WASHINGTON — The Supreme Court on Monday dealt a defeat to Wall Street’s top cop, ruling unanimously that the Securities and Exchange Commission is subject to time limits when requiring companies or individuals to forfeit ill-gotten gains from fraud.
The court, in an opinion by Justice Sonia Sotomayor, said SEC enforcement actions seeking to disgorge ill-gotten gains must be brought within five years after the fraud occurred. The case, Kokesh v. SEC, centered on a 2009 SEC lawsuit against Charles Kokesh, an executive accused of stealing money from thousands of small investors who put cash into funds that he managed during the 1990s and early 2000s.
The decision adds to the setbacks dealt to SEC enforcers by the high court. In 2013, in a case involving Gabelli Funds LLC, the justices unanimously ruled the statute of limitations restricts the SEC’s ability to levy civil monetary penalties, the other key source of the agency’s punitive powers.
In the Kokesh case, the commission had argued that disgorged profits are regularly used to compensate fraud victims and don’t qualify as penalties that are capped by the five-year limit. The Supreme Court rejected that argument.
An expanded version of this story is available at WSJ.com
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