Orrick partner Jim Meyers provides his perspective to JD Supra in the May 14, 2013 article, “A Look Ahead at SEC Enforcement Actions – with Orrick’s Jim Meyers.” Jim comments on trends in Securities and Exchange Commission enforcement, the new arrivals of SEC chairwoman, Mary Jo White and Enforcement Unit co-head, Andrew Ceresney, the recent “Non-Prosecution Agreement” with Ralph Lauren, and more.
To read the full JD Supra article, please click here.
Today, the Solicitor General filed a motion asking the Supreme Court to dismiss the Securities and Exchange Commission’s petition for a writ of certiorari in SEC v. Bartek. As noted in a previous blog post, the Bartek petition focused on when the limitations period under 28 U.S.C. § 2462 begins to accrues, a question that was answered in Gabelli.
However, the petition also presented a second question: whether director and officer bars and injunctive relief constituted penalties. Although the Supreme Court was unlikely to take up that question at this juncture, the government’s decision to dismiss the petition perhaps signals a view that Gabelli will not have a significant adverse impact on the SEC’s civil enforcement activities. Certainly, Gabelli’s impact can be minimized if, as expected, Mary Jo White is confirmed as the next SEC Chair and follows through on her commitment to the Senate Banking Committee to “aggressive” pursuit of wrongdoers.
In Gabelli v. SEC, a unanimous Supreme Court held that the statute of limitations for “penalty” claims in governmental enforcement actions begins to run from the date of the underlying violation of the law, not when the government discovers or reasonably should have discovered the misconduct. Gabelli has important implications for the Securities and Exchange Commission (“SEC”) and all governmental agencies because it limits the sanctions available to the agency for conduct that occurred more than five years before it commences a civil enforcement action. Opinion.
Gabelli involved the application of 28 U.S.C. § 2462, which provides that “an action, suit or proceeding for the enforcement of any civil fine, penalty or forfeiture … shall not be entertained unless commenced within five years from the date when the claim first accrued[.]” In 2008, the SEC sought civil penalties from Mark Gabelli, a mutual fund portfolio manager, for alleged violations of the Investment Advisers Act in connection with alleged market timing issues. Gabelli successfully moved to dismiss the penalty claims as time-barred under Section 2462 because the complaint was filed almost six years after the alleged misconduct. On appeal, the Second Circuit reversed, reasoning that in cases of fraud the statute of limitations does not begin to run until the SEC discovered (or reasonably could have discovered) the wrongful acts. The Supreme Court disagreed, holding that “a claim based on fraud accrues—and the five-year clock begins to tick—when a defendant’s allegedly fraudulent conduct occurs.” Read More
Last week we heard from RUSH. This week we’re tuning in to The Supremes.
On January 8, 2013, the U.S. Supreme Court heard arguments in Gabelli v. Securities and Exchange Commission, No. 11-1274, concerning when the clock begins to run on the five-year statute of limitations for civil penalty claims by the SEC and other federal agencies. The 200-year-old statute at the heart of the dispute (28 U.S.C. §2462) provides: “Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued . . . .” Taking their cue from the Supremes that, “No, you just have to wait,” the SEC argues that “accrued” means when the government discovered, or reasonably could have discovered, the alleged wrongdoing (in this case, market timing by two executives of investment adviser Gabelli Funds, LLC ). On the other hand, the two executives want to know, “How long must I wait, How much more can I take?” arguing that “accrued” means when the government can first bring the action (typically when the alleged wrongdoing occurs), regardless of whether the government knows about it.
What can be divined from the oral argument? The justices appeared skeptical of the government’s position. It was pointed out that this was not a position that had ever been taken by any other government agency, and not by the SEC until 2004, even though the statute had been on the books for almost 200 years. Justice Breyer went so far as to press, “All I’m asking you for is one case [prior to 2004],” but the government’s attorney could not provide one.
Some of justices also commented that it would almost be impossible for a defendant to prove that the government “should have known” about something. There would be no bright-line rules to such an approach. Whether an agency “should have known” could potentially depend on any number of circumstances, for example whether the agency had 100 or 1,000 people reviewing things to shed light on a violation or even whether the agency was overworked or underfunded at the time of the violation. In other words, SEC, “Think it over.” Read More