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No. 11-1274

In the Supreme Court of the United States

MARC J. GABELLI AND BRUCE ALPERT, PETITIONERS

SECURITIES AND EXCHANGE COMMISSION

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENT

MARK D. CAHN

General Counsel

MICHAEL A. CONLEY

Deputy General Counsel

JACOB H. STILLMAN

Solicitor

HOPE HALL AUGUSTINI

DOMINICK V. FREDA

Senior Litigation Counsels

DAVID LISITZA

Senior Counsel

Securities and Exchange

Commission

Washington, D.C. 20549

DONALD B. VERRILLI, JR.

Solicitor General

Counsel of Record

MALCOLM L. STEWART

Deputy Solicitor General

JEFFREY B. WALL

Assistant to the Solicitor

General

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether the court of appeals correctly held that the

five-year limitations period in 28 U.S.C. 2462 did not

begin to run until the Securities and Exchange Commission discovered, or reasonably could have discovered,

petitioners’ alleged fraudulent scheme.

(I)

TABLE OF CONTENTS

Page

Opinions below . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Summary of argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

I. The five-year limitations period in 28 U.S.C. 2462 did

not begin to run until the Commission discovered, or

with reasonable diligence could have discovered, petitioners’ fraudulent scheme . . . . . . . . . . . . . . . . . . . . . . . . 12

A. In fraud cases, the discovery rule commences

the running of Section 2462’s limitations period upon actual or constructive discovery of

the fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

B. This case does not present the question of

when Section 2462 begins to run in nonfraud

cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

II. Petitioners’ counterarguments lack merit . . . . . . . . . . . 24

A. The application of a discovery rule in cases of

fraud or concealment dates to the beginning of

the Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1. Federal courts have consistently applied

the fraud discovery rule both before and

after Section 2462’s enactment . . . . . . . . . . . . . 24

2. The historical exception covers cases of

fraud as well as cases of concealment . . . . . . . . 29

B. In fraud cases, the discovery rule is read into

federal statutes of limitations unless Congress

specifies otherwise . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

C. When Congress has explicitly addressed discovery in other federal limitations statutes, it

has generally done so in order to expand or

contract the traditional rule . . . . . . . . . . . . . . . . . . . 38

(III)

Table of Contents—Continued:

Page

The fraud discovery rule applies equally to the

government as to private plaintiffs . . . . . . . . . . . . . 41

E. The fraud discovery rule balances the need for

repose against the need to prevent abuse of

limitations statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

F. The fraud discovery rule has proved to be judicially administrable for more than two centuries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

TABLE OF AUTHORITIES

Cases:

Adams v. Woods, 6 U.S. (2 Cranch) 336 (1805) . . . . . . . . . 48

Ali v. Federal Bureau of Prisons, 552 U.S. 214 (2008) . . . 10

Amy v. Watertown (No. 2), 130 U.S. 320

(1889) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 41, 44

BP America Prod. Co. v. Burton, 549 U.S. 84 (2006) . . . . 42

Bailey v. Glover, 88 U.S. (21 Wall.) 342 (1875) . . . . . passim

Bay Area Laundry & Dry Cleaning Pension Trust

Fund v. Ferbar Corp. of Cal., Inc., 522 U.S. 192

(1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 21

Beaubien v. Beaubien, 64 U.S. (23 How.) 190 (1860) . . . . 31

Booth v. Warrington, (1714) 2 Eng. Rep. 111 (H.L.) . . . . 24

Bowen v. Massachusetts, 487 U.S. 879 (1988) . . . . . . . . . . 27

Bree v. Holbech, (1781) 99 Eng. Rep. 415 (K.B.) . . . . . . . . 25

Cada v. Baxter Healthcare Corp., 920 F.2d 446

(7th Cir. 1990), cert. denied, 501 U.S. 1261

(1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34, 38

Carr v. Hilton, 5 F. Cas. 134 (C.C.D. Me. 1852) . . . . . . . . 31

Cases—Continued:

Page

Case of Broderick’s Will, 88 U.S. (21 Wall.) 503

(1875) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 44

Clark v. Hougham, (1823) 107 Eng. Rep. 339

(K.B.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Clos v. Corrections Corp. of Am., 597 F.3d 925

(8th Cir. 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Corwin v. Marney, Orton Invs., 843 F.2d 194

(5th Cir.), cert. denied, 488 U.S. 924 (1988) . . . . . . . . . . 51

Credit Suisse Secs. (USA) LLC v. Simmonds,

132 S. Ct. 1414 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . 31, 47

Dabney v. Levy, 191 F.2d 201 (2d Cir.),

cert. denied, 342 U.S. 887 (1951) . . . . . . . . . . . . . . . . . . . 34

Doe v. United States, 513 F.3d 1348 (Fed. Cir. 2008) . . . . . 7

Exploration Co. v. United States, 247 U.S. 435

(1918) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

FEC v. Williams, 104 F.3d 237 (9th Cir. 1996),

cert. denied, 522 U.S. 1015 (1997) . . . . . . . . . . . . . . . . . . 22

Federal Home Mortg. Corp. v. Scottsdale Ins. Co., 316

F.3d 431 (3d Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

First Mass. Tpk. Corp. v. Field, 3 Mass. (1 Tyng) 201

(1807) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Fort Stewart Schs. v. FLRA, 495 U.S. 641 (1990) . . . . . . . 41

Franconia Assocs. v. United States, 536 U.S. 129

(2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Glus v. Brooklyn E. Dist. Terminal, 359 U.S. 231

(1959) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 32, 43

Gomez-Perez v. Potter, 553 U.S. 474 (2008) . . . . . . . . . . . . 35

Granger v. George, (1826) 108 Eng. Rep. 56 (K.B.) . . . . . . 25

Cases—Continued:

Page

Harrell v. Kelly, 13 S.C.L. (2 McCord) 426 (S.C.

Const. Ct. App. 1823) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Holland v. Florida, 130 S. Ct. 2549 (2010) . . . . . . . . . . . . . 35

Holmberg v. Armbrecht, 327 U.S. 392 (1946) . . . . . . passim

Homer v. Fish, 1 Mass. (1 Pick.) 435 (1823) . . . . . . . . . . . . 31

Hovenden v. Lord Annesley, 2 Schoales & Lefroy

(Ir. Ch. 1806) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Hudson v. United States, 522 U.S. 93 (1997) . . . . . . . . . . . 47

Irwin v. Department of Veterans Affairs, 498 U.S. 89

(1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 36, 42

India Breweries, Inc. v. Miller Brewing Co.,

612 F.3d 651 (7th Cir. 2010) . . . . . . . . . . . . . . . . . . . . . . . . 7

Jackson v. Speer, 974 F.2d 676 (5th Cir. 1992) . . . . . . . 25, 38

Jackson’s Assignees v. Cutright, 5 Va. (2 Munf.) 308

(1817) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Janus Capital Grp., Inc. v. First Derivative Traders,

131 S. Ct. 2296 (2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 5

John R. Sand & Gravel Co. v. United States,

552 U.S. 130 (2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Jones v. Conoway, 4 Yeates 109 (Pa. 1804) . . . . . . . . . . . . 25

Jones v. McKennan, 2 Del. Cas. 106 (Del. C.P. New

Castle 1798) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Kane v. Bloodgood, 7 Johns. Ch. 90 (N.Y. Ch. 1823) . . . . . 26

Keene Corp. v. United States, 508 U.S. 200 (1993) . . . . . . 27

Kelly v. Robinson, 479 U.S. 36 (1986) . . . . . . . . . . . . . . . . . 35

Kirby v. Lake Shore & Mich. S. R.R., 120 U.S. 130

(1887) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 34, 38, 44

Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350 (1991) . . . . . . . . . . . . . . . . . 18, 50

VII

Cases—Continued:

Page

Merck & Co., Inc. v. Reynolds, 130 S. Ct. 1784

(2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

Moore v. Greene, 60 U.S. (19 How.) 69 (1856) . . . . . . . . . . 26

Prevost v. Gratz, 19 U.S. (6 Wheat.) 481 (1821) . . . . . . . . . 47

Purdy v. Zeldes, 337 F.3d 253 (2d Cir. 2003) . . . . . . . . . . . . 7

Riddell v. Riddell Wash. Corp., 866 F.2d 1480

(D.C. Cir. 1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Rosenthal v. Walker, 111 U.S. 185 (1884) . . . . . . . . 16, 34, 37

Rotella v. Wood, 528 U.S. 549 (2000) . . . . . . . . . . . . . . . 45, 46

SEC v. Bartek, No. 11-10594, 2012 WL 3205446

(5th Cir. Aug. 7, 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

SEC v. Capital Gains Research Bureau, Inc.,

375 U.S. 180 (1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 43

SEC v. Cuban, 620 F.3d 551 (5th Cir. 2010) . . . . . . . . . . . . 51

SEC v. Koenig, 557 F.3d 736 (7th Cir. 2009) . . . . . . passim

SEC v. Tambone:

550 F.3d 106 (2008) . . . . . . . . . . . . . . . . . . . . . . 9, 23, 32, 49

573 F.3d 54 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

597 F.3d 436 (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Schindler Elevator Corp. v. United States ex rel.

Kirk, 131 S. Ct. 1885 (2011) . . . . . . . . . . . . . . . . . . . . . . . . 4

Shelby’s Heirs v. Shelby, 3 Tenn. (Cooke) 179 (1812) . . . . 25

Sherwood v. Sutton, 21 F. Cas. 1303 (C.C.N.H.

