Occupy the SEC submitted an amicus brief in Gabelli v. SEC, a case before the Supreme Court. The plaintiffs are appealing a Second Circuit decision over the issue of the statute of limitations. The underlying charge is that Gabelli, a portfolio manager at Gabelli Funds LLC, and the chief operating officer, Bruce Alpert, engaged in fraudulent market-making. From Occupy the SEC’s blog:
In April 2008, the SEC brought a civil fraud action against Gabelli and Alpert under the Advisers Act. The activities in question occurred between 1999 and 2002. The statute of limitations applicable to the Advisers Act claim, 28 U.S.C. § 2462, bars such claims by the government if they are filed more than five years from when the claim “accrues.”
Centuries-old caselaw holds that in fraud cases, “accrual” begins only when the aggrieved party discovers (or reasonably should have discovered) the transgressor’s fraud. This interpretation, known as the “discovery rule,” has a common-sense policy behind it. A perpetrator of fraud should not be able to avoid liability under a technicality simply because the aggrieved party remained unaware of the fraud for the limitations period (of five years, in the case of Gabelli).
Gabelli and Alpert have appealed the case to the U.S. Supreme Court, after having lost in the Second Circuit in an opinion co-written by Judge Jed Rakoff. Not surprisingly, financial industry lobbyists like Securities Industry and Financial Markets Association (SIFMA) and the American Bankers Association (ABA) have been vocal critics of the Second Circuit’s decision. SIFMA, the ABA and other anti-enforcement groups have filed amicus briefs before the Supreme Court, urging it to overturn the Second Circuit’s Gabelli decision. If the pro-industry lobbyists have their way, an untold numbers of fraudsters will be able to avoid liability under a technicality – 28 U.S.C. § 2462 – simply because their frauds remain undiscovered for certain statutory periods of time.
It’s troubling that the Supreme Court has decided to hear this case. As the brief indicates, many of the arguments made by the plaintiffs were strained. For instance, that since the statute is silent on whether there are limits on the accrual period, that question must be thrown back to Congress for guidance. Ahem, what do judges do all day but interpret ambiguities or fill in gaps in statutes? The plaintiffs also invoke the principle of repose to contend that acknowledging that frauds may go undetected will create instability. Maybe to fraudsters, but policing fraud effectively improves confidence and order rather than weakening it.
The most cogent argument is that statute of limitation laws exist because it becomes increasingly difficult to pursue a case the more time passes because memories fade and records are lost. But the precedent here dates from 1839. OSEC notes:
While this is an important objective, it should be of limited concern in today’s technologically-advanced society. Section 2462’s five year limitation has remained largely un- changed since the 1839 version of the statute. See 3M, 17 F.3d at 1462. However, a fraud defendant’s capacity to avoid the loss of evidence, memories or witnesses is much stronger now than it was nearly two centuries ago, given the advent of electronic data storage and instantaneous video and telecommunications. A five- year look back period is, for practical purposes, much shorter now than it was in 1839. Technological innova- tions like hard drives make the maintenance of evi- dence a virtually cost-free endeavor. Therefore, the practical ends to be served by § 2462 will not be frus- trated by the imposition of the discovery rule because evidence is now easier to maintain.
I hope you’ll take a few minutes and read this brief in its entirety:
Occupy the SEC – Gabelli v. SEC Brief
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I wish them the best of luck but if product liability is limited to two years for every product regardless of any factors I suspect the Supremes are just going to extend that inanity to the financial world.
My product liability example.
As the inventor and purveyor of an alternative bicycle saddle I have been contacted over the years by multiple attorneys trying to represent clients that have developed serious ED problems inherent in the standard saddle design. The problem is the damage does not show itself within the two year liability limit window so the bike saddle industry never has to be held responsible for its damaging design. I suspect that there are many other products that are also sheltered from prosecution because of the arbitrary two year limitation.
This case would be of interest to see if the pro-Corporate shills on the SC are Bankster shills as well.
There is no doubt where the Supremes will come out on this. They did it in Ledbetter and they’ll do it again here…
I am so impressed with the Occupy SEC actions. Perhaps we need just such a group of concerned citizens for continuous lobbying of the regulatory institutions in order to balance the lobbying by the banking insterests.
Me too. Occupy the SEC is the only bright spot on this dismal landscape. And the SC is becoming a dubious exercise in special interests. I love this detail about the Discovery Rule – that it really no longer addresses the original reason for a 5 year statute of limitations on fraud because in our electronic world we can access the information we need going back 15+ years. So banksters beware: it isn’t your grandfathers’ limitation anymore. This presents the “supremes” with a true political dilemma. How to fake it. Maybe we should just call them the “sublimes.”
Dear STO;
OOO… I bow down and make praise! A Capital Class Semantic Pun!
I propose a new verb use. To Sublimate- V. To make disappear through legal action. Example: “The Supremes sublimated the Rule of Law.” (From the bedrock foundation of our society, the Rule of Law dissolved into political hot air.)
Thanks Ambrit, I wasn’t really thinking it had legs. But it does.