Gabelli v. Securities and Exchange Commission

Whether the five-year limitations period under 28 U.S.C. § 2462 is calculated from the date of the underlying infraction or from when the government actually—or should have—discovered the fraud when there are no additional legislative controlling provisions.

In 2008 the SEC charged Petitioners with violating the anti-fraud provisions of the Security Exchange Act of 1934, the Securities Act of 1933 and the Advisors Act, and sought civil penalties and injunctive relief. Petitioners filed motions to dismiss under Federal Rules of Civil Procedure 12(b)(6) for failure to state a claim for which relief may be granted. The trial court dismissed the Securities Act and Security Exchange Act claims and while it refused to dismiss the Advisors Act claim, the court ruled that the SEC was time-barred under 28 U.S.C. § 2462 from seeking civil penalties and that injunctive relief was inappropriate because the SEC failed to show that Petitioners were “reasonably likely to engage in future violations.”

The Court of Appeals for the Second Circuit overruled the trial court and held that the discovery rule from Merck & Co. v. Reynolds was implicit in § 2462 and the accrual of time does not start running until the government actually discovered or should have discovered the fraud.

The Supreme Court granted certiorari in order to determine whether the government’s claim first "accrues" on the date of the underlying violation as held by the Fifth, Sixth, Ninth and D.C. Circuits, or if there is in an implicit discovery rule in 28 U.S.C. § 2462.