1828) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 14, 21, 25, 28, 38

Smith v. United States, 143 F.2d 228 (9th Cir.),

cert. denied, 323 U.S. 729 (1944) . . . . . . . . . . . . . . . . . . . 28

South Sea Co. v. Wymondsell, (1732) 24 Eng. Rep.

1004 (Ch.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Stearns v. Page, 48 U.S. (7 How.) 819 (1849) . . . . . . . . . . . 31

VIII

Cases—Continued:

Page

TRW Inc. v. Andrews, 534 U.S. 19

(2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 19, 21, 29, 45

Taylor v. United States, 44 U.S. (3 How.) 197 (1845) . . . . 47

Texas v. Allan Constr. Co., 851 F.2d 1526 (5th Cir.

1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3M Co. (Minn. Mining. & Mfg.) v. Browner, 17 F.3d

1453 (D.C. Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . 22, 23, 36

United States v. Core Labs., Inc., 759 F.2d 480

(5th Cir. 1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

United States v. Hoar, 26 F. Cas. 329 (1821)

(No. 15,373) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

United States v. Maillard, 26 F. Cas. 1140 (S.D.N.Y.

1871) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

United States v. Minor, 114 U.S. 233 (1885) . . . . . . . . 42, 45

United States v. Providence Journal Co., 485 U.S. 693

(1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

United States v. Witherspoon, 211 F.2d 858

(6th Cir. 1954) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Urie v. Thompson, 337 U.S. 163 (1949) . . . . . . . . . . . . . . . . 45

Way v. Cutting, 20 N.H. 187 (1849) . . . . . . . . . . . . . . . . 19, 31

Willison v. Watkins, 28 U.S. (3 Pet.) 43

(1830) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 26, 27, 29

Statutes:

Act of Apr. 30, 1790, ch. 9, § 32, 1 Stat. 119 . . . . . . . . . . . . 27

Act of Feb. 28, 1839, ch. 36, § 4, 5 Stat. 322 . . . . . . . . . . . . 27

Act of Mar. 3, 1891, ch. 561, § 8, 26 Stat. 1099 . . . . . . . . . . 16

Act of June 25, 1948, Pub. L. No. 80-773, 62 Stat. 974

(28 U.S.C. 2462) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Statutes—Continued:

Page

Bankruptcy Act of Mar. 2, 1867, ch. 176, § 2, 14 Stat.

518 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Federal Farm Loan Act, 12 U.S.C. 812 (1946) . . . . . . . . . . 16

Investment Advisers Act of 1940, 15 U.S.C. 80b-1

et seq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

15 U.S.C. 80b-6(1) . . . . . . . . . . . . . . . . . . . . . . 2, 6, 20, 49

15 U.S.C. 80b-6(2) . . . . . . . . . . . . . . . . . . . . . . 2, 6, 20, 49

15 U.S.C. 80b-9(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

15 U.S.C. 80b-9(e)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 47

15 U.S.C. 80b-9(e)(2)(A) . . . . . . . . . . . . . . . . . . . . . . . 51

Rev. Stat. § 1047, 18 Stat. 193 (1874) . . . . . . . . . . . . . . . . . . 27

Securities Enforcement Remedies and Penny Stock

Reform Act of 1990, Pub. L. 101-429, 104 Stat. 931

(15 U.S.C. 78 note) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Toxic Substances Control Act, 15 U.S.C. 2601

et seq. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

15 U.S.C. 77t(d) (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

15 U.S.C. 77www(a) (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . 40

15 U.S.C. 78r (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

15 U.S.C. 78u(d)(3) (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

15 U.S.C. 78u-6(h)(B)(1)(iii)(I)(bb) (Supp. V 2011) . . . . . . 39

15 U.S.C. 1679i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

19 U.S.C. 1621 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

19 U.S.C. 1641(d)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

21 U.S.C. 335b(b)(3)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

26 U.S.C. 7431(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

28 U.S.C. 1658(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 45

28 U.S.C. 1658(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Statutes—Continued:

Page

28 U.S.C. 1658(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

28 U.S.C. 2415(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

28 U.S.C. 2415(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

28 U.S.C. 2416(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

28 U.S.C. 2462 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

21 Jac. I. ch. 16, §§ II, VII (1623) . . . . . . . . . . . . . . . . . . . . . 24

Miscellaneous:

1 Joseph K. Angell & John Wilder May, A Treatise on

the Limitations of Actions at Law and Suits in

Equity and Admiralty (4th ed., rev. & enl. 1861) . . . . 26

4 Matthew Bacon, A New Abridgment of the Law

(5th ed. 1798) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

John P. Dawson, Fraudulent Concealment and

Statutes of Limitation, 31 Mich. L. Rev. 875

(1933) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 32, 33

1 Isaac Espinasse, A Digest of the Law of Actions at

Nisi Prius (1791) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Restatement (Second) of Torts (1976) . . . . . . . . . . . . . . . . 44

S. Rep. No. 337, 101st Cong., 2d Sess. (1990):

p. 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

p. 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

In the Supreme Court of the United States

No. 11-1274

MARC J. GABELLI AND BRUCE ALPERT, PETITIONERS

SECURITIES AND EXCHANGE COMMISSION

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENT

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-23a)

is reported at 653 F.3d 49. The opinion of the district

court (Pet. App. 26a-51a) is not reported but is available

at 2010 WL 1253603.

JURISDICTION

The judgment of the court of appeals was entered on

August 1, 2011. A petition for rehearing was denied on

November 22, 2011 (Pet. App. 52a-53a). On February

10, 2012, Justice Ginsburg extended the time within

which to file a petition for a writ of certiorari to and including March 22, 2012. On March 7, 2012, Justice

Ginsburg further extended the time to April 20, 2012,

and the petition was filed on that date. The jurisdiction

of this Court rests on 28 U.S.C. 1254(1).

(1)

STATEMENT

1. The Investment Advisers Act of 1940 (Advisers

Act or Act), 15 U.S.C. 80b-1 et seq., “was the last in a

series of Acts designed to eliminate certain abuses in the

securities industry.” SEC v. Capital Gains Research

Bureau, Inc., 375 U.S. 180, 186 (1963); see id. at 186-187

(noting that the Act is part of a comprehensive statutory

scheme enacted by Congress to assure that “the highest

ethical standards prevail in every facet of the securities

industry”) (internal quotation marks omitted). The Act

reflects Congress’s judgment that an investment adviser

has “an affirmative duty of utmost good faith, and full

and fair disclosure of all material facts, as well as an

affirmative obligation to employ reasonable care to avoid

misleading his clients.” Id. at 194 (internal quotation

marks omitted). The Act is therefore designed “to eliminate, or at least to expose, all conflicts of interest which

might incline an investment adviser—consciously or

unconsciously—to render advice which was not disinterested.” Id. at 191-192.

To that end, the Act makes it unlawful for any adviser to “employ any device, scheme, or artifice to defraud any client or prospective client.” 15 U.S.C.

80b-6(1). The Act also prohibits an adviser from “engag[ing] in any transaction, practice, or course of business which operates as a fraud or deceit upon any client

or prospective client.” 15 U.S.C. 80b-6(2). The “fundamental purpose” of those provisions is to ensure that

investment advisers give “full disclosure” to their clients

regarding the management of their investments. Capital Gains Research Bureau, Inc., 375 U.S. at 186. The

Securities and Exchange Commission (SEC or Commission) may bring civil enforcement actions against investment advisers, or persons associated with them, who

violate any of the provisions of the Act or who aid and

abet such violations. 15 U.S.C. 80b-9(d).

Before 1990, the Commission’s primary remedies in

such enforcement actions were injunctive relief and disgorgement of violators’ ill-gotten gains. In 1990, Congress authorized the SEC to seek civil monetary penalties against violators of the federal securities laws, including the Advisers Act. See Securities Enforcement

Remedies and Penny Stock Reform Act of 1990 (Remedies Act), Pub. L. No. 101-429, 104 Stat. 931 (15 U.S.C.

78a note); see also S. Rep. No. 337, 101st Cong., 2d Sess.

10 (1990) (explaining that civil penalties were necessary

“to increase deterrence and help maintain public confidence in the integrity of the markets”); ibid. (“Since

disgorgement merely requires the return of wrongfully

obtained profits, it does not impose any meaningful economic cost on the law violator.”).

Neither the Advisers Act nor the Remedies Act specifies a statute of limitations for an enforcement action in

which the Commission seeks monetary penalties from an

investment adviser or associated person. The timeliness

of such actions is therefore governed by 28 U.S.C. 2462,

which 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.

2. a. This case concerns a type of “market timing” of

mutual funds known as “time-zone arbitrage.” 1 As a

general rule, mutual funds are priced once a day, usually

at 4 p.m. Eastern Time when the New York Stock Exchange closes. That price, called the fund’s net asset

value (NAV), reflects the closing prices of the securities

held by the fund. If one of those securities is traded on

an overseas market, however, the closing price incorporated into the fund’s NAV can be based on stale information. For instance, if a United States mutual fund

holds stock in a Japanese company that is traded on the

Tokyo Stock Exchange (TSE)—which closes at 2 a.m.

Eastern Time—the fund’s NAV for each day incorporates the stock’s Japanese closing price from 14 hours

earlier. Positive market movements during the New

York trading day, which will later cause the TSE price

to rise when the TSE opens at 8 p.m. Eastern Time, will

not be reflected in the fund’s late-afternoon NAV. See

J.A. 78-79.

“Market timers” attempt to exploit that type of pricing inefficiency by buying or selling a mutual fund’s

shares based on events that they do not expect to be

reflected in the fund’s NAV. Market timers then reverse their positions for a profit the next day. See Janus Capital Group, Inc. v. First Derivative Traders,

131 S. Ct. 2296, 2300 n.1 (2011) (“[A] market-timing investor could buy shares of a mutual fund at the artificially low NAV and sell the next day when the NAV corrects itself upward.”). That practice harms long-term

This case arises on petitioners’ motion to dismiss the Commission’s

complaint. See Pet. App. 51a. The factual statements in this brief are

drawn from that complaint (which appears at J.A. 72-95) and are taken

as true at this stage of the proceedings. See, e.g., Schindler Elevator

Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885, 1889 n.2 (2011).

mutual fund shareholders by capturing an arbitrage

profit that comes dollar-for-dollar out of other shareholders’ pockets. See id. at 2300 (observing that market timing “harms other investors in the mutual fund”).

b. Gabelli Funds, LLC (Gabelli Funds) is an investment adviser, within the meaning of the Act, to a mutual

fund called Gabelli Global Growth Fund (GGGF). See

Pet. 6; J.A. 77. During the relevant period, petitioner

Bruce Alpert was the Chief Operating Officer of Gabelli

Funds and was responsible for, inter alia, monitoring

trading in GGGF to eliminate market timing. See J.A.

76-77, 84, 86, 88-89. Petitioner Marc Gabelli was the

portfolio manager for GGGF and also managed other

affiliated funds. See J.A. 76.

In April 2008, the Commission brought a civil enforcement action against petitioners. The Commission alleged that petitioners had secretly permitted one

of GGGF’s investors—Headstart Advisers, Ltd. (Headstart)—to market time the mutual fund, in return for

Headstart’s investment in another fund managed by

Gabelli. See J.A. 72-75, 80-85. According to the SEC, at

the same time that petitioners had allowed Headstart to

market time the fund, they had prohibited other investors from doing the same. See J.A. 74, 83-85. The Commission alleged that, as a result of its privileged position, Headstart had earned returns of between 73 and

185% on its investments (for total profits of approximately $9.7 million), while long-term investors had lost

an average of 24% on their investments. See J.A. 73, 87.

The Commission further alleged that petitioners had

failed to disclose Headstart’s market timing (or their

quid pro quo agreement with the market timer) to

GGGF’s board of directors and other investors, but instead had falsely represented that they were taking nec-

essary steps to eliminate market timing. See J.A. 74-75,

86, 88-89. The SEC alleged that, by failing to disclose

the market timing arrangement and by falsely representing that Gabelli Funds was attempting to eliminate

market timing in GGGF, petitioners had aided and abetted Gabelli Funds in violating the antifraud provisions

of the Advisers Act, 15 U.S.C. 80b-6(1) and (2). See J.A.

92-93. As remedies for petitioners’ violations, the Commission sought injunctive relief, disgorgement of their

gains, and civil monetary penalties. See J.A. 93-94.2

3. The district court granted in part and denied in

part petitioners’ motion to dismiss the complaint. Pet.

App. 26a-51a. As relevant here, the court held that most

of the Commission’s claims for civil penalties were

barred by the five-year limitations period in 28 U.S.C.

2462. Pet. App. 34a-39a. The court reasoned that the

SEC’s claims against petitioners had “first accrued” for

purposes of Section 2462 when petitioners committed

their various fraudulent acts, not when the Commission

discovered or reasonably could have discovered petitioners’ fraud. Id. at 34a, 36a. Because most of petitioners’

fraudulent acts had occurred more than five years before the Commission filed its complaint in April 2008,

the court concluded that the SEC was foreclosed from

On the same day the Commission filed its complaint in this case,

Gabelli Funds entered into a settlement in which it agreed to cease and

desist from violating the relevant provisions of the Advisers Act.

Gabelli Funds also agreed to pay disgorgement of $9.7 million,

prejudgment interest of $1.3 million, and a civil penalty of $5 million.

As part of the settlement, Gabelli Funds neither admitted nor denied

the Commission’s allegations in this case. See In the Matter of Gabelli

Funds LLC, No. 3-13019, Order (Apr. 24, 2008), http://www.sec.gov/

litigation/admin/2008/ia-2727.pdf.

seeking civil penalties for the bulk of its claims. Id. at

37a-38a.3

4. The court of appeals reversed. Pet. App. 1a-23a.

As relevant here, the court noted that the SEC had

brought its claims under “the antifraud provisions” of

the Advisers Act and had alleged that petitioners “aided

and abetted Gabelli Funds’ fraudulent scheme.” Id. at

19a. The court held that, because the Commission’s

claims are based on fraud, they are subject to a “discovery rule” that prevents the applicable limitations period

from beginning to run until the fraud claim “is discovered, or could have been discovered with reasonable

diligence, by the plaintiff.” Id. at 18a; see Merck & Co.,

Inc. v. Reynolds, 130 S. Ct. 1784, 1793 (2010).

The court of appeals rejected petitioners’ argument

that the discovery rule was inapplicable because the

Commission had failed to plead any affirmative acts by

petitioners to conceal their fraud. Pet. App. 18a-20a.

After the district court dismissed the bulk of the Commission’s

claims, the SEC conditionally dismissed its remaining claim for disgorgement. The SEC agreed to reassert that disgorgement claim only

if the district court’s ruling on the motion to dismiss was reversed on

appeal and the Commission was permitted to proceed with its other

claims. See J.A. 105-106. Some courts of appeals have held that this

type of conditional dismissal does not produce a final, appealable

judgment. Compare Clos v. Corrections Corp. of Am., 597 F.3d 925, 928

(8th Cir. 2010); Federal Home Loan Mortg. Corp. v. Scottsdale Ins. Co.,

316 F.3d 431, 440 (3d Cir. 2003), with Doe v. United States, 513 F.3d

1348, 1354 (Fed. Cir. 2008); Purdy v. Zeldes, 337 F.3d 253, 258 (2d Cir.

2003). Here, however, the Commission has been willing to abandon its

disgorgement claim altogether in order to ensure that the judgment is

appealable as to the other claims. See 1:08-CV-3868, Docket entry No.

36, at 2-3 (S.D.N.Y. June 15, 2010). In that circumstance, courts have

agreed that a judgment is appealable. See, e.g., India Breweries, Inc.

v. Miller Brewing Co., 612 F.3d 651, 657-658 (7th Cir. 2010); Federal

Home Loan Mortg. Corp., 316 F.3d at 440.

That argument, the court stated, conflates the discovery

rule with the doctrine of fraudulent concealment, which

prevents a limitations period from running when a defendant has taken steps to conceal his allegedly wrongful conduct. Id. at 18a-19a. Petitioners also contended

that, “even if the discovery rule applies” to this case, the

civil-penalty claims were time-barred because the SEC

could have discovered the relevant facts earlier if it had

exercised reasonable diligence. Id. at 21a. The court

rejected that argument as “premature” at the motion-todismiss stage of the case, explaining that expiration of

the limitations period is an affirmative defense and that

the burden is therefore on petitioners to plead and prove

the Commission’s lack of reasonable diligence. Ibid.

The court of appeals concluded that, because “the complaint expressly alleges that the [Commission] first discovered the facts of [petitioners’] fraudulent scheme in

late 2003,” less than five years before the complaint was

filed in April 2008, the Commission’s “civil penalties

claims [are] not clearly time-barred.” Ibid.

SUMMARY OF ARGUMENT

I. A. Section 2462 of Title 28 provides that an action

for the enforcement of any civil penalty “shall not be

entertained unless commenced within five years from

the date when the claim first accrued.” This Court has

repeatedly held that, unless Congress specifies a different rule, the limitations period in a suit for fraud does

not begin to run until the plaintiff discovers, or in the

exercise of reasonable diligence could have discovered,

the facts underlying his claim. Whether that doctrine is

labeled as one of claim accrual or equitable tolling, the

Court has never questioned that the discovery rule delays the running of an applicable limitations period in

cases of fraud. Here, the Commission contends that

petitioners engaged in a fraudulent scheme that violated

the antifraud provisions of the Advisers Act. The court

of appeals therefore correctly held that the Commission

was required to bring its suit within five years after it

discovered, or with reasonable diligence could have discovered, petitioners’ fraudulent scheme.

B. Petitioners invoke the general rule that a claim

accrues when a plaintiff has the right to bring suit. But

the government has not contended, and the court below

did not hold, that all claims for civil penalties under Section 2462 are subject to a discovery rule. Rather, the

government has argued, and the court of appeals

agreed, that a discovery rule applies when the government seeks civil penalties for claims based on fraud.

Like the court below, the First and Seventh Circuits

have held that, in fraud cases brought by the Commission seeking civil penalties, Section 2462’s five-year limitations period does not begin to run until the Commission knew or should have known the relevant facts. See

SEC v. Koenig, 557 F.3d 736, 739-740 (7th Cir. 2009)

(Easterbrook, C.J.); SEC v. Tambone, 550 F.3d 106,

148-149 (1st Cir. 2008).

II. Petitioners’ various counterarguments do not

withstand scrutiny.

A. The application of a discovery rule in cases of

fraud or concealment dates to the earliest days of the

Republic. See, e.g., Willison v. Watkins, 28 U.S. (3 Pet.)

43, 52 (1830) (acknowledging the “well settled and unquestioned rule[] in all courts of law and equity” that the

statute of limitations “does not run until the discovery of

the fraud”) (internal quotation marks omitted). For

nearly 175 years, Congress has relied on that settled

understanding in enacting, amending, and codifying Section 2462.

B. The discovery rule has long been understood as a

background principle that presumptively governs the

application of federal limitations statutes unless Congress specifies otherwise. The doctrine’s applicability

therefore does not depend on express language incorporating it into a federal limitations statute. The crucial

question with respect to the discovery rule, as with respect to other equitable doctrines like forfeiture or

waiver, is whether Congress has clearly displaced the

usual rule that limitations periods in fraud cases are

triggered by actual or constructive discovery. It has

not: nothing in the text of Section 2462 clearly displaces

the fraud discovery rule.

C. When Congress has explicitly addressed discovery in other federal limitations statutes, it has generally

done so not to codify the traditional fraud discovery

rule, but to alter the rule’s usual operation. On rare

occasions, Congress has expressly codified the traditional fraud discovery rule, perhaps “to remove any

doubt” that the rule applies in those contexts. Ali v.

Federal Bureau of Prisons, 552 U.S. 214, 226 (2008).

Regardless, Congress’s occasional express endorsement

of the fraud discovery rule does not render the rule inapplicable to statutes where it is neither explicitly incorporated nor explicitly displaced.

D. This Court has long held that the fraud discovery

rule applies equally when the government is the plaintiff. See Exploration Co. v. United States, 247 U.S. 435,

449 (1918). That is because equity’s primary justification for the fraud discovery rule does not center on the

injury suffered by the plaintiff from the delay, but on

the defendant’s misconduct in causing that delay. That

equitable justification distinguishes cases of fraud or

concealment from other cases in which a plaintiff is reasonably unaware of her cause of action, and it is as applicable to government enforcement actions as to private

suits.

E. The traditional fraud discovery rule balances the

basic policies of all limitations provisions (like repose)

against competing values, particularly the venerable

equitable principle that a person should not profit from

her own wrong. Its core justification is that defendants

are not entitled to repose when their own deceptive conduct has effectively foreclosed potential plaintiffs from

seeking such redress. Petitioners rely on a presumption

against perpetual penalties that does not apply in the

context of a civil remedy, but in any event Section 2462’s

five-year time limit actually prevents the imposition of

perpetual penalties. To the extent petitioners remain

subject to liability, that results not from the statute but

from their own misconduct.

F. Finally, petitioners’ policy arguments are unpersuasive. For centuries, courts have applied the traditional fraud discovery rule, and they have not found it

difficult to determine when a cause of action is based on

fraud or when a plaintiff (including a government

agency) actually or constructively discovered that fraud.

Although the Commission has tools at its disposal to

investigate fraud, that does not place the SEC on notice

of the need to exercise those powers in a particular case

when a defendant’s fraud remains concealed. Petitioners’ approach unrealistically envisions that the Commission (and other federal agencies) could constantly monitor every regulated entity and transaction for any hint

of hidden fraud, which in any event would only increase

the regulatory burden on nonculpable entities. Nor is it

realistic to think that the court of appeals’ approach will

seriously weaken the Commission’s incentives to diligently investigate and pursue fraud claims, as it did in

this case.

ARGUMENT

THE FIVE-YEAR LIMITATIONS PERIOD IN 28 U.S.C.

2462 DID NOT BEGIN TO RUN UNTIL THE COMMISSION

DISCOVERED, OR WITH REASONABLE DILIGENCE

COULD HAVE DISCOVERED, PETITIONERS’ FRAUDULENT SCHEME

In arguing that the SEC’s suit was untimely, petitioners invoke the general rule that a claim accrues

when a plaintiff has the right to bring suit. That argument lacks merit because it ignores the distinct rule that

has long governed the commencement of limitations periods in fraud cases. This Court has repeatedly held

that, unless Congress specifies a different rule, the limitations period in a suit for fraud does not begin to run

until the plaintiff actually or constructively discovers the

facts underlying his claim. The SEC’s complaint in this

case therefore was timely unless petitioners can establish on remand that the Commission discovered the facts

underlying its claim, or could have discovered those

facts by exercising reasonable diligence, more than five

years before the suit was filed.

A. In Fraud Cases, The Discovery Rule Commences The

Running Of Section 2462’s Limitations Period Upon Actual Or Constructive Discovery Of The Fraud

1. Section 2462 of Title 28 provides that an action for

the enforcement of any civil penalty “shall not be entertained unless commenced within five years from the date

when the claim first accrued.” Petitioners contend (Br.

15-16) that the Commission’s civil-penalty claims against

them “first accrued” when petitioners’ allegedly unlawful acts occurred, regardless of when the Commission

discovered (or reasonably could have discovered) petitioners’ fraudulent scheme. That argument lacks merit.

This Court has consistently recognized that, unless Congress specifies a different rule, the limitations period in

a suit for fraud does not begin to run until the plaintiff

discovers, or in the exercise of reasonable diligence

could have discovered, the facts underlying his claim.

That rule derives from the equitable maxim that a

party should not be permitted to benefit from its own

misconduct. See, e.g., Glus v. Brooklyn E. Dist. Terminal, 359 U.S. 231, 232-233 (1959) (“[W]e need look no

further than the maxim that no man may take advantage

of his own wrong. Deeply rooted in our jurisprudence

this principle has been applied in many diverse classes

of cases by both law and equity courts and has frequently been employed to bar inequitable reliance on

statutes of limitations.”) (footnote omitted). This Court

has long held as a matter of equity that a defendant cannot use his own misconduct as a defense, including by

unfairly relying on a statute of limitations. See, e.g.,

Holmberg v. Armbrecht, 327 U.S. 392, 396-397 (1946)

(“Equity * * * bars a defendant from setting up such a

fraudulent defense, as it interposes against other forms

of fraud.”); Exploration Co. v. United States, 247 U.S.

