The SEC’s New Disgorgement Powers: Questions and Consequences

Although predominantly a military spending bill, the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (NDAA) includes consequential changes to the SEC’s power to recover disgorgement of ill-gotten gains for securities violations. Passed on January 1, 2021, the NDAA extends the statute of limitations for disgorgement for scienter-based violations from five to ten 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. Those changes may motivate the SEC to be more aggressive when pursuing scienter-based violations and when litigating cases in district courts. Fund managers should be aware of those changes and the questions that courts will need to answer about them in coming years. In a guest article, Vinson & Elkins attorneys Palmina Fava, Cliff Thau, Marisa Antonelli and David Hoffman provide concrete steps fund managers can take in anticipation of this sea change in SEC enforcement. See “Five Takeaways From Congress’ Codification and Extension of SEC’s Disgorgement Authority” (Feb. 23, 2021).

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