions, by eliminating “pro-

tracted liability,” CTS, 134 S. Ct. at 2183, adds predict-

ability that serves the important purpose of enabling

30

financial institutions to deploy for productive use

capital that otherwise might be tied up indefinitely in

reserves to cover potential liability. It protects new

shareholders, bondholders and management from lia-

bility for conduct that occurred at a time when they

were not associated with the business. And it prevents

strategic delay or efforts to seek “recoveries based on

the wisdom given by hindsight” and the “volatile”

prices of securities. Short v. Belleville Shoe Mfg. Co.,

908 F.2d 1385, 1392 (7th Cir. 1990).

Applying Section 2462’s five-year statute of limi-

tations to claims seeking disgorgement serves a vitally

important role in the administration of justice and

brings stability and certainty to the law. Like the posi-

tion of the SEC that this Court rejected in Gabelli, the

ruling below would frustrate tne goals of repose and

certainty underlying Section 2462. It is vital to the se-

curities industry and financial markets that laws are

construed and applied as enacted by Congress and that

statutes of limitations are enforced. In the absence of

a limitations period for disgorgement, market partici-

pants lack the certainty of knowing that at some point

their conduct will be free from scrutiny. Businesses

and individuals would never be free from potential

SEC claims, so long as the SEC labels its sanctions as

“equitable.”®

8 Because Section 2462 is also a default statute of limitations

for the government outside the securities context, the impact of

the Tenth Circuit’s decision extends beyond SEC proceedings.

3]

CONCLUSION

For the foregoing reasons, the judgment of the

United States Court of Appeals for the Tenth Circuit

should be reversed.

March 3, 2017

Respectfully submitted,

IRA D. HAMMERMAN MICHAEL J. DELL

KkrVIN M. CARROLL Counsel of Record

SECURITIES INDUSTRY ALAN R. FRIEDMAN

AND FINANCIAL ARIELLE WARSHALL KATZ

MARKETS ASSOCIATION KRAMER LEVIN NAFTALIS

1101 New York Avenue, NW & FRANKEL LLP

Washington, D.C. 20005 1177 Avenue of the Americas

(202) 962-7300 New York, New York 10036

(212) 715-9100

mdell@kramerlevin.com

Counsel for Amicus Curiae Securities

Industry and Financial Markets Association

—

For example, it could affect possible claims by the Commodity

Futures Trading Commission in the futures and derivatives

industry and the Federal Energy Regulatory Commission in the

energy industry.