Timing Can Matter in Fraud Case Filings

The adage that timing in life is everything can be especially important when there is a claim of fraud, because the window to bring a case can close quickly and decisively under the applicable statute of limitations,” warned Peter J. Henning in an article in the New York Times’s “White Collar Watch.” Henning was alerting readers to questions that arose recently regarding how the statute of limitations applies to claims under the federal securities laws. “This is the type of technical requirement that lawyers love to use to block a lawsuit,” he wrote. “Failing to act on time means any chance at recovery is lost, letting a potential wrongdoer get off scot-free.”

In January, the U.S. Supreme Court agreed to hear a case (Kokesh v. Securities and Exchange Commission) that will resolve the question of whether or not the five-year statute of limitations applicable to SEC enforcement actions seeking civil penalties applies to disgorgement claims. (Disgorgement is a remedy where a party gives something up, e.g., profits gained by illegal acts, on demand or by legal compulsion.)

The S.E.C. had brought charges in 2009, and ordered that the defendant in the case disgorge $34.9 million for securities-law violations dating back to 1995. Under the five-year statute of limitations, the amount of disgorgement would have been $5 million, a fraction of the amount. Courts have held that there is no statute of limitations for injunctive and other equitable relief.
According to dandodiary.com, the law has, until now, been mixed as to whether disgorgement is a form of equitable relief, and therefore immune from the five-year statute of limitations.
It can take years to uncover and fully investigate fraudulent activity. The five-year statute of limitations, if applied to disgorgement, could protect violators from having to give up their ill-gotten gains.  Wrote Henning, “Don’t be surprised to hear the government invoke the specter of long-running Ponzi schemes perpetrated by Bernard L. Madoff and R. Allen Stanford as reasons the five-year limitations period should not apply if it might allow perpetrators to keep stolen money.”
Craig Follis has extensive experience in litigation, negotiating and settling suits, and providing legal opinions on liability and insurance coverage. You can reach him at (888) 703-0109 or via email at cfollis@lawyersva.com.



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