A U.S. District Court judge in the Southern District of Florida recently issued a decision that gives defendants a new tool to use in Securities and Exchange Commission enforcement actions when he ruled that the SEC waited too long to sue five real estate executives accused of running a $300 million Ponzi scheme.

In Securities and Exchange Commission v. Graham, No. 13-1001 (S.D. Fla. May 12, 2014), Judge James King relied upon 28 U.S.C. § 2462, which states that a claim for a civil fine, penalty or forfeiture “shall not be entertained unless commenced within five years from the date of when the claim first accrued.”

The SEC attempted to avoid the effect of the statute by arguing that it did not apply because the SEC was not seeking civil penalties, but rather was seeking declaratory relief, an injunction and disgorgement –- remedies not expressly referred to in the statute’s text. The court disagreed, finding that the remedies sought were within the scope of the statute and therefore were subject to the five-year statute of limitations.

Based on the recent Supreme Court ruling in Gabelli v. SEC, 568 U.S.     (2013) and the plain meaning of the statute, the court found it logical to conclude that § 2462 applied to all of the forms of relief requested by the SEC in the case. The statute refers to “penalties, pecuniary or otherwise,” and the court interpreted a “penalty” to be anything “intended to punish” -– including the declaratory and injunctive relief and disgorgement sought by the SEC.

Last year’s Gabelli case was another defeat for the SEC on statute-of-limitations grounds. The Supreme Court there held that the five-year clock in § 2462 begins to tick when the fraud occurs and not when it is discovered.

This approach, if followed by other courts, could be very significant. The SEC has long relied on the notion that claims for “equitable” relief, such as declaratory and injunctive relief and even disgorgement of gains, were distinct from civil fines, penalties or forfeitures and thus are not subject to the five-year limit.

Recalling the words of Chief Justice Marshall as quoted in the Gabelli decision, the court emphasized that “it would be utterly repugnant to the genius of our laws if actions for penalties could be brought at any distance of time,” and reasoned that the result of such an interpretation would allow the government prosecutorial power over civil wrongdoers akin to that over rapists and murderers.

The court further found that the five-year limit was not only a statute of limitations but that it also was a limit on the court’s subject-matter jurisdiction, and that the SEC had the burden of showing there were acts occurring within the five-year period. Finding that the SEC had not met that burden, the court held there was no subject-matter jurisdiction and therefore dismissed the case with prejudice.