YOU MAY NEVER BE FREE OF LIABILITY FROM OLD CONDUCT, IF THE SEC HAS ITS WAY
An important component of evaluating risk is determining when the risk abates. In the context of enforcement actions brought by the US Securities and Exchange Commission (SEC), the risk abates when the SEC runs out of time to seek relief in court. So, when does that time run out? For years, the SEC’s position has been never – that it may seek certain relief at any time, regardless of how long ago the allegedly improper conduct took place.
Over the past decade, however, the US Supreme Court has steadily reined in the SEC by enforcing the five-year statute of limitations in 28 U.S.C. § 2462, which applies to government actions seeking “any civil fine, penalty, or forfeiture”. The Court first applied § 2462 to SEC claims for money penalties. Then the Court applied § 2462 to SEC claims for disgorgement. Now, some wonder whether § 2462 applies to SEC claims for an injunction on being employed in the securities industry or serving as an officer or director. Although courts have not yet squarely addressed that question, there are good reasons to think the answer is yes.
Some brief history may help understand where we may be going. In the watershed case of Gabelli v. SEC, the Supreme Court unanimously held that the SEC must bring claims for money penalties within five years of when the underlying alleged misconduct occurred. 568 U.S. 442 (2011). It did not matter that the SEC had not uncovered the misconduct until later, or that the SEC was acting in the public interest, the Court explained; “even wrongdoers are entitled to assume that their sins may be forgotten”.
Apr-Jun 2019 Issue
Jenner & Block LLP