Set Back 9-0 At High Court, SEC Turns To Congress

In February, in Gabelli v. SEC, a unanimous Supreme Court rejected the Securities and Exchange Commission’s argument that a statute of limitations deadline for its enforcement actions should not begin ticking until it gets around to discovering that securities laws have been violated. In so ruling, as Cato had urged in our amicus brief, the Court struck a blow for basic fairness as well as reasonable statutory interpretation: stale charges are the hardest to defend against, given that witnesses, memories, and documents have often scattered, and citizens deserve a right to get on with their lives rather than face battles over how to interpret financial transactions that took place many years in the past.

It’s hard to win really lasting victories against the continued advance of federal power, however, because agencies so often just come back for another round. Sure enough, the commission is now seeking to recapture much of the ground denied to it by the Court, and even some new ground. Here’s Mike Koehler’s analysis at FCPA Professor:

The SEC is now pushing Congress to double its existing five-year time limit (applicable to Foreign Corrupt Practices Act offenses and many others) to ten years.  Senator Jack Reed (D-RI), a high-ranking member of the Senate Banking Committee, reportedly intends to introduce legislation this fall.

But the SEC already has several arrows in its quiver, such as the discovery rule [which by statute applies to some claims not at issue in Gabelli] and the fraudulent concealment doctrine, to extend the five-year statute of limitations in many cases.  Moreover, a statute of limitations is largely [meaningless in practice] in most corporate SEC enforcement actions given that [pressures for] cooperation, and not necessarily the law and the facts, … motivate most corporations under SEC scrutiny to sign tolling agreements suspending the statute of limitations or to waive statute of limitations defenses altogether.

In short, the SEC faces few meaningful time constraints in bringing corporate enforcement actions.  For instance, the SEC’s most recent Foreign Corrupt Practices Act enforcement action – in May against the French oil giant Total S.A. – was based on conduct that allegedly occurred between 1995 and 1997 and which the SEC began investigating in 2003.

The gray cloud and uncertainty that SEC scrutiny represents hangs over companies and its shareholders for far too long and can have wide-ranging, negative business implications.  Justice is not promoted by extending this period of uncertainty by doubling the statute of limitations to ten years.

The SEC not surprisingly supports this proposal.  Simply put it would make the SEC’s job easier.  However, ease of enforcement has never been a proper consideration in a legal system based on due process and the rule of law…. 

Read the whole thing here.