Skip to main content

The Globe and Mail

The end of fraud: Top U.S. court limits SEC investigations

So do many people “I wish they caught me six years ago, eight years ago.” Bernard Madoff, in a June prison interview with the U.S. Securities and Exchange Commission


The U.S. Supreme Court has, in the words of one attorney, provided "certainty and stability" to players in the financial markets.

Particularly, we note, if they're committing fraud.

The Court, in a unanimous ruling Wednesday, said the five-year statute of limitations for fraud starts when a fraud ends, not when it's discovered.

Story continues below advertisement

The decision came in a case where the U.S. Securities and Exchange Commission said mutual fund manager Marc Gabelli and his colleague Bruce Alpert allowed a firm to "market-time" their fund. The SEC said the trades occurred from 1999 to 2002, but didn't sue until April 2008.

Wronged investors aren't subject to the deadline; but the Court said government regulators need to be put on the clock.

With frauds, the Court ruled, "private parties may be unaware that they have been harmed. Most of us do not live in a state of constant investigation; absent any reason to think we have been injured, we do not typically spend our days looking for evidence that we were lied to or defrauded. And the law does not require that we do so."

By contrast, "Unlike the private party who has no reason to suspect fraud, the SEC's very purpose is to root it out, and it has many legal tools at hand to aid in that pursuit."

(For more legal analysis, see this blog post from contributor Bill Singer.)

Chief Justice John Roberts wrote the ruling, which added that allowing the government more time would "leave defendants exposed to government enforcement action not only for five years after their misdeeds, but for an additional uncertain period the future."

At least, then, he acknowledges there are "misdeeds" that may go unpunished under the court's ruling.

Story continues below advertisement

Certainly, statutes of limitations have a purpose; timely adjudications help ensure defendants are treated fairly.

However, frauds can be complex and go undetected for some time. Bernie Madoff's multi-decade ponzi scheme illustrates how even massive schemes can be hidden.

Of course, the Madoff fraud was not the SEC's best moment. Nor was the mutual-fund timing scandal at the heart of this case; it was former New York Attorney General Eliot Spitzer who uncovered that.

Another attorney, in reacting to Wednesday's ruling, said "You don't want to give the SEC the opportunity to put things on the back burner. I think what it does … is basically tells them they have a job to do and they have to do it quickly."

Critics of the SEC say it's been failing on both counts. Now it will be even harder for them to pursue the fraudsters.

Report an error Editorial code of conduct
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to