Expanded SEC Remedies Under the National Defense Authorization Act

Description

Disgorgement is one of the most important tools in the SEC's enforcement arsenal. The recently enacted NDAA includes new provisions that significantly clarify and expand the SEC's ability to pursue remedial sanctions, including disgorgement and penalties. It also extends the statute of limitations applicable to such remedies. The SEC will likely utilize its expanded authority to pursue securities violations more aggressively. There are nuances to the new provisions which require careful examination by securities counsel.

Two Supreme Court cases previously limited the SEC's disgorgement authority: Kokesh v. SEC imposed a five-year time bar and called into question whether the SEC is allowed to obtain disgorgement at all in a civil action, while Liu v. SEC held that disgorgement is an authorized remedy under Section 21(d)(5) of the 1934 Act but that the amount disgorged cannot exceed an individual wrongdoer's net profits.

The new NDAA provisions explicitly authorize the SEC to seek disgorgement for securities violations, settling doubts created under Liu and Kokesh. They also extend the SEC's deadlines to seek disgorgement. The new legislation includes a five-year general statute of limitations, a 10-year statute of limitations for fraud-based violations, and an unlimited tolling provision for individuals located outside the United States.

Listen as our authoritative panel discusses the SEC's expanded disgorgement authority provided under the NDAA and its implications for regulated entities going forward.