On May 12, 2014, Judge James Lawrence King of the United States District Court for the Southern District of Florida held in S.E.C. v. Graham1 that the general five-year statute of limitations governing civil penalty actions brought by the government, 28 U.S.C. § 2462, jurisdictionally barred the Court from considering a complaint brought by the Securities and Exchange Commission (“SEC”) more than five years after the last sale or offering of securities alleged to have violated the securities laws occurred.
On January 30, 2013, the SEC filed a five-count complaint against five individual defendants, alleging that their sale of real estate-related investments had violated the registration and anti-fraud provisions of the federal securities laws.2 The SEC sought civil monetary penalties, declaratory relief, disgorgement, and injunctions prohibiting future violations.3 Defendants moved for summary judgment arguing, among other things, that the action was barred by the five-year statute of limitations in 28 U.S.C. § 2462. That provision states:
Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.
- The District Court’s Decision
The Court granted the motions for summary judgment and dismissed the case with prejudice. In reaching its decision, the Court made three key holdings:
First, 28 U.S.C. § 2462 is Jurisdictional: The provision directs that a civil penalty suit “shall not be entertained” unless brought within five years of when a claim first accrues. 4 The Court held this provision was jurisdictional, noting that it speaks directly to a court’s power to adjudicate a case.5 Congress used this language, the Court said, to indicate it intended to divest courts of subject-matter jurisdiction in cases where the government had failed to meet the five-year time limit in filing its action.6
Second, 28 U.S.C. § 2462 Applies to All Forms of Relief: By its terms, the provision applies to all actions “for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise.” Based on the text of, and policies7 underlying, the statute, the Court held it applied to all forms of relief sought by the SEC.8 The statute expressly covers civil monetary penalties,9 and disgorgement is a form of forfeiture, the Court said.10 And while the statute does not expressly refer to declaratory or injunctive relief, the Court said these were nonetheless “penalit[ies]” within the meaning of the statute—the SEC was seeking to punish the defendants for prior conduct, not to prevent some continuing harm.11
Third, The SEC Had Not Met Its Burden To Establish Jurisdiction: The Court said the SEC had not met its burden to show by a preponderance of the evidence12 that any of the alleged violations of the securities laws had occurred after January 30, 2008 (five years before the SEC filed its action). While the SEC had shown that some of the defendants conducted activities related to the business after this date, it had not shown that any of the defendants had sold (or offered for sale) securities after it.13 The Court thus dismissed the case with prejudice because the SEC could not—“after nearly seven years of investigation, after the close of all discovery and motion practice, after full and exhaustive oral argument” and after the opportunity to reopen the record—carry its burden of showing the facts necessary to establish subject-matter jurisdiction.14