Securities & Exchange Commission v. Gabelli
2011 U.S. App. LEXIS 15810
| 2d Cir. | 2011Background
- SEC sues Gabelli and Alpert for undisclosed market timing advantages given to Headstart between 1999–2002.
- Headstart’s market timing involved up to $20 million per transaction and 836 trades totaling about $4.2 billion in GGGF.
- Headstart’s investments financed by Gabelli hedge fund in exchange for favorable market timing; other investors were harmed.
- Gabelli Funds’ “market timing police” generally blocked others while exempting Headstart.
- Memorandum (Sept. 3, 2003) allegedly misstated efforts to curb scalping and failed to disclose Headstart’s special treatment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Memorandum’s half-truths were misleading as a matter of law | SEC argues the Memorandum falsely implied broad, good-faith efforts to curb market timing | Alpert contends the statements were literally true and not actionable | Memorandum statements are plausibly misleading under Rule 10b-5 |
| Whether the discovery rule applies to accrual for civil penalties under §2462 for fraud claims | SEC asserts discovery rule delays accrual until late 2003 discovery | Gabelli argues accrual was August 2002; discovery rule not applicable to non-fraud claims | Discovery rule applies to fraud claims; penalties claims reinstated |
| Whether the SEC may seek civil penalties for aiding and abetting under the Advisers Act | SEC contends penalties permitted for aiding and abetting violations | Gabelli argues penalties limited or improper | Civil penalties for aiding and abetting under the Advisers Act are available |
| Whether injunctive relief was properly denied given likelihood of future violations | Complaint shows intentional past violations; likelihood of future violations supports injunction | District court erred in denying injunctive relief at motion to dismiss | Injunctions properly warranted; SEC’s request not prematurely dismissed |
Key Cases Cited
- Merck & Co. v. Reynolds, 130 S. Ct. 1784 (2010) (fraud discovery rule applies to accrual of claims)
- Janus Capital Grp. Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011) (materiality and misleading statements in fraud claims)
- Dabney v. Levy, 191 F.2d 201 (2d Cir.1951) (discovery rule read into fraud claims for accrual)
- Holmberg v. Armbrecht, 327 U.S. 392 (1946) (discovery rule presumed for fraud claims unless directed otherwise)
- Bailey v. Glover, 88 U.S. (21 Wall.) 342 (1874) (fraudulent concealment vs. discovery rule distinction)
- Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406 (2d Cir.2008) (fraud-based limitations and tolling considerations)
- SEC v. Koenig, 557 F.3d 736 (7th Cir.2009) (discovery rule application to fraud claims (cited in discussing accrual))
- 3M Co. v. Browner, 17 F.3d 1453 (D.C.Cir.1994) (context of statutory interpretation; not directly controlling here)
- SEC v. DiBella, 587 F.3d 553 (2d Cir.2009) (civil penalties may be assessed for aiding and abetting under Advisers Act)