On January 8, 2013, the United States Supreme Court heard oral arguments in the case of SEC v. Gabelli, 11-274,  related to when the clock begins to run for the Securities and Exchange Commission (SEC) to bring a fraud suit. In Gabelli, the Obama administration asserts that the time limit accrues from the time the government discovers the wrongdoing–a contrast from the traditional view that the limitations period begins at the time of a fraudulent transaction.

The SEC complaint was filed in 2008 and centered on conduct occurring between 1999 and 2002, calling into question the five-year limitations period of 28 U.S.C. § 2462. The SEC alleges that two officials of Gabelli Funds LLC secretly allowed market timing practices by a client.

Although the “discovery” rule does apply in private actions brought by investors, the Gabelli case implicates only governmental actions brought to impose fines, not to disgorge profits or impose criminal penalties.

The Court’s ruling is not expected to come until June, but the Justices’ questions seemed to indicate that many of them disagreed with the Obama administration’s stance. The Justices further hinted that their decision could have broad implications applying to time limitations imposed on actions brought by other governmental agencies like the Federal Trade Commission and Defense Department, among others.

For more information and to listen to the oral arguments before the Supreme Court click here.