435, 445-446 (1918); Bailey v. Glover, 88 U.S. (21 Wall.)

342, 348-349 (1875); cf. Sherwood v. Sutton, 21 F. Cas.

1303, 1307 (C.C.N.H. 1828) (Story, J.) (No. 12,782).

Most recently, in Merck & Co. v. Reynolds, 130 S. Ct.

1784 (2010), the Court explained that “in the statute of

limitations context, the word ‘discovery’ is often used as

a term of art in connection with the ‘discovery rule,’ a

doctrine that delays accrual of a cause of action until the

plaintiff has ‘discovered’ it.” Id. at 1793. That doctrine

“arose in fraud cases as an exception to the general limitations rule that a cause of action accrues once a plaintiff

has a ‘complete and present cause of action.’ ” Ibid.

(quoting Bay Area Laundry & Dry Cleaning Pension

Trust Fund v. Ferbar Corp. of Cal., Inc., 522 U.S. 192,

201 (1997)). The exception reflects the Court’s longstanding “recogni[tion] that something different was

needed in the case of fraud, where a defendant’s deceptive conduct may prevent a plaintiff from even knowing

that he or she has been defrauded.” Ibid. Absent an

exception for fraud cases, “ ‘the law which was designed

to prevent fraud’ could become ‘the means by which it is

made successful and secure.’ ” Id. at 1793-1794 (quoting

Bailey, 88 U.S. (21 Wall.) at 349); see Sherwood,

21 F. Cas. at 1307.

2. When a particular statute (like Section 2462)

makes the “accru[al]” of a claim the event that triggers

the limitations period, the Merck Court’s description of

the discovery rule indicates that a fraud claim does not

“accrue” until the plaintiff has (actually or constructively) discovered the relevant facts. Indeed, the decision below represents a straightforward application of

the equitable principles discussed in Merck. When a

plaintiff’s claim is for fraud, and the applicable statute

of limitations runs from the accrual of the plaintiff ’s

cause of action, the discovery rule “regard[s] the cause

of action as having accrued at the time the fraud was or

should have been discovered.” 130 S. Ct. at 1794 (quoting Kirby v. Lake Shore & Mich. S. R.R., 120 U.S. 130,

138 (1887) (brackets in original)); see Kirby, 120 U.S. at

138 (noting that “[i]t is an inflexible rule” in federal

courts to delay the accrual of causes of action in fraud

cases). That reasoning resolves this case.

As petitioners correctly observe (Br. 29-30), Merck

involved a statute, 28 U.S.C. 1658(b), that contains an

express discovery rule. Section 1658(b) requires private

securities actions to be brought “not later than the earlier of—(1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation.” But in construing what it means to “discover[]”

the relevant facts (i.e., whether that term encompasses

constructive as well as actual discovery), this Court relied heavily on the common-law background principles

that generally govern the application of limitations provisions to fraud claims. See 130 S. Ct. at 1793-1796.

Indeed, the Court discussed those background principles to explain that Congress had codified one of them

(i.e., constructive discovery) in Section 1658(b)(1). See

id. at 1794. The Court’s discussion is equally relevant

here. Although the question in this case is whether the

discovery rule delays a claim’s accrual in fraud cases,

rather than whether constructive discovery puts an end

to that delay, the Court’s historical analysis in Merck

directly answers both questions.

Petitioners suggest (Br. 29) that this case is different

because, unlike the statute at issue in Merck, the limitations period in Section 2462 runs from a claim’s

“accru[al].” But that only makes this case an easy one.

In Bailey, the bankruptcy statute of limitations at issue

required certain suits to be brought “within two years

from the time [when] the cause of action accrued.”

88 U.S. (21 Wall.) at 344 (quoting Bankruptcy Act of

Mar. 2, 1867, ch. 176, § 2, 14 Stat. 518) (emphasis omitted). Surveying decisions from both English and American courts, the Court observed that “the decided weight

of authority is in favor of the proposition that where the

party injured by the fraud remains in ignorance of it

without any fault or want of diligence or care on his part,

the bar of the statute does not begin to run until the

fraud is discovered.” Id. at 348; see id. at 348 n.*;

Rosenthal v. Walker, 111 U.S. 185, 189 (1884) (applying

the fraud discovery rule to a similar successor provision). The Court’s decisions thus make particularly

clear how the fraud discovery rule operates when the

relevant statute of limitations runs from the “accrual” of

a claim.

3. The fraud discovery rule also applies when the

relevant statute specifies some event other than the accrual of the claim as the point at which the limitations

period commences. In Exploration Co., for example, the

federal limitations period at issue required “[t]hat suits

by the United States to vacate and annul any patent

* * * shall only be brought within six years after the

date of issuance of such patents.” 247 U.S. at 445 (quoting Act of Mar. 3, 1891, ch. 561, § 8, 26 Stat. 1099). The

six-year limitations period thus ran from the date on

which a patent was issued—not the date on which a

claim to annul the patent accrued. The Court nevertheless saw “no good reason” not to apply “the rule, now

almost universal, that statutes of limitations to set aside

fraudulent transactions shall not begin to run until the

discovery of the fraud.” Id. at 449.

In Holmberg, the Court considered an action under

the Federal Farm Loan Act, 12 U.S.C. 812 (1946), to

recover for a bank’s liability against a shareholder who

had concealed his ownership of the bank’s stock. See

327 U.S. at 393. Because the Act did not provide a federal limitations period, the suit was governed by a tenyear state limitations period (the Court’s opinion does

not make clear what event that state law specified as the

trigger for the ten-year period). See id. at 393-394. The

plaintiffs’ action had been dismissed because it was

brought more than ten years after the shareholder became liable under the Act, even though plaintiffs had

filed suit only a year after learning the shareholder’s

concealed identity. See id. at 393. In holding that the

suit was timely, this Court recognized that it had “long

ago adopted as its own the old chancery rule that where

a plaintiff has been injured by fraud and ‘remains in ignorance of it without any fault or want of diligence or

care on his part, the bar of the statute does not begin to

run until the fraud is discovered, though there be no

special circumstances or efforts on the part of the party

committing the fraud to conceal it from the knowledge

of the other party.’ ” Id. at 397 (quoting Bailey, 88 U.S.

(21 Wall.) at 348).

The Court’s reasoning in cases like Bailey, Exploration Co., and Holmberg does not depend on whether a

limitations period commences upon a claim’s “accrual”

or upon some other event. To the contrary, the Court in

Holmberg explained that the fraud discovery rule is an

“equitable doctrine [that] is read into every federal statute of limitation.” 327 U.S. at 397; see ibid. (“If the Federal Farm Loan Act had an explicit statute of limitation

for bringing suit * * * , the time would not have begun

to run until after petitioners had discovered, or had

failed in reasonable diligence to discover, the alleged

deception * * * which is the basis of this suit.”); see

also Exploration Co., 247 U.S. at 449 (“When Congress

passed the [limitations period] in question the rule of

Bailey v. Glover was the established doctrine of this

court. [The statute] was presumably enacted with the

ruling of that case in mind.”). Thus, whatever the event

that normally commences the running of a limitations

period, in a fraud case that period does not begin to run

until the relevant information was discovered or could

have been discovered by a reasonably diligent plaintiff.

4. The Court has sometimes referred to the fraud

discovery rule as a doctrine of tolling rather than of accrual. See TRW Inc. v. Andrews, 534 U.S. 19, 27 (2001)

(TRW ) (explaining that “equity tolls the statute of limitations in cases of fraud or concealment”); Lampf, Pleva,

Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350,

363 (1991) (Lampf ) (stating that the Court in Bailey and

Holmberg had applied an “equitable tolling doctrine”);

cf. Irwin v. Department of Veterans Affairs, 498 U.S. 89,

96 (1990) (identifying, as one circumstance where “equitable tolling” of limitations periods has been approved,

the situation “where the complainant has been induced

or tricked by his adversary’s misconduct into allowing

the filing deadline to pass”). But regardless of whether

the discovery rule is labeled as one of tolling or accrual,

the Court has never questioned that the doctrine delays

the running of a limitations period in cases of fraud.

