Occupy the SEC submitted an amicus brief in Gabelli v. SEC, a case before the Supreme Court. The plaintiffs are appealing a Second Circuit decision over the issue of the statute of limitations. The underlying charge is that Gabelli, a portfolio manager at Gabelli Funds LLC, and the chief operating officer, Bruce Alpert, engaged in fraudulent market-making. From Occupy the SEC’s blog:
In April 2008, the SEC brought a civil fraud action against Gabelli and Alpert under the Advisers Act. The activities in question occurred between 1999 and 2002. The statute of limitations applicable to the Advisers Act claim, 28 U.S.C. § 2462, bars such claims by the government if they are filed more than five years from when the claim “accrues.”
Centuries-old caselaw holds that in fraud cases, “accrual” begins only when the aggrieved party discovers (or reasonably should have discovered) the transgressor’s fraud. This interpretation, known as the “discovery rule,” has a common-sense policy behind it. A perpetrator of fraud should not be able to avoid liability under a technicality simply because the aggrieved party remained unaware of the fraud for the limitations period (of five years, in the case of Gabelli).
Gabelli and Alpert have appealed the case to the U.S. Supreme Court, after having lost in the Second Circuit in an opinion co-written by Judge Jed Rakoff. Not surprisingly, financial industry lobbyists like Securities Industry and Financial Markets Association (SIFMA) and the American Bankers Association (ABA) have been vocal critics of the Second Circuit’s decision. SIFMA, the ABA and other anti-enforcement groups have filed amicus briefs before the Supreme Court, urging it to overturn the Second Circuit’s Gabelli decision. If the pro-industry lobbyists have their way, an untold numbers of fraudsters will be able to avoid liability under a technicality – 28 U.S.C. § 2462 – simply because their frauds remain undiscovered for certain statutory periods of time.
It’s troubling that the Supreme Court has decided to hear this case. As the brief indicates, many of the arguments made by the plaintiffs were strained. For instance, that since the statute is silent on whether there are limits on the accrual period, that question must be thrown back to Congress for guidance. Ahem, what do judges do all day but interpret ambiguities or fill in gaps in statutes? The plaintiffs also invoke the principle of repose to contend that acknowledging that frauds may go undetected will create instability. Maybe to fraudsters, but policing fraud effectively improves confidence and order rather than weakening it.
The most cogent argument is that statute of limitation laws exist because it becomes increasingly difficult to pursue a case the more time passes because memories fade and records are lost. But the precedent here dates from 1839. OSEC notes:
While this is an important objective, it should be of limited concern in today’s technologically-advanced society. Section 2462’s five year limitation has remained largely un- changed since the 1839 version of the statute. See 3M, 17 F.3d at 1462. However, a fraud defendant’s capacity to avoid the loss of evidence, memories or witnesses is much stronger now than it was nearly two centuries ago, given the advent of electronic data storage and instantaneous video and telecommunications. A five- year look back period is, for practical purposes, much shorter now than it was in 1839. Technological innova- tions like hard drives make the maintenance of evi- dence a virtually cost-free endeavor. Therefore, the practical ends to be served by § 2462 will not be frus- trated by the imposition of the discovery rule because evidence is now easier to maintain.
I hope you’ll take a few minutes and read this brief in its entirety: