Government Enforcement Actions: Supreme Court Holds “Discovery Rule” Does Not Apply to General Federal Statute of Limitations for Government Enforcement Actions Seeking Civil Penalties

Sullivan & Cromwell LLP - February 27, 2013

On February 27, 2013, the U.S. Supreme Court unanimously held that the five-year statute of limitations for Securities and Exchange Commission enforcement actions seeking civil penalties under the Investment Advisors Act is not subject to the “discovery rule” exception for fraud claims, which delays the running of the limitations period until a plaintiff discovers the alleged fraudulent activity. Gabelli v. SEC, 568 U.S. ___ (2013). Rather, the Court held that the five-year limitations period begins to run in fraud cases when the allegedly fraudulent conduct occurs. This decision has implications for many federal enforcement activities, because the relevant statute of limitations, 28 U.S.C. § 2462, applies to many civil penalty provisions in federal statutes, including outside the securities laws.