All Relief Sought By SEC Subject To 5-Year Statute Of Limitations

As we reported last year, the U.S. Supreme Court's decision in Gabelli v. SEC precludes the SEC from using the "discovery rule" to extend the five-year statute of limitations on the government's claims for civil penalties available under 28 U.S.C. § 2462. In Gabelli, the Supreme Court expressly declined to address whether the statute of limitations under Section 2462 also applies to disgorgement and an injunction. Early last week, U.S. District Judge James King in the Southern District of Florida answered that question in the affirmative. In issuing a Final Order of Dismissal in SEC v. Graham, Judge King significantly expands Gabelli by applying Section 2462 to all forms of relief, not just civil penalties, sought by the SEC in that matter.1 Given that SEC investigations often take years, this decision likely will incentivize the SEC to expedite investigations and charging decisions.

SEC v. Graham involved an action against five former executives of the defunct Cay Clubs Resorts and Marinas in connection with an alleged offering fraud and Ponzi scheme. According to the SEC, more than 1,400 investors were defrauded into investing more than $300 million through purchases of units at Cay Clubs' resort locations based on promises of, among other things, immediate income from a guaranteed 15-percent return and a future income stream through a rental program. The SEC filed the action in 2013, following a protracted investigation spanning more than seven years. In the action, the SEC sought declaratory relief, injunctive relief, civil money penalties, a sworn accounting, and the repatriation and disgorgement of all ill-gotten gains. The defendants moved for summary judgment that the five-year statute of limitations under Section 2462 barred the SEC's claims.

Judge King raised sua sponte the issue of whether the Court had subject matter jurisdiction to entertain the SEC's case. In deciding whether Section 2462 was jurisdictional, the Court dismissed the notion that the statute operated as a "claim-processing rule" and determined that Congress "clearly states that a threshold limitation on a statute's scope shall count as jurisdictional."2 Moreover, the Court stated that statutes of limitation, especially the "more absolute" kind whose text speaks to the power of a court to act, as opposed to those that "seek primarily to protect defendants against stale or unduly delayed claims" can remove such claims not brought within the time limit from the...