CLS Blue Sky Blog

Paul Weiss discusses Florida Court’s Dismissal of SEC Case Following Gabelli

In SEC v. Graham, 2014 WL 1891418 (S.D. Fla. May 12, 2014) (King, J.), a Florida district court held that SEC claims for injunctive relief, declaratory relief and disgorgement are subject to the same five-year statute of limitations as claims for civil monetary penalties. The court’s reasoning was based, in large part, on the Supreme Court’s analysis of that statute of limitations last year in Gabelli v. SEC, 133 S. Ct. 1216 (2013).


28 U.S.C. § 2462 (“Section 2462”) provides that “[e]xcept as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued[.]”

In Gabelli, the Supreme Court held that, under Section 2462, “the five-year clock begins to tick when the fraud is complete,” not “when the fraud is discovered.” The Court held that, although statutes of limitation for claims by private parties sometimes did not run until discovery of a fraud, this discovery rule was inapplicable where the SEC brought an enforcement action seeking penalties. Private parties, the Court explained, “do not typically spend [their] days looking for evidence that [they] were lied to or defrauded,” but the SEC is charged with investigating wrongdoing and “has many legal tools at hand to aid in that pursuit.” Further, the SEC does not simply seek compensation, like private parties, but “penalties, which go beyond compensation, and . . . ‘label defendants wrongdoers.'”

On that basis, the Supreme Court in Gabelli held that the SEC’s claims for civil monetary penalties, which were brought more than five years after the relevant conduct, were time-barred under Section 2462. The Gabelli Court did not reach the question of whether Section 2462 is also applicable to claims for equitable relief. The Court instead noted that: “The SEC also sought injunctive relief and disgorgement, claims the District Court found timely on the ground that they were not subject to § 2462. Those issues are not before us.”


In Graham, the court was required to resolve the issue – left open in Gabelli – of whether claims for injunctive relief, declaratory relief, and disgorgement fell within Section 2462, and were therefore subject to its rigid five-year statute of limitations.

The court held that “the long-held policies and practices that underpin the Supreme Court’s unanimous opinion in Gabelli, as well as the text of the statute itself, require the conclusion that § 2462 does reach all forms of relief sought by the SEC in this case.” It noted that, if Section 2462 did not apply, then defendants would forever be subject to claims by the SEC – contrary to the principle recognized in Gabelli that statutes of limitation should provide “repose, elimination of stale claims, and certainty about a plaintiff’s opportunity for recovery and a defendant’s potential liabilities.”

The court explained that “[p]enalties, ‘pecuniary or otherwise,’ are at the heart of all forms of relief sought by the SEC in this case.” The SEC’s request for a declaration that defendants violated the federal securities laws would “label defendants wrongdoers,” which Gabelli recognized as a defining characteristic of a penalty. The court also considered that permanent injunctive relief “can be regarded as nothing short of a penalty ‘intended to punish,’ especially where, as here, no evidence (or allegations) of any continuing harm or wrongdoing has been presented.” Finally, the court stated that the disgorgement sought by the SEC “can truly be regarded as nothing other than a forfeiture (both pecuniary and otherwise), which remedy is expressly covered by § 2462.”

The court also held that Section 2462 was a “jurisdictional” statute of limitations. It interpreted the section’s directive that claims “shall not be entertained” after five years as “a congressional removal of a court’s power to entertain its adjudicatory authority and jurisdiction.” The court thus held that, after the five-year period has expired under Section 2462, a court no longer has subject matter jurisdiction. The court reasoned that the SEC, as the party seeking the court’s jurisdiction, therefore has the burden of pleading and proving that its claims are timely under the five-year statute. Because the SEC had not met this burden on the facts of the case, the court dismissed its claims.


Prior to Gabelli, a number of courts held that SEC claims for disgorgement, and, in certain circumstances, injunctive relief, were not subject to Section 2462. See, e.g., Zacharias v. SEC, 569 F.3d 458 (D.C. Cir. 2009); SEC v. Lorin, 869 F. Supp. 1117 (S.D.N.Y. 1994); but see SEC v. Jones, 476 F. Supp. 2d 374 (S.D.N.Y. 2007) (holding that an injunction was a “penalty” subject to § 2462 where it was “not aimed at protecting the public from future harm, but more likely aimed at punishing Defendants.”); SEC v. Montle, 65 F. App’x 749 (2d Cir. 2003) (“We need not reach the question of whether § 2462 applies only to penal assessments, or applies also to disgorgement actions.”).

The Graham analysis suggests that the Supreme Court’s decision in Gabelli may cause courts to revisit this issue, consistent with the Supreme Court’s express reservation of the issue. A small number of other district court cases post-dating Gabelli have taken a contrary position and continued to apply earlier case law. See, e.g., SEC v. Amerindo Inv. Advisors, Inc., 2014 WL 405339 (S.D.N.Y. Feb. 3, 2014); SEC v. Vuono, 2013 WL 6837568 (E.D.N.Y. Dec. 26, 2013). However, the impact of Gabelli on this issue was not analyzed extensively in any of these cases.

If Graham is followed more broadly, it would provide considerable protection for defendants. Claims by the SEC for disgorgement, injunctive relief, and declaratory relief – which are often sought by the SEC – would be subject to the same absolute five-year statute of limitations as claims for civil monetary penalties.

The full and original memo was published by Paul, Weiss, Rifkind, Wharton & Garrison on May 20, 2014, and is available here.

Exit mobile version