Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, January 2, 2013

U.S. Supreme Court Will Hear Oral Argument in Case Deciding Limitations Period for Civil Penalty Actions

On Jan. 8, the U.S. Supreme Court will hear oral argument in Gabelli v. SEC, an appeal from the Second Circuit, that addresses the statute of limitations for civil penalty actions.  In April 2008, the SEC filed a complaint alleging that defendants concealed the fact that they allowed market timing in a mutual fund contrary to the fund's stated policy.  The market timing took place from 1999 until 2002.  The SEC did not discover the alleged fraud until late 2003.  The Supreme Court must decide whether the SEC's fraud action for civil penalties is time-barred because it was not brought within five years "from the date when the claim first accrued," the language from the relevant statute (28 U.S.C. 2462).  The Second Circuit, reversing the district court, held that the judicially-created discovery rule was read into the statute and delays the accrual of a fraud claim until the plaintiff discovers, or in the exercise of reasonable care should have discovered, the fraud.  Defendants, in contrast, assert that the statute sets forth a clear rule whenever the government seeks to impose a penalty: the suit must be brought within five years from the date when the claim "first accrued," which means when the government's right to sue first arises.

The ABA's Preview has all the briefs filed with the Supreme Court.

January 2, 2013 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Khuzami Rumored to be Stepping Down from SEC Enforcement

I have not been blogging in the past few weeks, having been on vacation and also grading exams.  I'm  trying now to catch up.  The first story (not relating to the fiscal cliff) that caught my attention were the reports that SEC Enforcement Head Robert Khuzami will be shortly resigning.  The SEC has not issued a statement, but the Huffington Post, and others, report that, according to Bloomberg, Khuzami submitted his letter of resignation to SEC Chairman Elisse Walter.  Simon Johnson, in his New York Times column, takes the report seriously and discusses replacements; he recommends Neil Barofsky, the former Special Inspector General for TARP.

It will be interesting to see how SEC historians rank Khuzami's tenure.  One of Mary Schapiro's first appointments after becoming Chairman, Khuzami, a former federal prosecutor, was brought in to reinvigorate the SEC's enforcment program.  Schapiro herself gave Khuzami high marks for his accomplishments in this regard, and Khuzami frequently talked like a tough prosecutor.  Yet many have criticized his failure to go after the officers and directors of the financial firms that were implicated in the financial crisis.

It will also be interesting to see what job Khuzami takes next.  Prior to joining the SEC, he was the General Counsel at Deutsche Bank.  Will the door continue to revolve?

January 2, 2013 in SEC Action | Permalink | Comments (0) | TrackBack (0)