In February 2012, the U.S. Supreme Court unanimously rejected the Securities and Exchange Commission's argument that the clock on its five-year statute of limitations to bring fraud cases should not begin to run until the time when the fraud is discovered. Rather, the Court held, the clock begins to tick when the violation occurs.
Although the Court's decision is limited to cases seeking civil penalties (and not to cases seeking disgorgement or officer and director bars), the high-profile ruling placed new pressure on the SEC to investigate and bring cases in a timely manner. The ruling presents particular challenges to the SEC when it is faced with more complex investigations such as financial fraud or FCPA cases.
While the SEC did not win the battle over this issue in the courts, it may still win the war if legislation being developed by U.S. Senator Jack Reed of Rhode Island becomes law. Reuters reports that Sen. Reed is working with SEC officials to produce legislation that would increase the SEC's current five-year statute of limitations discussed above to 10 years. Sen. Reed explained to Reuters that securities cases can be "exceedingly complex," and "if the SEC has a strong case that would serve to protect investors and those who do business appropriately, it would be a shame if a short statute of limitations were the reason for a case not being brought." Reed, a Democrat, is presently working to find an influential Republican to be his co-sponsor in the Senate.
George Canellos, Co-Director of the SEC's Enforcement Division, supports such legislation. He stated that given the complexity of the SEC's cases, "it makes sense to have a statute of limitations at least equal to the civil and criminal authorities of other agencies that also investigate frauds."