SEC v. Bartek

In the Wake of Gabelli, SEC Voluntarily Dismisses Follow-on Cert. Petition

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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.

Supreme Court Unanimously Limits SEC’s Ability to Bring Civil Penalty Claims for Conduct Older Than Five Years

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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 →