(updated with correction)
A bid by SEC regulators to have unlimited time to seek civil penalties met with skepticism from U.S. Supreme Court justices Tuesday in a case brought by a former portfolio manager and the chief operating officer with GAMCO Investors (GBL).
Gabelli Funds LLC reached a $16 million settlement with the SEC in April 2008 over alleged market timing in the Gabelli Global Fund between 1999 and 2002. The SEC did not discover the alleged fraud until 2003, so lower court allowed the discovery process to continue beyond the five-year statute of limitations on the last market-timing transaction.
Since that statute of limitations applies to government penalty actions by most federal agencies, the Supreme Court's ruling, expected this summer, could have broader implications for any civil government enforcement action, several justices noted during arguments. “It would represent an extreme departure for anything this court had ever held,” said Justice Sonia Sotomayor.
“It seems to me to have enormous consequences for the government to suddenly try (this argument),” said Justice Stephen Breyer.
Arguing for the Gabelli plaintiffs, Marc Gabelli and Bruce Alpert, attorney Lewis Liman of Cleary Gottlieb Steen & Hamilton in New York characterized the case, Gabelli et al vs. SEC, U.S. Supreme Court, as “an outlier” that should not be allowed to change the rules governing the statute of limitations on federal actions.