On June 5, 2017 the United States Supreme Court held that a 5-year statute of limitations established under federal law applies “to claims for disgorgement imposed as a sanction for violating a federal securities law.” In a unanimous decision, the court concluded that “disgorgement in the securities-enforcement context is a ‘penalty’ within the meaning of §2462,” and thus all “disgorgement actions [brought by the SEC] must be commenced within five years of the date the claim arose.”
Although the SEC has yet to officially comment, the Court’s decision has sent shockwaves throughout the enforcement community. The decision “is a really big deal,” said Peter Altman, former senior counsel in the SEC’s Enforcement Division.
How the Decision May Affect Your Business as a Registered Investment Advisor
The 5-year statute of limitations places additional pressure on the SEC to more swiftly discover wrongdoing and commence enforcement actions against non-compliant advisors. Thus RIA’s regulated by the SEC should be prepared for the Enforcement Division to change the way it does business in the wake of Kokesh.
“Expect OCIE exams and enforcement investigations to speed up with the ticking of the five-year clock,” says Julie Riewe, a former co-chief of the SEC enforcement Division’s Asset Management Unit. Riewe predicts that “the staff will be more reluctant to give lengthy extensions on document productions” requested as part the Division’s RIA auditing process. Also, as noted in the June 19 edition of IA Watch, the Enforcement Division may begin ramping up fines as the risk of running out the statutory clock on disgorgement grows.
The potential acceleration of OCIE exams/enforcement investigations and increase in fines underscores the importance of exam/audit preparedness for your RIA. Of course, the first and most important step in exam/audit preparedness is getting and staying abreast of all your compliance responsibilities before the SEC shows up at your doorstep.
If you have any questions or concerns about preparing for an audit or need any assistance with your compliance program, please contact us at 888.302.4594 (or email us at firstname.lastname@example.org), and we will be happy to assist.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.