High court questions US claim on fraud suit’s time limit

WASHINGTON — The Supreme Court seemed skeptical about the government’s claim that it should be allowed more time to sue some fund executives for securities fraud.

The high court on Tuesday heard arguments from Gabelli Funds executive Bruce Alpert and former executive Marc J. Gabelli, who say the Securities and Exchange Commission missed its chance to sue them for allegedly committing fraud by allowing a hedge fund to rapidly trade shares of a mutual fund.

Gabelli and Albert say a five-year statute of limitations started no later than 2002. The SEC argued the clock did not start until it discovered the practice in late 2003, which put the 2008 suit within the time limit.


The Second US Circuit Court of Appeals agreed the time limit starts with discovery of the practice.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

But Gabelli and Albert’s lawyers said government officials had never before asserted an ability to stretch out the statute of limitations. ‘‘The position that the SEC is taking now is a novel position that to our knowledge has not been taken by other regulators and hasn’t been taken by the SEC until quite recently,’’ Lewis J. Liman said.

Several justices agreed. ‘‘What’s extraordinary is that the government has never asserted this, except in the 19th century, when it was rebuffed and repudiated its position,” Justice Antonin Scalia said.

Justice Stephen Breyer noted any extension would affect more than just security cases. ‘‘It is a statute that applies to all government actions, which is a huge category across the board,’’ said Breyer.

‘‘It seems to me to have enormous consequences for the government suddenly to try to assert a quasi-criminal penalty and abolish the statute of limitations, I mean, in a vast set of cases,’’ Breyer said.


Justice Elena Kagan suggested the only reason the government is trying to stretch back and go after Gabelli and Albert is because the New York attorney general got there first.

‘‘The government had decided not to go after market timers,’’ she said. ‘‘And it changed its decision when a state attorney general decided to do it, and it embarrassed them that they had made that enforcement priority decision.”

Justice Department lawyer Jeffrey B. Wall said he couldn’t believe lawmakers intended to create an obvious loophole.

‘‘I cannot imagine that the Congress, which allowed agencies to seek civil penalties . . . would have thought that the only people who could get away without paying them are the ones who commit fraud or concealment and that remains hidden for five years,’’ Wall said.