Supreme Court Holds 5-Year Statute of Limitations Applies to SEC Disgorgement

On June 5, 2017, by unanimous decision, the U.S. Supreme Court determined that disgorgement – a remedy that generated $3 billion in 2015 – is a “penalty” thereby subjecting it to the 5-year statute of limitations that applies to any “action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise.” Kokesh v. SEC, No. 16-529, slip op. at 1 (June 5, 2017) (quoting 28 U.S.C. §2462). The Court’s decision relieved Kokesh of a $30 million disgorgement order entered in the lower court.

The SEC had argued that disgorgement is a different animal – it simply places the defendant in the same position as he or she would have been but for the offense. The Court strongly disagreed noting the deterrent qualities of disgorgement, which is a hallmark of a penalty, “[s]anctions imposed for the purpose of deterring infractions of public laws are inherently punitive.” Id. at 8. The Court observed that the victims (if there are any) of a securities law violation need not participate in the enforcement action and may not even support it. In addition, money that is disgorged to the Treasury often stays there; i.e., there is no absolute requirement that the money that is recovered be distributed to the purportedly aggrieved investors.

Going forward, the SEC is faced with having to speed up its investigations and charging decisions.  That can be a challenge, especially in complex cases where the Enforcement Division would prefer to thoroughly build out a case in advance.

Here is the decision:

Click to access 16-529_i426.pdf

 

EB-5 Program Operator Settles With SEC For Over $7.9 Million

The SEC has announced that an Idaho man who operated an EB-5 regional center has agreed to settle a case against him alleging that he took millions of dollars to pay for luxury cars and investments unrelated to the purpose of the particular EB-5 program at issue, i.e., to develop luxury real estate and invest in gold mining ventures in Idaho and Montana.

The EB-5 program is a special expedited path to a green card for foreign investors who provide a set minimum of investment capital that creates at least 10 U.S. jobs within 2 years of the investment. The program is designed to incentivize investment in rural areas (e.g., Idaho) or high unemployment areas. Whereas the minimum for such “targeted employment areas” is $500,000, the minimum for more affluent areas is $1 million.

The respondent, Serofim Muroff, and his assistant and bookkeeper are alleged to have diverted about $5.5 million of the $140.5 million in investment money provided by Chinese investors. In addition to disgorging the allegedly diverted proceeds, Muroff has agreed to a $2 million penalty plus interest, and to be barred from conducting further EB-5 offerings. Neither Muroff nor his assistant admitted or denied the allegations in the SEC’s complaint.

Here is the press release.

https://www.sec.gov/litigation/litreleases/2017/lr23818.htm