Since becoming Chair of the Securities and Exchange Commission (“SEC”), Mary Jo White has repeatedly expressed her intention to focus on SEC enforcement actions against those individuals or companies suspected of breaking federal securities law. In civil enforcement actions, the SEC can seek a variety of penalties, including injunctions to prevent further wrongdoing, civil monetary penalties, the disgorgement of illegal profits, and barring or suspending an individual from acting as a corporate officer or director. A recent federal court opinion has reaffirmed that all such enforcement actions must be brought within five years of the alleged illegal activity—regardless of what sort of penalty the government seeks to impose.
A May 12, 2014 decision from the United States District Court for the Southern District of Florida, SEC v. Graham, No. 13-10011, determined that the SEC is barred from seeking any form of relief in civil penalty actions if it fails to file suit within five years after the occurrence of the alleged wrongdoing. In Graham, the SEC filed a complaint against certain real estate developers for their investment offerings and alleged that the investments, which were offered beginning in July 2004, violated various federal anti-fraud and registration laws. After seven years of investigation, the SEC filed the complaint on January 30, 2013. In turn, the defendants moved for dismissal, arguing that the enforcement action was barred by the statute of limitations provision found in 28 U.S.C. §2462, which provides that such an action “…shall not be entertained unless commenced within five years from the date when the claim first accrued.”
The court agreed with the defendants, finding that §2462 mandated dismissal of the enforcement action. As an initial matter, the court held that as a matter of jurisdiction, it did not have the power to hear the suit, as more than five years had elapsed since the last alleged wrongdoing. Specifically, the Court determined that the SEC had not met its burden of establishing jurisdiction; it could not show any sale or offer for sale of any securities within the previous five years. More importantly, the court determined that the §2462 limitation applies to all forms of relief sought by the government—not just monetary penalties. The SEC argued that this provision did not apply to its complaint because it was only seeking declaratory relief, an injunction and disgorgement. But the court concluded that a penalty included anything intended to punish. Accordingly, under Graham, even equitable remedies—such as injunctions and disgorgement—are subject to the five year statute of limitation under 28 U.S.C. §2462.
Graham is the second recent federal court decision to hold that the limitations in §2462 apply to all forms of relief sought by the SEC. See SEC v. Bartek, 484 Fed.Appx. 949 (5th Cir. 2012). This growing precedent provides defendants with the possibility of an even stronger statute of limitations defense as the five year limitation will no longer be limited to cases where the government is seeking only monetary penalties.
If you would like a copy of SEC v. Graham, or would like specific guidance based on this or other issues, please feel free to contact any member of Reminger’s Financial Services Professional Liability Practice Group.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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