The U.S. Supreme Court started off this week with a coercive regulation for the Securities and Exchange Commission. The power of such authorities was shrunken down so much so that they have an even more restricted time to recover ill-gotten profits. This move rendered Wall Street Firms a victory while the regulator ended up with even a weaker control over the business industry.
Supreme Court Classified Disgorgement as a Type of Penalty
In a 9-0 ruling, the U.S. Supreme Court found that the recovery strategy SEC employed as disgorgement must be imposed to a statute of limitations for five years. This decision is actually a ruling in a lawsuit between SEC and investment adviser Charles Kokesh from New Mexico. SEC resorted to legal proceedings to force the company to honor its penalties. This financial discipline consisted of a base amount of $2.4 million plus another $34.9 million in disgorgement due to illegal profits.
Nonetheless, the judges in this lawsuit sided with the New Mexico-based company. Therefore, the ruling turned into a major regulation that suppressed the powers of SEC. This event marks the second time since 2013 when the Supreme Court removed some SEC influences. Back then, the Court decided that civil monetary penalties enter the five-year statute of limitations.
Wall Street Firms Will Benefit a More Compliant Enforcement Process
In both cases, the rulings signaled a victory for Wall Street firms over industry watchdogs. For a long time now, Securities Industry and Financial Markets Association pushed the court for a limitation on SEC’s influence. This way, businesses can enjoy a more predictable and stable enforcement process.
On Monday, Justice Sonia Sotomayor classified disgorgement as a type of penalty. Therefore, this condition should become part of a five-year statute of limitations. This law provides the same deadlines of five years for all forfeitures, penalties, and civil fines.
This ruling will be used as a model for any parties that are under SEC investigation. Therefore, the federal authority will have to move more quickly to solve its complex cases from now on.
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