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'Discovery Rule' Does Not Apply

By Elissa Preheim, Arthur Luk and Arpan Sura

On Feb. 27, 2013, the Supreme Court decided Gabelli v. Securities and Exchange Commission, No. 11-1274, 2013 WL 691002 (U.S. Feb. 27, 2013), holding that the “discovery rule” does not apply to the general statute of limitations for civil penalties, 28 U.S.C. ' 2462 (Section 2462), in the context of an enforcement action by the Securities and Exchange Commission (SEC). The Court unanimously concluded that Section 2462's limitations period began to run from the date of the alleged misconduct, not from the date the SEC discovered the alleged fraud.

Although Gabelli clarifies when the SEC and other federal agencies must commence an enforcement action for penalties, it leaves unaddressed several questions regarding Section 2462's applicability. It does not address whether or how Section 2462's limitations period may be extended through theories of equitable tolling. Nor does Gabelli directly address what constitutes a “penalty” subject to Section 2462, as opposed to remedial or equitable relief considered outside of Section 2462's scope.

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