As the SEC fulfills this public mission, its ancillary equitable powers, including disgorgement, play a pivotal role.
equitable rescission," (51) and, of course, disgorgement. (52) Ancillary remedies are "simply means and instruments by which primary rights may be more efficiently preserved, protected, and enforced in judicial proceedings." (53) Equitable remedies become ancillary equitable remedies when they are "aiding or subsidiary and supplemental to some principal relief to make the principal relief effective." (54) Viewed through a securities enforcement lens, ancillary equitable remedies are intended to add to or supplement the principal relief of an injunction barring future violations of securities laws.
On appeal to the Tenth Circuit, Kokesh argued that the Statute of Limitations applied to disgorgement, stating that the disgorgement payment was equivalent to either a penalty or forfeiture.
The Supreme Court granted certiorari in Kokesh in order to resolve the circuit split over the application of the Statute of Limitations to disgorgement claims in SEC enforcement actions.
In the absence of statutory authorization for monetary remedies, the Commission urged courts to order disgorgement as an exercise of their "inherent equity power to grant relief ancillary to an injunction." (16) Somewhat later in the opinion the Court dropped a footnote (number three), stating that:
There is general agreement that the penalty phase of Texas Gulf Sulphur (21) was the first time a court determined that the SEC had authority to seek disgorgement of a defendant's ill-gotten gains.
The ruling "shatters the SEC's long-standing view that the disgorgement remedy is equitable, and therefore not subject to any statute of limitations," King & Spalding partner Dixie Johnson said Monday.
Court of Appeals for the Tenth Circuit in the Kokesh case, would "create uncertainty and instability in the financial markets" if the government could "seek disgorgement in perpetuity."
To order disgorgement, the Court would have to find both of these remedies inadequate.
Assuming that these considerations did show specific performance to be adequate, the peripheral equity rule would foreclose an order of disgorgement. The advantages of this rule become clear when disgorgement is examined with the skeptical eye of the restrictive view of equity.
victims (similar to restitution (50)), but the SEC views disgorgement as
the SEC to order disgorgement in administrative proceedings and