SEC Drops Gabelli Case After 6 Years

SEC Drops Gabelli Case After 6 Years

The U.S. Securities and Exchange Commission (SEC) agreed to dismiss remaining claims against Bruce Alpert of Gabelli Funds LLC over alleged abuses involving a hedge fund’s rapid trading.

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Last August, the SEC had dismissed related claims against Marc Gabelli, daughter of the hedge fund’s founder Mario Gabelli.

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Supreme Court’s decision

Last year, the U.S. Supreme Court decided to restrain some powers of the prime federal securities regulator to seek civil penalties after the expiration of the usual time limit for fraud investigation.

The case was primarily concerned with whether the SEC waited for too long to take legal action against mutual fund manager, Marc Gabelli, and his colleague Bruce Alpert, chief operating officer of Gabelli funds LLC, to charge them of not disclosing a client’s questionable trades. In their defense, Gabelli and Alpert said the five years starts when the suspected wrongdoing occurs, but the Securities and Exchange Commission said that it started when it convincingly detected the fraud.

In the case, the Supreme Court held that  the five-year statute of limitations for filing civil enforcement actions seeking penalties for fraud begins to run from the date of the alleged violation, not when the SEC discovers, or reasonably should have discovered, the violation.

SEC agreed to drop the case

As revealed in a Friday court filing, the SEC agreed to dismiss its remaining claims against Bruce Alpert, the Gabelli firm’s chief operating officer, ending six years of litigation.

Earlier the SEC had argued that the clock began to tick when it first discovered the conduct. In April 2008, Gabelli Funds LLC agreed to pay $16 million to settle a related SEC case.

Interestingly, in August, the Second Circuit vacated the SEC’s $38 million fine against hedge fund Pentagon Capital Management PLC, holding that the Supreme Court’s decision in the Gabelli case required the case to be remanded for recalculation of the civil penalty. The Second Circuit’s decision highlights the limiting effect Gabelli will have on civil remedies available to the SEC for securities law violations that occurred more than five years before the agency initiated its enforcement action.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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