The Securities and Exchange Commission suffered a legal blow Wednesday when the Supreme Court unanimously rejected the agency’s position on how much time regulators have to pursue civil penalties.
In Gabelli v. SEC, two officials at the Gabelli Fund argued that the SEC waited too long to bring a civil case accusing them of authorizing an improper trading technique.
The high court agreed, ruling that the SEC must act within five years of a violation taking place. The SEC argued that time runs out five years after the alleged fraud was discovered. Lower courts were split on when the clock starts ticking.
The Supreme Court’s decision has significant implications for cases stemming from the 2008 financial crisis, attorneys said. If the court had accepted the SEC’s interpretation on timing, it could have potentially revived dead or dying cases.
“Those concerned about possible SEC enforcement proceedings tied to the credit crisis are probably breathing a sigh of relief now or anxiously watching the clock on the five years,” said Britt Latham, a lawyer at Bass, Berry & Sims in Nashville.