Penalties in Equity

This Note defends the SEC’s statutory authority to seek judicial disgorgement. In Kokesh v. SEC, the Supreme Court held that judicial disgorgement brought by the SEC constitutes a penalty for the purpose of the five-year statute of limitations in 28 U.S.C. § 2462. In the following months, scholars and practitioners—and at least one putative class action—have argued that this opinion spells the end for judicial disgorgement. Their reasoning is simple: disgorgement is a penalty; there are no penalties in equity; SEC disgorgement is authorized by a statutory grant of equity jurisdiction; therefore, SEC disgorgement is not authorized. This Note refutes the premise that there are no penalties in equity by looking at the Court’s precedents and general approach to equitable remedies. Further, it offers an affirmative defense of the SEC’s authority to seek judicial disgorgement by pointing to congressional ratification. Next, the Note argues that Kokesh should be understood as a warning shot, directing the SEC to pull back its overly aggressive utilization of disgorgement. This Note concludes that the lesson ought to be heeded by similarly situated agencies as well—particularly the Federal Trade Commission.