High Court to Decide if SEC Case Goes Forward

     (CN) – A former portfolio manager who says the U.S. Securities and Exchange Commission waited too long before bringing a case against him for allowing improper securities trades will have his appeal heard by the Supreme Court.
     Check out Courthouse News’ Securities Law Review.
     On Tuesday the high court granted cert in the case of Marc Gabelli, a former portfolio manager at Gabelli Funds LLC, and Bruce Alpert, the COO of the firm, for allowing a British entity called Folkes Asset Management to do hundreds of market-timing trades on behalf of the Gabelli Global Growth Fund between 1999 and 2002.
     Market timing is the practice of carrying out rapid trading to exploit market and/or pricing inefficiencies.
     According to the SEC, by allowing Folkes Asset Management to carry out these confidential trades on behalf of the fund, Gabelli and Alpert were according one group of their investors preference over another.
     Gabelli and Alpert said the last of these trades on their behalf occurred in August 2002.
     But the SEC did not sue then until April 2008, by which time their fund had agreed to pay $16 to settle related charges. Therein lies the rub — SEC’s statute of limitations is five years in cases where the agency seeks a financial penalty.
     The question the court has been asked to consider is when, absent Congress enacting a separate controlling provision, does the government’s case first accrue for the purposes of applying the five-year limitations period set forth under 28 U.S.C. § 2462?
     In its original complaint, the SEC explained its delay in filing suit was due to Gabelli and Alpert ‘s continuing to mislead their board of directors and investors. As a result, it said, it did not discover the fraud until late 2003.
     The defendants argued that as the last of acts complained about and the SEC’s filing of the lawsuit was six years apart, the case should be thrown out. The U.S. District Court in Manhattan agreed, dismissing most of the SEC’s claims.
     A single claim did survive the defendant’s motion to dismiss – the SEC’s Advisors Act claim – but the District Court barred all relief other than disgorgement.
     But an opinion written by U.S. District Judge Jed Rakoff, the 2nd Circuit reversed and remanded the case, holding that Gabelli and Alpert failed to show that a reasonably diligent plaintiff would have uncovered the activity before September 2003.
     In their appeal, Gabelli and Alpert argue the 2nd Circuit’s decision conflicts with decisions of least four other circuit courts that held the five-year statutory limit on prosecution begins when a claim “accrues.”

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