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Latham & Watkins Securities Litigation & Professional Liability and
White Collar Defense & Investigations
Practices
January 4, 2021 | Number 2843
US Congress Affirms and Expands SEC’s Disgorgement
Authority in Annual Defense Spending Bill
The legislation — passed via the first congressional override of the Trump presidency —
extends the SEC’s ability to obtain disgorgement for violations of federal securities laws.
Key Points:
• As amended, the Securities Exchange Act of 1934 now expressly authorizes the SEC to seek
disgorgement in both pending and future cases filed in federal district court.
• After being limited to a five-year disgorgement period by a 2017 Supreme Court ruling (Kokesh v.
SEC), the SEC now may pursue disgorgement awards using an expanded 10-year limitations
period for certain scienter-based violations, and was granted a 10-year lookback period for other
forms of equitable relief in all cases.
On January 1, 2021, the US Congress overrode a presidential veto and passed the National Defense
Authorization Act (NDAA), an annual military spending bill that for year 2021 exceeds $740.5 billion and
1,400 pages. Buried near the end of this massive piece of funding legislation, Congress also expressly
granted the US Securities and Exchange Commission (SEC or Commission) the authority to seek
disgorgement for violations of federal securities laws, and doubled the statute of limitations for
disgorgement awards and other equitable remedies in certain fraud-based cases from five years to 10
years.
Background: Kokesh and Liu
Before these latest amendments, the Securities Exchange Act of 1934 (Exchange Act) did not expressly
authorize the SEC to seek, or federal courts to award, “disgorgement” of ill-gotten gains for securities
laws violations. Nonetheless, for nearly half a century, federal courts have allowed the SEC to pursue this
remedy as a form of “equitable relief” authorized by Section 21(d) of the Exchange Act.1
A pair of recent Supreme Court decisions placed limits on the SEC’s authority to seek disgorgement as a
form of equitable relief. In 2017, the Court unanimously held in Kokesh v. SEC that a disgorgement order
in an SEC enforcement action constituted a “penalty” subject to the five-year limitations period applicable
to other civil penalties.2 But as noted in Latham’s Client Alert discussing Kokesh, the Court expressly
declined to decide the antecedent question of whether the securities laws even authorized the SEC to
seek disgorgement in federal court actions in the first place. The Court considered that question last year,
