The new leadership team at the U.S. Securities & Exchange Commission (SEC) has pledged to bring about positive change to the way it approaches its important regulatory enforcement duties. It remains to be seen in exactly what form this change will take. Some of the most significant changes to the way the SEC approaches its work, however, are likely to come from the outside — specifically, as a result of what has been described as the “mildly technical decision” issued in February 2013 by the U.S. Supreme Court in Gabelli v. Securities & Exchange Commission.
The case began in 2008, when the SEC sued a mutual fund investment advisor, Gabelli Funds LLC, in New York federal district court for alleged violations of the Investment Advisors Act of 1940. According the SEC, between 1999 and 2002, senior officers at Gabelli aided and abetted an important client in fraudulent “market timing” activity that allowed the client to profit from differences in the closing times for U.S. and foreign financial exchanges. Among other things, the SEC sought to impose civil monetary penalties against Gabelli. Gabelli moved to dismiss, arguing, in part, that the claim for civil penalties was time-barred by the five-year statute of limitations set out in 28 U.S.C. § 2462. The district court agreed and dismissed that claim.