Litigation: SEC actions time-barred after five years? Not quite.

Supreme Court ruling only applies to certain types of SEC remedies

On Feb. 27, the U.S. Supreme Court held in a unanimous ruling in Gabelli v. SEC that actions by the Securities and Exchange Commission (SEC) for civil penalties must be brought within five years from the date on which the claim first accrued, as opposed to five years from discovery of the underlying wrongful conduct. The five-year limitations period is based upon 28 U.S.C. § 2462 – Time for Commencing Proceedings, which applies to actions for civil penalties where the federal statute upon which the claim is based does not contain its own statute of limitations. An issue not reached by the Supreme Court’s Gabelli decision, however, is whether Section 2462 applies to suits in which the government is seeking equitable relief, as opposed to civil penalties. The lower federal courts have reached varying conclusions on this issue. 

In Gabelli, the SEC alleged that individual defendants aided and abetted an illicit quid pro quo between a mutual fund and one of its corporate investors. The SEC filed its action more than five years from the date of the alleged wrongdoing but argued that because the claim was based on fraud, the time within which it was required to bring the action did not begin to run until the agency could reasonably have discovered the alleged fraudulent conduct. The Supreme Court rejected the application of the so-called “discovery rule” on the grounds that its rationale is inconsistent with a regulatory action for civil penalties. According to the court, the discovery rule is “an exception to the standard rule ... where a plaintiff has been injured by fraud and remains [ignorant] without any fault or want of diligence.” By contrast, “the SEC’s very purpose is to root [fraud out].” As a result, the court held that the limitations period for the SEC’s claims for civil penalties should be calculated from the date of the defendants’ wrongdoing, not from the date of the SEC’s discovery of that wrongdoing. 

Contributing Author

author image

Ralph A. Siciliano

Ralph A. Siciliano is a partner in Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Litigation & Dispute Resolution Practice and heads the firm’s Governmental and Regulatory...

Bio and more articles

Contributing Author

author image

Vincent Syracuse

Vincent J. Syracuse is Chair of Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Litigation & Dispute Resolution Practice. He represents a variety of clients in commercial...

Bio and more articles

Contributing Author

author image

Paul Sarkozi

Paul D. Sarkozi is partner in Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Litigation & Dispute Resolution Practice. Recently, Paul was named as one of the...

Bio and more articles

Contributing Author

author image

Richard Trotter

Richard W. Trotter is an associate in Tannenbaum Helpern Syracuse & Hirschtritt LLP’s Creditors’ Rights & Business Reorganizations Practice. He focuses on complex bankruptcy and...

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.