On March 5, the U.S. Court of Appeals for the Tenth Circuit issued a ruling that the general federal five-year statute of limitations which is applicable to the enforcement of any civil fines, penalties or forfeitures (28 U.S.C. § 2462) does not apply to a series of discrete misappropriations that occurred over many years. The case is SEC v. Kokesh. In reaching this conclusion, the Tenth Circuit referenced its own recent decision in Sierra Club v. Oklahoma Gas and Electric Co., a Clean Air Citizen Suit, involving Section 2462
The Securities and Exchange Commission (SEC) filed claims for disgorgement against Charles Kokesh in 2009, alleging that during the period of 1995 through 2006, he misappropriated almost $35M from investment groups. A jury found him guilty of fraud, and the district court ordered him to pay a civil fine of $2,354,593 and to disgorge $34,927,329.
When this matter was appealed to the Tenth Circuit, the Tenth Circuit held that Section 2462 does not apply to disgorgement claims. The Supreme Court disagreed, holding that disgorgement is a penalty subject to the statute of limitations.
On remand, the SEC contended that the defendant must disgorge $5,004,773, a sum that was converted within the operative limitations period—after October 27, 2004. For his part, Kokesh claimed that the entire action, which began as early as 1995, was time-barred. The Tenth Circuit agreed with the SEC that a new limitations period applied to each improper conversion of funds, and Section 2462 did not apply to bar this particular disgorgement action.
In contrast, in Sierra Club, Sierra Club alleged that Oklahoma Gas and Electric Company had illegally modified a boiler without first obtaining the necessary permit. However, that complaint was filed more than five years after construction began, and the Tenth Circuit held that Section 2462’s limitations period began to run when the construction started—in other words, the claim first accrued at that time, and concluded five years later. This was a “continuing violation,” albeit one with a discrete starting point. Consequently, Section 2462 barred the Sierra Club’s lawsuit.