In an early January hearing, the United States Supreme Court heard arguments in Gabelli v. SEC, a case in which Gabelli Funds LLC portfolio manager Marc J. Gabelli and chief operating officer Bruce Alpert allegedly engaged in misconduct some 10+ years ago.
Gabelli and Alpert are accused of intentionally and secretly allowing a client to engage in market timing, which is manifested by effecting multiple, short-term trades at the expense of other investors. Both the SEC and FINRA have previously disciplined registered individuals for this and similar misconduct, though Gabelli will not directly affect FINRA's enforcement actions as FINRA is a private corporation acting as a self-regulatory organization, rather than a federal agency like the SEC.
At issue in Gabelli is a five-year window for enforcement actions initiated by the Securities & Exchange Commission and other government agencies, namely the window allotted to the SEC in which to seek fines and impose similar monetary sanctions excluding disgorgement.
The SEC believes the five-year window opens only after the government learns of fraudulent activity while Gabelli's team holds the five-year window begins when the suspected wrongdoing occurs, not when it is detected.
The Supreme Court previously addressed a somewhat related issue, ruling in 2010 that a two-year window for shareholder fraud suits does not begin until detection, rather than occurrence.
Gabelli, which will be decided by June, may impact future SEC and other agency operations by more clearly defining deadlines that have been ambiguous.
Though the case reflects public actions as opposed to private suits, the SEC and similar regulatory agencies often rely on investor reports or complaints to detect fraudulent activity and to commence appropriate investigations. Accordingly, time may be just as valuable to such agencies as it is to securities investors.
For investors in securities arbitration disputes, FINRA'S Code of Arbitration Procedure provides a six year eligibility rule. That rule holds that arbitration claims are eligible for hearing if the event or occurrence giving rise to the dispute occurred within six years of the date of submitting the arbitration claim. The definition of "event or occurrence" is a heavily contested issue in securities arbitration. The securities industry generally, and in our opinion wrongly, argues the six years starts from the date of the transaction. Claimants generally argue the six year period starts from the date the Claimant discovers the problem(s). The issue of measuring the time period is left to the appointed arbitration panel.
If you suspect a broker or firm has engaged in fraud or other misconduct, and such activity has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News: SEC's Window for Fraud Suits May Be Narrowed by Top Court (Bloomberg News)