Financial penalties and disgorgement are a powerful tool for the Securities and Exchange Commission, and a powerful source of revenue - more than $4 billion last year. A ruling in Kokesh v. Securities and Exchange Commission will likely reduce that number in the future.

In a unanimous reversal of a Circuit Court of Appeals ruling, the Supreme Court sharply limited how far back in time regulators can go to demand disgorgement.

The commission has long maintained that while it does impose financial penalties, disgorgement is not a penalty and is thus not held to the 5-year statute of limitations federal applies to an "action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise."

With this rationale the regulators could go much further back beyond the discovery of a fraud and ask courts for disgorgement.

King & Spalding securities enforcement partner Dixie Johnson said that parties who have previously been compelled to disgorge funds from more than five years prior to the violation may want to take another look at their cases.

The case at hand involves investment adviser firm owner Charles Kokesh, who was the subject of an SEC enforcement action that began in 2009 and alleged that Kokesh stole $34.9 million over a period extending back to 1995.

After a jury found that Kokesh had violated securities laws, the District Court levied penalties including a $34.9 million disgorgement sanction plus interest. Some $29.2 million of the disgorgement was charged against activities predating the inception of the 5-year statute of limitations.

The Tenth District Court of Appeals upheld the District Court, finding that the disgorgement was not a penalty.

The Supreme Court disagreed. "First, SEC disgorgement is imposed by the courts as a consequence for violating what we described in Meeker as public laws," the opinion said.

"Second, SEC disgorgement is imposed for punitive purposes. In Texas Gulf -- one of the first cases requiring disgorgement in SEC proceedings -- the court emphasized the need "to deprive the defendants of their profits in order to . . . protect the investing public by providing an effective deterrent to future violations."

The Supreme Court also noted that disgorgement is not necessarily compensatory. Recovered funds are handled at the discretion of the courts and are not necessarily used to restore victims of fraud.

The devil is in the details, and Johnson noted that a footnote in the opinion states it does not limit courts' power to call for disgorgement.

"Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings or on whether courts have properly applied disgorgement principles in this context," the footnote says.

"The sole question presented in this case is whether disgorgement, as applied in SEC enforcement actions, is subject to [federal] limitations period."

The wheels of justice turn slowly, and the commission's perhaps slowest of all.

The new ruling could increase the speed of rotation according to Marc Powers, leader of BakerHostetler's securities litigation & regulatory enforcement and hedge fund industry practice.

"This will be more advantageous to all proposed SEC defendants, including Wall Street," according to Powers. "They will be able to sleep at night, not fearing the SEC and forever looking over their shoulders for their questionable conduct in the securities markets."