Parties Push To Enforce Statutory Time Limits On SEC Enforcement Actions

Two cases now before US Courts of Appeals carry the possibility of placing meaningful new limits on the US Securities and Exchange Commission's (SEC) time horizon for bringing enforcement actions. The SEC has long argued that certain statutory provisions which appear on their face to create time limits on SEC actions are either limited in their scope or merely establish internal policy guidelines for the agency, and do not actually circumscribe its jurisdiction to bring actions. These impending appellate decisions, depending on their outcomes, may expand the defenses available to parties subject to SEC enforcement actions when those actions are not undertaken in a timely fashion. SEC v. Graham, pending in the 11th Circuit, involves 28 U.S.C. § 2462, a generally applicable statute of limitations providing that "an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued." The US Supreme Court's 2013 Gabelli decision held that in SEC enforcement actions seeking civil penalties, § 2462 applies and the claim accrues (thus the limitations period begins to run) when the conduct giving rise to the claim occurred and the fraud was complete.1 The SEC had argued that the claim should only accrue when the fraud was discovered, not when it occurred. The Court in Gabelli left open the question of whether § 2462 may apply similarly to enforcement actions seeking equitable relief, including disgorgement and various forms of injunctive relief. The District Court in Graham held first that § 2462 is no mere administrative "claims processing" rule, but rather a "jurisdictional" statute of limitations that removes courts' power to hear actions brought too late. Furthermore, it held that § 2462 applies to disgorgement, injunctive relief, and any other remedy sought by the SEC that operates in effectregardless of formal title or labelas a "civil fine, penalty, or forfeiture, pecuniary or otherwise."2 On appeal to the 11th Circuit, the SEC argued that under Gabelli, and by its own terms, § 2462 does not apply at all to enforcement actions seeking relief that the agency terms "equitable." Mr. Graham and amicus curiae counter that the equitable relief sought by the SEC is really not in the nature of a compensatory remedy as it is sometimes claimed: in practice, more often, disgorgement operates as a punitive...