Supreme Court: Statute of Limitations in SEC Fraud Cases Begins to Run When Fraud Occurs, not When Discovered

The Supreme Court today ruled that in an SEC action to recover civil penalties, the five-year statute of limitations begins to run when fraud occurs, not when it is discovered. The Court held in Gabelli et al. v. Securities and Exchange Commission that the “discovery rule” does not apply to an SEC enforcement action sounding in fraud.

The Supreme Court’s unanimous decision is sure to set the SEC scrambling to beat the clock in enforcement cases.

The general statute of limitations for civil penalty actions (28 U.S.C. §2462) gives plaintiffs, including the SEC, five years “from the date when the claim first accrued” to bring a case. The so-called “discovery rule,” a long-standing exception to the general rule that allows plaintiffs to bring a case five years after discovering the fraud, is “based on the recognition that . . . in the case of fraud . . . a defendant’s deceptive conduct may prevent a plaintiff from even knowing that he or she has been defrauded.” In Gabelli, the SEC argued that the discovery rule should apply not only in the case of a defrauded private plaintiff but also in an enforcement action brought by the government.

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Topics:  Discovery Rule, Gabelli v SEC, SCOTUS, SEC, Securities Fraud, Statute of Limitations

Published In: Civil Procedure Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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