CLIENT PUBLICATION
LITIGATION | June 10, 2016
Eleventh Circuit Rules Disgorgement Subject to Five-Year
Limitations Period, Ruling Against SEC
On May 26, 2016, a three-judge panel of the United States Court of Appeals for the Eleventh
Circuit issued SEC v. Graham,1 a significant decision that, at least in the Eleventh Circuit, limits
the ability of the Securities and Exchange Commission (“SEC” or “Commission”) to obtain
disgorgement of ill-gotten gains in civil injunctive actions filed more than five years after the
allegedly violative conduct. In so doing, the Eleventh Circuit ruled that 28 U.S.C. § 2462—the
federal catch-all five-year statute of limitations—applies to the equitable remedy of
disgorgement, because disgorgement is nothing other than “forfeiture,” which is expressly
covered by Section 2462. Graham comes after the Supreme Court’s 2013 decision in Gabelli v.
SEC where the Court declined to consider whether claims for disgorgement were subject to
Section 2462 but signaled that it was generally in favor of limiting the government’s ability to
obtain relief for conduct long in the past, noting that “even wrongdoers are entitled to assume
that their sins may be forgotten.”2
Background
According to the SEC, the wrongdoing in Graham occurred between July 2004 and January 30, 2008, when Barry
J. Graham, Fred Davis Clark, Jr., Cristal R. Coleman, David W. Schwarz, and Ricky Lynn Stokes (the “defendants”)
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sold condominium units to private investors at seventeen properties from Key Largo to Las Vegas. These sales,
the SEC alleged, violated the federal securities laws because the units were the functional equivalent of securities,
but were not registered with the Commission. The SEC began investigating the defendants in October 2007, but
waited over five years, until January 30, 2013, to institute a civil injunctive action against them in the US District
Court for the Southern District of Florida. In its brief on appeal, the Commission suggested that it waited to file its
complaint because defendants Clark and Coleman had relocated outside the United States, which prevented the
SEC from interviewing them in a timely fashion, and because defendants’ records were destroyed after defendants
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abandoned them at an offsite storage facility.
The SEC’s complaint sought declaratory and injunctive relief and disgorgement, including: (1) a declaration that the
defendants’ conduct violated federal securities laws; (2) a permanent injunction enjoining the defendants from
future violations; (3) an order requiring that the defendants disgorge their profits and prejudgment interest; and (4)
an order requiring Coleman, Clark, and Stokes to pay civil monetary penalties. Coleman, Clark, Stokes and
Schwarz moved for summary judgment on the grounds that their conduct was not governed by the securities laws
and the five-year statute of limitations under Section 2462 had expired, barring the SEC’s requested forms of relief.
Section 2462 is the federal “catch-all” statute of limitations. It provides that, “[e]xcept as otherwise provided by Act
of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or
otherwise, shall not be entertained unless commenced within five years from the date when the claim first