In TRW, the Court observed that “Holmberg * * *

stands for the proposition that equity tolls the statute of

limitations in cases of fraud or concealment; it does not

establish a general presumption applicable across all

contexts.” 534 U.S. at 27. The Court declined to decide

whether to adopt a broader rule that would allow tolling

whenever a diligent potential plaintiff is unaware, for

reasons other than his adversary’s fraud or concealment,

of the facts underlying his cause of action. See id. at

27-28. Concurring in the judgment, Justice Scalia,

joined by Justice Thomas, would have addressed the

broader question and reaffirmed “the traditional rule”

that “[a]bsent other indication, a statute of limitations

begins to run at the time the plaintiff has the right to

apply to the court for relief.” Id. at 37 (internal quotation marks omitted). Justice Scalia expressly noted,

however, this Court’s “recognition of the historical exception for suits based on fraud, e.g., Bailey v. Glover.”

Ibid. Accordingly, whether or not the discovery rule

applies beyond cases of fraud or concealment, no Member of this Court has questioned its application to fraud

cases.

There are sound historical and equitable reasons for

this Court’s distinct treatment of cases involving fraud

or concealment. To be sure, a court’s refusal to apply a

discovery rule in other circumstances may effectively

prevent some reasonably diligent plaintiffs from obtaining redress for actionable wrongs. That result is particularly egregious, however, when the plaintiff’s ignorance

of his cause of action is attributable to the defendant’s

deception, because such cases implicate the equitable

principle that a person should not profit from his own

wrong. See, e.g., Way v. Cutting, 20 N.H. 187, 190

(1849) (“The general principle of natural justice and of

positive law that precludes a party from deriving a benefit from his own wrong, has from an early period been

applied by courts, both of law and of equity, to the construction of the statutes of limitation.”).

5. The timeliness of the Commission’s complaint in

this case does not depend on whether the fraud discovery rule is used to determine when the Commission’s

claims accrued or instead is treated as a ground for tolling the applicable limitations period. The Seventh Circuit made precisely that point in a similar fraud case

brought by the Commission for civil penalties. See SEC

v. Koenig, 557 F.3d 736 (2009) (Easterbrook, C.J.). The

court explained that it did not need to decide “when a

‘claim accrues’ for the purpose of [Section] 2462 generally, because the nineteenth century recognized a special

rule for fraud, a concealed wrong.” Id. at 739. That doctrine, the court noted, “is apt to be called equitable tolling.” Ibid. The court observed, however, that it is “unimportant in practice” “[w]hether a court says that a

claim for fraud accrues only on its discovery (more precisely, when it could have been discovered by a person

exercising reasonable diligence) or instead says that the

claim accrues with the wrong, but that the statute of

limitations is tolled until the fraud’s discovery.” Ibid.

“Either way,” the court explained, “a victim of fraud has

the full time from the date that the wrong came to light,

or would have done had diligence been employed.” Ibid.

Like the Seventh Circuit in Koenig, the court of appeals correctly applied the fraud discovery rule in this

case. The Commission alleges that petitioners’ conduct

aided and abetted violations of the antifraud provisions

of the Advisers Act, 15 U.S.C. 80b-6(1) and (2). Those

provisions make it unlawful for any adviser “to employ

any device, scheme, or artifice to defraud any client or

prospective client,” 15 U.S.C. 80b-6(1), or “to engage in

any transaction, practice, or course of business which

operates as a fraud or deceit upon any client or prospective client,” 15 U.S.C. 80b-6(2). The court of appeals

therefore held that, because “the Advisers Act claim is

made under the antifraud provisions of that Act and alleges that the defendants aided and abetted Gabelli

Funds’ fraudulent scheme, * * * the discovery rule

defines when the claim accrues.” Pet. App. 19a.

Consistent with the terminology this Court used in

Merck, see 130 S. Ct. at 1794, the court below thus

treated the fraud discovery rule as a means of identifying a fraud claim’s accrual date, rather than as a ground

for tolling Section 2462’s five-year limitations period. As

the Seventh Circuit recognized in Koenig, however, that

terminological choice is “unimportant in practice.”

557 F.3d at 739; cf. Sherwood, 21 F. Cas. at 1305 (noting

the existence of “some diversity of judgment” as to

whether the fraud discovery rule was “an implied exception out of the words of the statute, or whether the right

of action, in a legal sense, does not accrue until the discovery of the fraud”). Either way, the Commission was

required to bring its suit within five years after it discovered, or with reasonable diligence could have discovered, petitioners’ fraudulent scheme.

B. This Case Does Not Present The Question Of When Section 2462 Begins To Run In Nonfraud Cases

Petitioners argue that the Commission’s civil penalty

claims accrued at the time petitioners committed their

fraud because “a claim accrues when it arises and the

plaintiff has the right to sue.” Br. 15; see Br. 12-16. As

the Court recognized in Merck, that is the “general limitations rule”: “a cause of action accrues once a plaintiff

has a ‘complete and present cause of action.’ ” 130 S. Ct.

at 1793 (quoting Bay Area Laundry & Dry Cleaning

Pension Trust Fund, 522 U.S. at 201). But the government has not contended, and the court below did not

hold, that all claims for civil penalties under Section

2462 are subject to a discovery rule. Rather, the government has argued, and the court of appeals agreed,

that a discovery rule applies when the government seeks

civil penalties based on claims sounding in fraud. See

Pet. App. 19a-20a. And as the Merck Court explained,

the discovery rule “arose in fraud cases as an exception

to the general limitations rule.” 130 S. Ct. at 1793; see

TRW, 534 U.S. at 37 (Scalia, J., concurring in the judg-

ment) (noting “the historical exception for suits based on

fraud”).

All of the authorities on which petitioners rely (Br.

12-16 & nn.9-12) address the accrual of nonfraud claims,

i.e., claims presumptively subject to the general rule.

Those authorities therefore do not undermine the rationale on which the court below decided this case. At the

certiorari stage, petitioners contended (Pet. 13-19) that

the decision below was the subject of a circuit conflict

because four courts of appeals had held that a claim

“accrue[s]” for purposes of Section 2462 at the time of

the underlying violation. As the government explained

(Br. in Opp. 19-20), however, none of those decisions

even discussed, let alone rejected, application of the discovery rule to delay the accrual of a fraud claim for purposes of Section 2462. Petitioners no longer rely on (or

even cite) three of those decisions. See FEC v. Williams, 104 F.3d 237 (9th Cir. 1996), cert. denied,

522 U.S. 1015 (1997); United States v. Core Labs., Inc.,

759 F.2d 480 (5th Cir. 1985); United States v. Witherspoon, 211 F.2d 858 (6th Cir. 1954).

Petitioners continue to argue that the court in the

fourth case “reject[ed] application of the discovery rule

to Section 2462,” Br. 31, but in that case the underlying

violation had nothing to do with fraud. See 3M Co.

(Minn. Mining & Mfg.) v. Browner, 17 F.3d 1453,

1460-1463 (D.C. Cir. 1994) (defendant imported chemicals in violation of the Toxic Substances Control Act,

15 U.S.C. 2601 et seq.). 3M Co. thus stands for the unremarkable proposition that a cause of action often accrues at the time of a defendant’s unlawful conduct. See

Pet. App. 20a n.4 (noting that petitioners’ reliance below

on 3M Co. was “misplaced” because that case “did not

involve fraud claims”); Koenig, 557 F.3d at 739 (distin-

guishing 3M Co. on the same ground). Moreover, the

court in 3M Co. recognized that concealment suspends

the running of Section 2462’s limitations period. See

17 F.3d at 1461 n.15.

Like the court below, the First and Seventh Circuits

have squarely held that, in fraud cases brought by the

Commission seeking civil penalties, Section 2462’s fiveyear limitations period does not begin to run until the

Commission knew or should have known the relevant

facts. See Br. in Opp. 18; see also Koenig, 557 F.3d at

739-740; SEC v. Tambone, 550 F.3d 106, 148-149 (1st

Cir. 2008).4 Petitioners acknowledge (Br. 53) that the

court in Koenig so held, and they do not discuss

Tambone.5 In a recent unpublished opinion, the Fifth

Circuit declined to apply the discovery rule in a fraud

case brought by the Commission seeking civil penalties.

The First Circuit granted en banc review in Tambone and accordingly withdrew the panel opinion, but the en banc court limited its

review to a different issue in the case. See SEC v. Tambone, 573 F.3d

54 (2009). The en banc court’s subsequent opinion was confined to that

issue, and the court expressly reinstated the panel’s conclusion that an

enforcement action by the Commission is timely if it is brought within

five years of when the Commission discovered, or reasonably could have

discovered, a defendant’s fraud. See SEC v. Tambone, 597 F.3d 436,

450 (1st Cir. 2010).

