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Securities and Exchange Commission v. Kokesh

United States Court of Appeals, Tenth Circuit

March 5, 2018

SECURITIES AND EXCHANGE COMMISSION, Plaintiff - Appellee,
v.
CHARLES R. KOKESH, Defendant-Appellant.

         Appeal from the United States District Court for the District of New Mexico (D.C. No. 1:09-CV-01021-SMV-LAM)

          Clinton W. Marrs, Marrs Griebel Law, Ltd., Albuquerque, New Mexico for Defendant-Appellant.

          Robert B. Stebbins, General Counsel, Michael A. Conley, Solicitor, and Sarah R. Prins, Senior Counsel, Securities and Exchange Commission, Washington, D.C., for Plaintiff-Appellee.

          Before HARTZ, PHILLIPS, and McHUGH, Circuit Judges.

          HARTZ, Circuit Judge.

         This case returns to us after reversal and remand from the United States Supreme Court. The Supreme Court held that the claims for disgorgement against Defendant Charles Kokesh brought by the Securities and Exchange Commission (SEC) were subject to the five-year limitations period in 28 U.S.C. § 2462. The SEC contends that $5, 004, 773 was converted within this period and must be disgorged. Mr. Kokesh contends that the SEC's causes of action first accrued more than five years before it filed its claim. We agree with the SEC because the SEC's claims accrued separately for each conversion of funds.

         I. BACKGROUND

         A. Factual History

         Defendant owned and controlled two SEC-registered investment-adviser firms, Technology Funding Ltd. (TFL) and Technology Funding, Inc. (TFI), which were the managing general partners of, and contracted to provide investment advice to, several SEC-registered business-development companies (the BDCs) formed by Defendant. The contracts that the BDCs had with TFL and TFI (the Advisers) prohibited payments to the Advisers not expressly delineated in the contracts. Nevertheless, Defendant directed the treasurer for the Advisers to take substantial sums from the BDCs to pay salaries and bonuses to Defendant and other officers and, although expressly prohibited in the contracts, to reimburse the Advisers' office rent. A 2000 amendment to the contracts between the BDCs and the Advisers authorized reimbursements to cover the salaries of the Advisers' "controlling persons, " a term that included Defendant and other officers. But the amendment was obtained through misleading proxy statements signed by Defendant that falsely identified him as the only controlling person and grossly underreported his salary.

          B. Procedural History

         The SEC filed its complaint against Defendant in New Mexico federal court on October 27, 2009. Among other things, it alleged that from 1995 through 2006 Defendant had misappropriated over $34.9 million from the BDCs to the Advisers. After a jury found that Defendant had committed the fraud, the district court ordered (1) that he pay a civil penalty of $2, 354, 593; (2) that he be enjoined from violating securities laws in the future; and (3) that he disgorge $34, 927, 329 (plus interest). He appealed and we affirmed. See SEC v. Kokesh, 834 F.3d 1158, 1168 (10th Cir. 2016).

         Defendant sought Supreme Court review of our decision that the disgorgement claim was not subject to the five-year statute of limitations governing suits "for the enforcement of any civil fine, penalty, or forfeiture." 28 U.S.C. § 2462. The Supreme Court reversed, holding that "[d]isgorgement in the securities-enforcement context is a 'penalty' within the meaning of § 2462, and so disgorgement actions must be commenced within five years of the date the claim accrues." Kokesh v. SEC, 137 S.Ct. 1635, 1639 (2017).

         On remand the SEC contends that Defendant must disgorge $5, 004, 773 converted within the limitations period-that is, after October 27, 2004. That sum comprises $279, 295 for payment of office rent; $1, 200, 000 paid as a bonus to Defendant and another officer; and other payments to controlling persons totaling $3, 525, 478.

         II. ...


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