Challenging the SEC on the New Five Year Limit

wyly SEC Compliance
illustration by Steve Brodner in D Magazine


It didn’t take long for defendants to take advantage of the Gabelli decision. That Supreme Court decision enforced the strict five year statute of limitations on enforcement actions by the Securities and Exchange Commission. The SEC is not entitled to the “discovery rule” which would have allowed the SEC’s five-year time bar to start running until the SEC discovered the fraud.

In 2010, the SEC brought an enforcement case against Samuel E. Wyly and his brother, Charles J. Wyly, Jr., claiming the brothers had engaged in a 13-year fraudulent scheme to trade tens of millions of securities of public companies while they were members of the boards of directors of those companies, without disclosing their ownership and their trading of those securities. One fraudulent claim by the SEC involved the Wylys making a massive and bullish transaction in Sterling Software in October 1999 based upon the material and non-public information that they, the Chairman and Vice-chairman of Sterling Software, had jointly decided to sell the company.

A little math would place the statute of limitations on an enforcement of that case after five years at October 2004. It sounds like the SEC was six years too late in bringing that claim.

In a court filing yesterday the Wylys’ attorney swung at the SEC with the Gabelli hammer.

“Summary judgment should be granted for Defendants on nearly all the SEC’s claims for penalties because they are barred by applicable statutes of limitation and the SEC cannot establish that equitable tolling is warranted.”

Unfortunately for Mark Cuban, the SEC managed to file its case against him in four years, so he will not be able to swing the Gabelli hammer.