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SEC Powers Under Scan Over Gabelli Case, By Supreme Court

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SEC Powers Under Scan Over Gabelli Case, By Supreme Court

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.

Justices from all over the ideological gamut directly raised a question at the government lawyer arguing, for the U.S. Security and exchange commission, on how the laws necessitating the agency to seek such penalties within five years should be interpreted.

The case was primarily concerned with whether SEC waited for too long to take legal action against mutual fund manager, Marc Gabelli, and his colleague Bruce Alpert, chief operating officer of Gavelli 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.

A win for the SEC could help it track predominantly complex investigations involving a longer duration of time, together with proceedings arising from the housing meltdown and the 2008 global financial crisis.

Jeffrey Wall, a U.S. Department of Justice lawyer arguing for the SEC struggled at oral argument to cite cases supporting what he called the commission’s “fairly modern” position.

“Why is it that you don’t have any cases?” Justice Elena Kagan, one of the court’s more liberal members said. “This is obviously an old statute…. The government, which has not asserted this power for 200 years, is now coming in and saying, ‘We want it.'”

Justice Antonin Scalia, from the court’s conservative wing, also criticized the SEC’s position. “This is brand-new assertion by the government,” he told Wall. “Is there much difference between the rule you are arguing for and a rule that there is no statute of limitations?”

If SEC tastes defeat, it may prove harder for other agencies such as the Federal Trade Commission and the Social Security administration to pursue various civil proceedings because the five year deadline also goes for these agencies. But Justice Stephen Breyer inquired why the government should be permitted to search for civil penalties, in addition to the ill-gotten gains it can still follow after five years.

“It seems to me to have enormous consequences for the government suddenly to try to assert a quasi-criminal penalty and abolish the statute of limitations, I mean, in a vast set of cases,” he said.

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