The Clock Is Ticking

In Gabelli, the U.S. Supreme Court explained that the discovery rule exists, in part, to “preserve the claims of parties who have no reason to suspect fraud;” however, the government is not one of those parties. The Supreme Court noted that “[t]he SEC's very purpose, for example, is to root out fraud, and it has many legal tools at hand to aid in that pursuit.” Gabelli, 133 S.Ct. at 1222.Another reason cited by the Supreme Court is the type of relief sought by the government. The Court explained that the discovery rule “helps to ensure that the injured receive recompense” and, in enforcement actions, the government is not seeking recompense but, rather, intends to punish the defendants by way of civil penalties, forfeitures, and fines. Id. at 1223. Third, the Court noted that allowing the government to use the discovery rule would result in “speculation about what the Government knew, when it knew it, and when it should have known it.” Id. This query would be significantly harder than determining when an individual knew or reasonably should have known about an alleged fraud, especially because the government would likely assert various privileges that would make it impossible to make this determination. Finally, the Court declined to apply the discovery rule of 28 U.S.C. § 2462 partly because it had “no mandate from Congress” that such a toll was proper under § 2462, and in such cases the historical approach has been to assume no such toll exists. Id at 1224. (Section 2462 provides that the government has five years to bring a civil enforcement action for violations that otherwise have no specific time limit.)