Petitioners suggest that in Koenig, “the individual defendant

deliberately concealed his wrongdoing,” Br. 53 n.33, but the defendant’s

fraud there was no more or less “conceal[ed]” than in this case. In

Koenig, a corporate executive used various accounting methods to

overstate the company’s profits. See 557 F.3d at 737-739. The executive falsely told outside accountants that he would discontinue using

those methods, see id. at 740, but that is not different from petitioners’

false representation to directors and investors that they were attempting to eliminate market timing. In any event, nothing in the Seventh

Circuit’s decision rested on the fact that the defendant there misled

outside accountants.

See SEC v. Bartek, No. 11-10594, 2012 WL 3205446, at

*3-*6 (Aug. 7, 2012). For reasons explained below, the

Fifth Circuit erred in interpreting this Court’s decisions

to hold that the discovery rule applies in a fraud case

only if the defendant allegedly took additional steps to

conceal his fraud. See id. at *4-*5; pp. 29-33, infra. This

Court has long rejected precisely that argument.

II. PETITIONERS’ COUNTERARGUMENTS LACK MERIT

Petitioners advance several arguments why the limitations period in 28 U.S.C. 2462 should have commenced

to run before the Commission discovered, or reasonably

could have discovered, petitioners’ fraudulent scheme.

None withstands scrutiny.

A. The Application Of A Discovery Rule In Cases Of Fraud

Or Concealment Dates To The Beginning Of The Republic

1. Federal courts have consistently applied the fraud

discovery rule both before and after Section 2462’s

enactment

a. Contrary to petitioners’ contention (Br. 49-53),

the government’s position is deeply rooted in history.

Although the Statute of James (the English predecessor

to American statutes of limitations) lacked an express

exception for fraud actions, see 21 Jac. I. ch. 16, §§ II,

VII (1623), English courts sitting in equity suspended

the statute’s operation in cases of fraud. See, e.g., South

Sea Co. v. Wymondsell, (1732) 24 Eng. Rep. 1004, 1005

(Ch.) (observing that “a bill to be relieved against a

fraud, was not within the statute of limitations”); Booth

v. Warrington, (1714) 2 Eng. Rep. 111, 112 (H.L.) (affirming that “the plea of the statute of limitations ought

not to avail [the defendant] any thing” in a claim for

fraud). English courts eventually recognized that this

equitable exception could apply to actions at law as well.

See, e.g., Granger v. George, (1826) 108 Eng. Rep. 56, 56

(K.B.); Clark v. Hougham, (1823) 107 Eng. Rep. 339, 341

(K.B.); Bree v. Holbech, (1781) 99 Eng. Rep. 415, 416

(K.B.) (Lord Mansfield, C.J.).

Because “most, if not all[,] the statutes of limitations” enacted in the early days of the Republic “borrowed the language” of the Statute of James, “the expositions of the statute, which had been adopted in England, both at law and in equity, were well known to

those, who framed our own.” Sherwood, 21 F. Cas. at

1307 (Story, J.). It was therefore natural “that these

expositions,” including the fraud discovery rule, “were

received as the true interpretation” of statutes of limitations by American courts during the early nineteenth

century. Ibid.6 Accordingly, treatises from both sides

See, e.g., Harrell v. Kelly, 13 S.C.L. (2 McCord) 426, 428 (S.C.

Const. Ct. App. 1823) (“[I]f the plaintiff prosecute his claim within four

years from the time the fraud is discovered, the case is not barred.”);

Jackson’s Assignees v. Cutright, 5 Va. (2 Munf.) 308, 323 (1817)

(“[W]here fraud has been committed, and not discovered by the party

defrauded, the Act will not run; but it will run from the time when the

fraud was discovered.”); Shelby’s Heirs v. Shelby, 3 Tenn. (Cooke) 179,

183 (1812) (acknowledging an “exception” to the statute of limitations

if “the fraud was not * * * discovered until within three years previous to the institution of the suit”); Jones v. Conoway, 4 Yeates 109,

111 (Pa. 1804) (“Wherever there is a fraud, the statute of limitations is

no plea, unless the fraud be discovered within the time.”); First Mass.

Tpk. Corp. v. Field, 3 Mass. (1 Tyng) 201, 207 (1807) (“The delay of

bringing the suit is owing to the fraud of the defendant, and the cause

of action against him ought not to be considered as having accrued, until

the plaintiff could obtain the knowledge that he had a cause of action.”);

Jones v. McKennan, 2 Del. Cas. 106, 107 (Del. C.P. New Castle 1798)

(agreeing with the plaintiff ’s argument that the limitations statute did

not run “in case[s] of frauds”).

of the Atlantic confirmed that if “the fraud was not discovered” within the limitations period, “the statute of

limitations is not a good plea, unless the defendant denies the fraud, or avers, that the fraud, if any, was discovered [within the limitations period].” 4 Matthew Bacon, A New Abridgment of the Law 476 (5th ed. 1798);

see 1 Isaac Espinasse, A Digest of the Law of Actions at

Nisi Prius 162 (1791).

This Court likewise acknowledged the “well settled

and unquestioned rule[] in all courts of law and equity”

that the statute of limitations “does not run until the

discovery of the fraud.” Willison v. Watkins, 28 U.S.

(3 Pet.) 43, 52-53 (1830) (quoting Kane v. Bloodgood,

7 Johns. Ch. 90, 122 (N.Y. Ch. 1823)). As the Court summarized, “[t]he courts of equity * * * from an early

day, held that where one person has been injured by the

fraud of another, and the facts constituting such fraud

do not come to the knowledge of the person injured until

some time afterward, the statute will not commence to

run until the discovery of those facts, or until by reasonable diligence they might have been discovered.” Amy

v. Watertown (No. 2), 130 U.S. 320, 324 (1889); see

Moore v. Greene, 60 U.S. (19 How.) 69, 72 (1856) (“When

fraud is alleged as a ground to set aside a title, the statute does not begin to run until the fraud is discovered.”);

1 Joseph K. Angell & John Wilder May, A Treatise on

the Limitations of Actions at Law and Suits in Equity

and Admiralty 179-192 (4th ed., rev. & enl. 1861). Indeed, in language that remains directly relevant to this

case, the Court explained that a “cause of action * * *

is not to be deemed to have accrued until the discovery

by the aggrieved party of the facts constituting the

fraud.” Case of Broderick’s Will, 88 U.S. (21 Wall.) 503,

518 (1875).

b. In 1839, when Congress enacted the earliest predecessor version of Section 2462, it did so against a settled background understanding that the federal courts

would apply the discovery rule in cases of fraud.7 Indeed, this Court had said nearly a decade earlier in

Willison that it was the “well settled and unquestioned

rule[]” in federal courts that a limitations period “does

not run until the discovery of the fraud.” 28 U.S. (3 Pet.)

at 52-53. In light of the “presumption that Congress

understands the state of existing law when it legislates,”

Bowen v. Massachusetts, 487 U.S. 879, 896 (1988), Congress should be assumed to have incorporated into Section 2462 the settled principle that statutes of limitations

in cases of fraud run from the date of (actual or constructive) discovery. See, e.g., Keene Corp. v. United

States, 508 U.S. 200, 212-213 (1993). Congress subsequently amended the statute in 1874 and then recodified

it in 1948 without making any relevant substantive

change. See Rev. Stat. § 1047, 18 Stat. 193 (1874); Act of

Petitioners contend that “[t]he current version of Section 2462

traces back to a 1790 statute.” Br. 49; see Act of Apr. 30, 1790, ch. 9,

§ 32, 1 Stat. 119. That is incorrect. The 1790 provision on which petitioners rely forbade certain punishments for most capital and noncapital cases “unless the indictment or information * * * shall be

found or instituted within two years from the time of committing the

offence.” Ibid. The true historical antecedent to Section 2462 was

enacted in 1839 and focused solely on suits for penalties or forfeiture.

See Act of Feb. 28, 1839, ch. 36, § 4, 5 Stat. 322. Like current Section

2462, the 1839 provision had a five-year time limit, which ran “from the

time when the penalty or forfeiture accrued.” Ibid. (emphasis added);

see Cato Inst. Amicus Br. 6 (“The operative language of [Section] 2462

first appeared in an 1839 version of the statute.”). But even if Section

2462 were traceable to the 1790 provision, it was clear even at that time

that the limitations period in a suit for fraud does not begin to run until

the plaintiff discovers, or in the exercise of reasonable diligence could

have discovered, the facts constituting the fraud.

