Supreme Court Decides 2 Securities Fraud Cases

The second case Securities Fraud Cases of New York Time 

In the second case decided Wednesday, Gabelli v. Securities and Exchange Commission, No. 11-1274, the court ruled unanimously that the commission must act promptly when it seeks civil penalties.

The case concerned Marc J. Gabelli and Bruce Alpert, who were executives affiliated with a mutual fund company, Gabelli Funds L.L.C. They successfully argued that the S.E.C. had waited too long to sue them for what the agency said were abuses related to rapid trading by a hedge fund.(fondo de cobertura).

The law in question, which applies to many kinds of government requests for civil penalties, says lawsuits “shall not be entertained unless commenced within five years from the date when the claim first accrued.” The agency sued more than five years after the disputed conduct.

“The question,” Chief Justice Roberts wrote for the court, “is whether the five-year clock begins to tick when the fraud is complete or when the fraud is discovered.”

In ordinary civil litigation, it is not unusual for courts to say that the clock starts running in fraud cases only when the plaintiff discovers or should have discovered the wrongdoing. That is because of the nature of fraud, Chief Justice Roberts explained.

“When the injury is self-concealing, private parties may be unaware that they have been harmed,” he wrote. “Most of us do not live in a state of constant investigation; absent any reason to think we have been injured, we do not typically spend our days looking for evidence that we were lied to or defrauded.”