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March 20, 2013

Supremes 9, SEC 0

It isn’t easy to lose 9-0 on the current ideologically divided Supreme Court. So ironic congratulations are in order for the Securities and Exchange Commission, which managed the feat in a unanimous ruling on Wednesday.

As if financial regulators don’t enjoy enough authority, the government argued inGabelli v. SEC that the SEC has the power to rewrite the statute of limitations to assist its civil prosecutions. Congress long ago said the government has five years after alleged wrongdoing occurs to file a case seeking monetary penalties. But in 2008 the SEC sued investors Marc J. Gabelli and Bruce Alpert for practices that had ended by 2002. (The defendants have denied wrongdoing on the underlying charges.)

The SEC argued that the five-year clock should not have started ticking until the SEC discovered the alleged fraud in 2003. Such a “discovery rule” does apply for a private party who has suffered harm, but not for a government agency seeking penalties. Fraud charges have been around for ages, so Justices on the left and right wondered how the government could suddenly claim a new authority to extend the deadline.”

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Read full Wall Street Journal article here

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