The SEC’s New Disgorgement Powers: Questions and Consequences

Although predominantly a military spending bill, the National Defense Authorization Act (NDAA) includes consequential changes to the SEC’s power to recover disgorgement of illgotten gains for securities violations. Passed on January 1, 2021, over President Trump’s veto, the NDAA extends the statute of limitations for disgorgement for scienter-based violations from five to 10 years and also establishes a 10-year statute of limitations for other equitable remedies, such as industry bars, for both scienter- and non-scienter-based violations. These changes may motivate the SEC to be more aggressive in pursuing scienter-based violations and in litigating cases in district courts. Regulated entities and individuals should be aware of these changes and the questions that courts will need to answer about them in coming years.