Supreme Court Ruling a Blow for Future Financial Crisis Cases
Follow @jbrezlowFebruary 27, 2013, 2:50 pm ET
Watch The Untouchables, FRONTLINE’s look at why no Wall Street executives have been prosecuted for fraud in connection with the financial crisis.
In a setback for the government’s ability to prosecute crimes tied to the 2008 financial crisis, the Supreme Court ruled Wednesday that the Securities and Exchange Commission can’t extend the time limit for seeking penalties in civil fraud cases.
The unanimous decision largely ensures no new civil fraud charges will come out of the crisis, now that five-year statute of limitations for such cases has nearly expired.
The case, Gabelli v. SEC, involved Marc Gabelli, a portfolio manager, and Bruce Alpert, chief operating officer at the investment firm Gabelli Funds, LLC. According to the government, between 1999 and 2002, Gabelli and Alpert allowed a client to engage in an improper trading technique known as market timing. The strategy allows investors to make frequent short-term trades at the expense of other clients in a mutual fund. The SEC launched an investigation in 2003, but did not file a complaint until 2008.
At issue in the case was when should the clock start ticking for civil fraud cases: Should it begin when the alleged crime actually occurs, or when the crime is discovered? The defendants argued that the SEC waited too long to bring charges, but in August, a lower court decided in favor of the SEC, ruling that time runs out five years after the agency discovers — or could have reasonably been expected to discover — fraud.
Today’s 9-0 ruling by the justices reverses that decision. In his opinion for the court, Chief Justice John Roberts wrote that while some private plaintiffs can extend the statute of limitations through the so-called “discovery rule,” the SEC represents “a different kind of plaintiff”:
The Gabelli ruling applies strictly to civil fraud charges, the government’s main tool to date in responding to the subprime mortgage collapse. As FRONTLINE reported in The Untouchables, no Wall Street executives have been prosecuted for the meltdown, but regulators have secured several high-profile multi-million dollar settlements.
Despite the ruling’s implications for future financial crisis cases, some legal observers called the decision a victory for good public policy.
“Government works better as a consequence of the SEC having lost this case,” said Jonathan Macey, a professor of corporate and securities law at Yale Law School. The statute of limitations may be flawed, said Macey, but at the very least, the court’s decision will force regulators to pay closer attention to them.
“This is a good thing,” according to Macey. “It’s going to require the SEC to move a little bit faster and moving faster is in our interest.”
This June 20, 2012, file photo shows a view of the U.S. Supreme Court in Washington. (AP Photo/Alex Brandon)
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