Gabelli v. Securities & Exchange Commission
133 S. Ct. 1216
| SCOTUS | 2013Background
- SEC brought civil penalties against Gabelli and Alpert for alleged market timing and related violations under the Investment Advisers Act.
- Penalty claim falls under 28 U.S.C. §2462, five-year statute of limitations commencable from when the claim first accrued.
- District Court dismissed the civil penalty claim as time-barred; the Second Circuit reversed, applying a fraud discovery rule to accrual.
- Question presented: does the five-year clock begin at the fraud’s occurrence or when the fraud is discovered for government penalties?
- Gabelli argues accrual occurs at the time of the fraudulent conduct; SEC seeks to apply the discovery rule.
- Supreme Court reverses, holding accrual runs from when the fraud occurs, not when discovered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When does §2462 accrue for fraud-based penalties? | Gabelli argues accrual begins at fraud occurrence. | SEC contends discovery rule postpones accrual until discovery. | Accrual begins at fraud occurrence. |
| Should the discovery rule apply to government penalty actions? | SEC relies on discovery rule to avoid time-bar when fraud undiscovered. | Gabelli rejects discovery rule for penalties; would undermine repose. | Discovery rule does not apply to government civil penalties under §2462. |
| Does Exploration Co. support applying discovery rule to government penalties? | SEC relies on Exploration Co. to extend discovery rule to government actions. | Gabelli distinguishes Exploration Co. as involving the government as a victim, not penalties. | Exploration Co. cannot save government penalties; rule not adopted here. |
| What considerations justify fixed accrual in penalties vs. discovery-based accrual? | Discovery rule fair to victims of fraud who lack knowledge. | Penalties punish and repose is essential; government tools reduce need for discovery rule. | Penalties are punitive; no discovery-rule extension; fixed accrual preferred. |
Key Cases Cited
- Rotella v. Wood, 528 U.S. 549 (Supreme Court, 2000) (supports repose and fixed accrual in limitations periods)
- Wallace v. Kato, 549 U.S. 384 (Supreme Court, 2007) (accrual requires a complete and present cause of action)
- Exploration Co. v. United States, 247 U.S. 435 (Supreme Court, 1918) (fraud discovery rule applied where government was victim, not applicable to penalties here)
- Holmberg v. Armbrecht, 327 U.S. 392 (Supreme Court, 1946) (fraud discovery rule applied to private actions, not government penalties)
- Adams v. Woods, 2 Cranch 336 (Supreme Court, 1805) (penalties and time limits reflected in early limitation doctrine)
- United States v. Lindsay, 346 U.S. 568 (Supreme Court, 1954) (accrual: rights accrue when they come into existence)