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The Supreme Court rejected the
efforts of the Securities and Exchange Commission ("SEC") effort to
extend the five-year statute of limitations for imposing a civil penalty by
engrafting a discovery exception onto the statute. Chief Justice Roberts,
writing for a unanimous Court, held that under Section 2462 of Title 28, the
statute of limitations begins when there is a cause of action. The decision is
a straight forward reading of the statutory language. Gabelli v. SEC, No.
11-1274 (S. Ct., Decided February 27, 2013) [an enhanced version of this opinion is available to lexis.com
I. Background: The Case
The Commission's case centered on alleged false statements by Marc Gabelli, the
portfolio manager of Gabelli Global Growth Fund ("Fund"), and Bruce
Alpert, the COO of the Fund's adviser, Gabelli Funds, LLC. From 1999 until
2002, the defendants permitted trader Headstart Advisers, Ltd.
("Headstart") to engage in "time zone arbitrage" according
to the SEC, a form of market timing. At the same time, defendants banned others
from utilizing the practice. The arrangement with Headstart was not disclosed
to the Fund's board of directors who were thus deceived. Even after Headstart
halted the practice, the defendants continued to mislead the board and
investors, according to the SEC.
The Commission filed its complaint in April 2008. The underlying investigation
began in the Fall of 2003 following the publicized inquiry of the New York
Attorney General into market timing. At one point the SEC sought tolling
agreements. The complaint alleged violations of Securities Act Section 17(a),
Exchange Act Section 10(b) and Advisers Act Sections 206(1) and (2).
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