Defense Bill Empowers SEC in Seeking Return of Profits from Fraud

January 5, 2021 – Media Mention
Compliance Week

Arthur Jakoby, partner and co-chair of Herrick's Securities Litigation and Enforcement Department, was quoted in an article in Compliance Week. The article discusses the strengthening of the Securities and Exchange Commission’s (SEC) ability to seek the return of fraudulently gained profits, known as disgorgement. Congress’ passage of the National Defense Authorization Act (NDAA) for Fiscal Year 2021 has made it easier for the SEC to seek restitution. Previously, under federal law the SEC’s pursuit had not been allowed.

Disgorgement is “perhaps the most effective tool the SEC has, because it makes a crime non-profitable for the criminal,” said Arthur Jakoby, a former prosecutor with the SEC’s Enforcement Division. “It makes sure crime does not pay.”

Investigations into securities law violations are time-consuming, and regulators often do not have the luxury of launching probes immediately after the alleged fraud was committed. As a result, the agency and its investigators are regularly bumping up against the statute of limitations, Jakoby said.

“This law gives them additional time to investigate,” he said.

The new law will make it less likely the SEC will be forced to drop a case or request that an entity under investigation sign a tolling agreement, which pauses the clock so the limitation doesn’t run out while the investigation is pursued.