High court limits seizure of assets from drug conspiracies

The SEC headquarters in Washington DC.- Reuters pic

The SEC headquarters in Washington DC.- Reuters pic

The U.S. Supreme Court is making it tougher for the government to recover ill-gotten gains from people convicted of securities fraud.

Justice Sonia Sotomayor said in her opinion that so-called "disgorgement" actions are the equivalent of penalties, which have always been considered subject to the five-year limit for collection.

Justice Sonia Sotomayor wrote that the Securities and Exchange Commission must abide by a five-year statute of limitations in seeking "disgorgement" from those whose fraudulent actions resulted in illegal profits.

The SEC disgorgement process "bears all the hallmarks of penalty: It is imposed as a effect of violating a public law and is meant to deter, not to compensate", Sotomayor noted.

The Supreme Court took his side on Monday in a unanimous decision, ruling against the government's argument that Terry, as an accomplice of his brother, was indebted for the dishonestly-earned profits.

The case was filed by Charles R. Kokesh, a New Mexico man who was sued by the SEC for misappropriating investors' money in 2009.

A judge in 2015 ordered him to pay a $2.4 million civil penalty.

The case is Kokesh v.

The ruling has potentially significant repercussions for the SEC's enforcement capabilities.

The ruling represented a major victory for Wall Street firms, whose Securities Industry and Financial Markets Association trade group had urged the justices to curb the SEC's powers in order to provide more certainty and predictability to the enforcement process.

The legal provision that establishes the five-year statute of limitations doesn't explicitly mention disgorgement.

Kokesh appealed to the Supreme Court after losing at the Denver-based 10th US Circuit Court of Appeals.

The Justice Department argued that disgorgement is different because, rather than being punishment, it is focused on ensuring a violator doesn't profit from illegal conduct.

"For the more complex cases, this will be a sea change for them, they will have to move more quickly", Morgan said.

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