By Reynolds Holding
NEW YORK, Feb 27 (Reuters Breakingviews) - The U.S. Supreme
Court has unanimously ordered the Securities and Exchange
Commission off its duff. The justices denied the watchdog more
time to sue investor Marc Gabelli, ruling it had the means to
pounce sooner. That highlights a chronic problem. Rather than
aim its ample firepower at timely financial crisis cases, the
SEC stuck with one a decade old. Investors deserve better.
It's almost a shame Gabelli won. Between 1999 and 2002 he
allegedly allowed a client to engage in hundreds of
market-timing trades while denying that lucrative privilege to
any others. All the while, the website of the fund's parent
declared that any market timers had been barred from trading.
But the issue before the Supreme Court was whether the SEC
deserved extra time. The regulator argued it could not have
reasonably discovered the misconduct before the five-year
statute of limitations expired. Such extensions are sometimes
given to defrauded individuals, who often cannot discover
wrongdoing. As the court stressed, though, the SEC's "very
purpose" is to root out fraud. Its power to subpoena data, use
whistleblowers and force settlements should ensure timely
action.
That's a message with broader implications. The watchdog
touts its record of charging more than 150 entities with
wrongdoing related to the financial crisis. Yet too many of
those cases have been weak or inconsequential. And others have
failed, such as the trials of Citigroup banker Brian
Stoker and the founders of the defunct Reserve Primary Fund.
Investors hoping that the SEC would deal with those at the
center of crisis meltdowns - such as Dick Fuld and other Lehman
executives - remain disappointed. As the justices make clear,
the delay can't be attributed to a lack of time or resources for
unearthing fraud.
Wednesday's ruling reverses an appeals court decision
written by Judge Jed Rakoff in favor of the SEC. The jurist
gained fame for rejecting the regulator's settlements with Bank
of America and Citigroup. But those decisions, as well
as a ruling making it easier to sue people who merely aid
financial misconduct, actually expanded the watchdog's capacity
for punishing wrongdoing. The challenge for the SEC, though,
isn't a lack of power. It's finding a way to exercise what
muscle it already has more effectively.
CONTEXT NEWS
- The U.S. Supreme Court on Feb. 27 ruled 9-0 that the
Securities and Exchange Commission had missed the deadline for
suing fund manager Marc Gabelli over allegations of market
timing.
- Though defrauded individuals can sometimes win extensions,
the court said, the watchdog's legal and investigative firepower
meant it did not deserve similar accommodation.
- The SEC had accused Gabelli, a former portfolio manager at
Gabelli Funds, and Bruce Alpert, the firm's chief operating
officer, of letting a client conduct hundreds of market-timing
trades - the practice of exploiting price fluctuations in the
fund's investments throughout the day - while allowing other
investors to trade only at the close of business.
- The alleged wrongdoing occurred between 1999 and 2002, but
the SEC did not sue until 2008, after the five-year statute of
limitations ran out. The watchdog argued that it could not have
reasonably discovered the activity before September 2003. The
U.S. Court of Appeals in New York had ruled in the SEC's favor
last year, with Judge Jed Rakoff writing the opinion.
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
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