“The U.S. Supreme Court handed a unanimous legal defeat to the Securities and Exchange Commission on Wednesday, ruling the agency can’t relax time limits for seeking civil penalties in fraud cases.
“The court, in an opinion by Chief Justice John Roberts, reversed a lower court ruling that gave the SEC additional time to seek penalties against a former money manager and an executive at Gabelli Funds LLC on allegations they secretly allowed a favored investor to engage in market timing, a practice in which sophisticated short-term traders can exploit inefficiencies in the pricing of a mutual fund’s shares.
“The SEC faced a five-year statute of limitations on bringing a case. The agency alleged the market timing took place between 1999 and 2002, but it didn’t bring a complaint until 2008. The defendants, Marc J. Gabelli and Bruce Alpert, argued the agency’s five-year clock ran from the time of the alleged offense, but the SEC said the clock should have started later, in late 2003, when it says it discovered the conduct.
“The high court flatly rejected the SEC’s arguments. “We have never applied the discovery rule in this context,” Chief Justice Roberts wrote in an 11-page opinion.”
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