The limitations period for penalty claims in SEC enforcement actions is governed by 28 U.S.C. Section 2462, which states that “an action … for the enforcement of any civil fine, penalty, or forfeiture” must be brought “within five years from when the claim first accrued.” In Gabelli v. SEC, the Supreme Court rejected the SEC’s argument that the “discovery rule” applies to SEC penalty claims. That rule, which is an exception to the standard rule that a claim accrues when the plaintiff has “a complete and present cause of action,” delays accrual until a plaintiff has “discovered” his cause of action. The Court distinguished lawsuits by fraud victims, in which the discovery rule has been applied, from government enforcement actions. Unlike fraud victims, who may have no reason to suspect fraud, the SEC’s very purpose is to root out fraud, and it has many legal tools at hand to aid in that pursuit. Also, the government in enforcement cases seeks a different type of relief than fraud victims: A fraud victim seeks compensation for his injuries, whereas the government seeks civil penalties, which go beyond compensation and are intended to punish and label defendants wrongdoers.
