On October 11, 2016, Judge Brett Kavanaugh, writing for the United States Court of Appeals for the D.C. Circuit, vacated an administrative enforcement order brought by the Consumer Financial Protection Bureau (“CFPB”) against PHH Corp. (“PHH”) for violations of Section 8 of the Real Estate Settlement Procedures Act (“RESPA”).  PHH Corp. v. CFPB, No. 15-1177 (D.C. Cir. Oct. 11, 2016).  The Court held, in relevant part, that the structure of the CFPB—an independent agency with power concentrated in a single director who is unaccountable to the President of the United States—represented an unconstitutional delegation of unchecked executive authority.  As a remedy, the Court held that the President must have the power to remove, direct, and supervise CFPB’s director, but otherwise permitted the CFPB to continue its work.  Accordingly, the immediate practical impact of the decision will be limited, but over the long term the CFPB may begin to answer more directly to the political leanings of the Executive Branch, rather than Congress.

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On August 31, 2016, the United States Court of Appeals for the Ninth Circuit vacated a judgment in favor of Peter Jensen and Thomas Tekulve, Jr., former officers of Basin Water, Inc., and remanded for a jury trial.  SEC v. Jensen, No. 14-55221 (9th Cir. Aug. 31, 2016).  The Court held, in relevant part, that the officers could be subject to the disgorgement provisions of Section 304 of the Sarbanes-Oxley Act (“SOX 304”) following the company’s accounting restatements as long as the restatements were issued due to misconduct, even if that misconduct was not on the part of the defendants.  

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On August 23, 2016, the United States Court of Appeals for the Tenth Circuit rejected an appeal by Charles Kokesh that contested, among other things, an order that he pay $34.9 million in disgorgement on statute of limitations grounds.  S.E.C. v. Kokesh, No. 15-2087, slip op. at 2 (10th Cir. Aug. 23, 2016).  Kokesh had claimed that the disgorgement order should have been barred by the five-year limitations period in 28 U.S.C. § 2462, citing the recent Eleventh Circuit decision S.E.C. v. Graham, 823 F.3d 1357 (11th Cir. 2016), which held that § 2462 applied to disgorgement.  The Tenth Circuit, however, rejected the Eleventh Circuit’s analysis and held that the disgorgement order was not subject to § 2462 because it was neither a penalty nor forfeiture.

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On August 15, 2016, the United States Court of Appeals for the Second Circuit reversed the district court’s judgment of acquittal for Kristofor Lange on venue grounds.  See U.S. v. Lange, No. 14-2442-cr, slip op. at 2 (2d Cir. Aug. 15, 2016).  Lange had been convicted of securities fraud and conspiracy to commit wire fraud after a jury trial.  The Court held that venue was in fact proper in the Eastern District of New York because individuals targeted by Lange’s scheme had received phone calls in the district and because it was foreseeable to Lange that calls would be made to individuals located there.  

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On June 27, 2016, the Supreme Court unanimously overturned the 2014 conviction of former Virginia Governor Robert McDonnell.  McDonnell v. United States, No. 15-474, 2016 WL 3461561 (June 27, 2016).  A jury had convicted McDonnell on charges related to accepting things of value in exchange for performing “official acts,” but the Court defined “official act” narrowly and required that such an act “involve a formal exercise of governmental power.”  Since the district court’s jury instruction appeared to define an official act more broadly, the Court held that the jury may have convicted McDonnell without finding that he had committed an official act, and vacated McDonnell’s conviction. 

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On June 14, 2016, the United States Court of Appeals for the D.C. Circuit denied consolidated petitions brought by the chief securities regulators for Massachusetts and Montana seeking to vacate a recently-enacted Securities and Exchange Commission (the “Commission”) registration exemption known as Regulation A-Plus. —F.3d—, 2016 WL 3254610 (D.C. Cir. 2016). The Court held that Regulation A-Plus withstood scrutiny under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984), and that the Commission had provided a satisfactory basis for the regulation.

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On May 26, 2016, a three-judge panel of the United States Court of Appeals for the Eleventh Circuit issued SEC v. Graham, 1 a significant decision that, at least in the Eleventh Circuit, limits the ability of the Securities and Exchange Commission (“SEC” or “Commission”) to obtain disgorgement of ill-gotten gains in civil injunctive actions filed more than five years after the allegedly violative conduct. In so doing, the Eleventh Circuit ruled that 28 U.S.C. § 2462—the federal catch-all five-year statute of limitations—applies to the equitable remedy of disgorgement, because disgorgement is nothing other than “forfeiture,” which is expressly covered by Section 2462. Graham comes after the Supreme Court’s 2013 decision in Gabelli v. SEC where the Court declined to consider whether claims for disgorgement were subject to Section 2462 but signaled that it was generally in favor of limiting the government’s ability to obtain relief for conduct long in the past, noting that “even wrongdoers are entitled to assume that their sins may be forgotten.”

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On June 1, 2016, in Tilton v. SEC, a divided Second Circuit panel affirmed the dismissal of a constitutional challenge to the SEC’s use of administrative proceedings on the grounds that the claim could only be brought in an appeal following the issuance of a final order by the SEC after the proceedings have concluded.  No. 15-2103, ---F.3d---, 2016 WL ______ (2d Cir. June 1, 2016).  The panel’s decision to dismiss on jurisdictional grounds, and not reach the merits, may nevertheless result in a circuit split that could trigger Supreme Court review with implications for future SEC enforcement actions, depending on how the D.C. Circuit rules in the pending case of In the matter of Timbervest. 

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On May 26, 2016, in SEC v. Graham, the Eleventh Circuit became the first circuit to hold that claims brought by a government agency for disgorgement and declaratory relief are subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462.  The panel held that disgorgement and declaratory relief the SEC sought were functionally identical to “forfeiture” and “penalties,” respectively, as defined by Section 2462, but that the injunctive relief sought by the SEC was not time-barred.  Graham appears to create a circuit split that would prompt Supreme Court review, as prior courts have found that disgorgement was not subject to the limitations period in Section 2462. 

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On May 4, in United States v. Tagliaferri, No. 15-536, ---F.3d---, 2016 WL 2342677 (2d Cir. May 4, 2016), a Second Circuit panel affirmed the conviction of an investment advisor for violating Section 206 of the Investment Advisers Act of 1940, holding that Section 206 requires proof only that an adviser intended to deceive a client, and not necessarily that the adviser intended to harm the client.  Much like the Second Circuit did earlier this year in United States v. Litvak, 808 F.3d 160 (2d Cir. 2015), the Court focused on the nature of the defendant’s deception and not its outcome.  In so holding, the panel clarified that prosecutors have a relatively low bar for obtaining convictions under Section 206.

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