In Setback for the SEC, the Supreme Court Holds That Claims For Civil Penalties Must Be Brought Within Five Years Of The Alleged Offense
In a significant setback last week for the Securities and Exchange Commission, the U.S. Supreme Court held that the SEC must bring claims seeking civil penalties within five years of when alleged securities violations occur, rejecting a ruling of the U.S. Court of Appeals for the Second Circuit that claims seeking penalties may be filed any time within five years of when the SEC learned about the conduct at issue or could have discovered it with reasonable diligence. Interpreting the general statute of limitations set out in Title 28, United States Code, Section 2462, the Supreme Court in Gabelli v. Securities and Exchange Commission, curtailed the application of the so-called “discovery rule” with respect to the statute of limitations in SEC enforcement actions, and in so doing greatly narrowed the SEC’s authority to seek civil penalties for conduct more than five years old.