June 25, 1948, Pub. L. No. 80-773, 62 Stat. 974

(28 U.S.C. 2462).

c. Petitioners contend that in 1839, when the earliest predecessor version of Section 2462 was enacted, “a

claim was understood to accrue when it could be sued

on.” Br. 50. But again the authorities they cite (Br. 51)

for that proposition involve nonfraud claims and thus

implicate only the general rule that a claim accrues

when a plaintiff has the right to bring suit. See, e.g.,

Smith v. United States, 143 F.2d 228, 228-230 (9th Cir.)

(defendant was convicted of a tariff violation and failed

to pay the entire court-ordered fine; government

brought suit under Section 2462 for the unpaid balance),

cert. denied, 323 U.S. 729 (1944). Petitioners identify a

single fraud case, United States v. Maillard, 26 F. Cas.

1140 (S.D.N.Y. 1871) (No. 15,709), in which a district

court held that a fraud claim accrues for purposes of

Section 2462 at the time of the fraud, regardless of when

the government could have discovered it. See id. at

1142-1143. The district court in Maillard appeared to

believe that it was bound by state law rather than federal law in interpreting Section 2462. See id. at 1143

(citing New York cases). In any event, the district court

did not discuss this Court’s prior decisions in Willison

or Moore recognizing the fraud discovery rule, and it

expressly rejected Justice Story’s influential circuit

court opinion in Sherwood. See ibid. Petitioners thus

rely on an outlier district court decision that, even at the

time, was directly contrary to this Court’s precedent.8

Petitioners identify (Br. 32 n.23) a handful of early decisions in

which state courts declined to apply a discovery rule in actions at law.

Although there was some disagreement in state courts as to whether

the discovery rule could apply at law as in equity, see Sherwood,

21 F. Cas. at 1306-1307, this Court declared in Willison that in federal

2. The historical exception covers cases of fraud as well

as cases of concealment

a. Petitioners argue that the fraud discovery rule

applies only when “the defendant affirmatively

conceal[s] the existence of her wrongful conduct from

the plaintiff.” Br. 26; see Br. 25-28 & n.22. Petitioners

contend on that basis that the discovery rule does not

extend the limitations period in this case because they

did not take affirmative steps to conceal their fraud.

That contention, the court of appeals recognized, conflates two distinct (though related) justifications for extending an applicable limitations period. See Pet.

App. 18a-19a. One justification is that the fraudulent

nature of a defendant’s offense prevents a plaintiff from

knowing that she has been defrauded. Another is that

the defendant has misrepresented or concealed facts

that are essential to a plaintiff ’s cause of action, whether

or not that cause of action is for fraud. See, e.g., Riddell

v. Riddell Wash. Corp., 866 F.2d 1480, 1491 (D.C. Cir.

1989) (distinguishing between “wrongs as to which concealment is established by the nature of the act, and

wrongs as to which additional acts of concealment are

required”) (internal quotation marks omitted). In either

situation, an applicable limitations period does not begin

to run until the plaintiff is aware, or reasonably could

have been aware, of the facts underlying her cause of

action. See TRW, 534 U.S. at 27 (noting that the discovcourts a “statute of limitations receives the same construction and

application at law and in equity.” 28 U.S. (3 Pet.) at 52; see Bailey,

88 U.S. (21 Wall.) at 349 (“[T]he weight of judicial authority, both in this

country and in England, is in favor of the application of the [fraud

discovery] rule to suits at law as well as in equity.”). It is that view, not

the minority view of a few state courts, on which Congress continually

relied in enacting, amending, and codifying Section 2462.

ery rule has historically applied “in cases of fraud or

concealment”) (emphasis added).

This Court has long recognized that either of those

circumstances justifies deferring the commencement of

a limitations period for so long as the plaintiff is reasonably unaware of the facts underlying his claim. In

Bailey, the Court observed that “where the ignorance of

the fraud has been produced by affirmative acts of the

guilty party in concealing the facts from the other, the

statute will not bar relief provided suit is brought within

proper time after the discovery of the fraud.” 88 U.S.

(21 Wall.) at 347-348. The Court further explained, however, that “where the party injured by the fraud remains

in ignorance of it without any fault or want of diligence

or care on his part, the bar of the statute does not begin

to run until the fraud is discovered, though there be no

special circumstances or efforts on the part of the party

committing the fraud to conceal it from the knowledge

of the other party.” Id. at 348 (emphasis added). The

Court in Bailey thus made clear that the discovery rule

applies in both circumstances.

Petitioners correctly observe (Br. 27) that the plaintiff in Bailey alleged “that the defendants kept secret

and concealed * * * the fraud.” 88 U.S. (21 Wall.) at

348. The Court declined, however, to rest its decision on

that fact. Rather, the Court concluded that “when the

fraud has been concealed, or is of such character as to

conceal itself, the statute does not begin to run until the

fraud is discovered by, or becomes known to, the party

suing.” Id. at 349-350 (emphasis added). That conclusion was consistent with this Court’s previous recognition that a plaintiff could invoke the discovery rule by

pleading “particular acts of fraud or concealment” that

had delayed the commencement of the limitations pe-

riod. Beaubien v. Beaubien, 64 U.S. (23 How.) 190, 208

(1860); see Stearns v. Page, 48 U.S. (7 How.) 819, 829

(1849).9

b. This Court’s conclusion in Bailey was not novel.

Long before Bailey, lower courts had held that plaintiffs

whose causes of action were based on fraud did not have

to plead additional acts of concealment in order to invoke the discovery rule. See, e.g., Carr v. Hilton,

5 F. Cas. 134, 136 (C.C.D. Me. 1852) (No. 2436) (Curtis,

J.) (“It is objected, however, that this bill does not contain any averment that the cause of action was fraudulently concealed. But it does state a case of secret fraud,

and it would be difficult to distinguish this from fraudulent concealment.”); Way v. Cutting, 20 N.H. 187, 193

(1849) (“[T]he position assumed by the defendant, that

some new act of fraud and concealment, beside the representation made at the sale, must be proved upon him

in order to deprive him of the protection of the statute,

is not supported by authority or sound reason.”); Homer

v. Fish, 1 Mass. (1 Pick.) 435, 438 (1823) (“[W]e do not

find that a particular averment of * * * any act of the

party by which the knowledge of [the fraud] was prevented, is necessary.”); see also John P. Dawson, Fraudulent Concealment and Statutes of Limitation, 31 Mich.

L. Rev. 875, 880 (1933) (“Where undiscovered ‘fraud’

was the basis of liability, it was universally agreed that

no new concealment was necessary and the wrongdoer

might remain wholly passive, provided no avenues were

In Credit Suisse Securities (USA) LLC v. Simmonds, 132 S. Ct.

1414 (2012), this Court discussed concealment as a possible ground for

suspending the limitations provision because that was the ground

potentially applicable to that nonfraud case. Id. at 1419-1420. The

Court had no occasion to address the application of the discovery rule

to cases where the underlying violation sounds in fraud.

open to the plaintiff for discovery of the fraud.”)

(Dawson); id. at 880 n.12 (collecting cases).

The theory behind those cases was simple: “[A]s

fraud is a secret thing, and may remain undiscovered for

a length of time, during such time the statute of limitations shall not operate.” Hovenden v. Lord Annesley,

2 Schoales & Lefroy 634 (Ir. Ch. 1806). Or as the court

of appeals explained in this case, “fraud claims by their

very nature involve self-concealing conduct,” and thus

“it has been long established that the discovery rule applies where, as here, a claim sounds in fraud.” Pet. App.

18a. The other courts of appeals to consider the question have reached the same conclusion. See Koenig,

557 F.3d at 739 (“[T]he nineteenth century recognized a

special rule for fraud, a concealed wrong.”); Tambone,

550 F.3d at 148 (noting “the self-concealing nature of the

defendants’ [fraudulent] conduct”); cf. Texas v. Allan

Constr. Co., 851 F.2d 1526, 1529 (5th Cir. 1988) (“[I]n a

fraud case, the plaintiff need only aver the underlying

fraud in order to toll the statute of limitations until such

time as the plaintiff had some notice of the wrong; fraud

is, by its very nature, self-concealing.”).

That approach follows naturally from equity’s primary justification for the fraud discovery rule, which is

to prevent defendants from unfairly relying on statutes

of limitations when their own acts have kept potential

plaintiffs in the dark. See p. 13, supra; Glus, 359 U.S. at

232-233. The Court’s treatment of “concealment” as a

distinct ground for delaying the commencement of the

limitations period reflects a recognition that this equitable principle may be implicated even though the underlying claim does not sound in fraud. That recognition

provides no sound basis for declining to apply the discovery rule to actual fraud claims. As the Court ex-

plained in Bailey, “[t]o hold that * * * by committing

a fraud in a manner that it concealed itself until such

time as the party committing the fraud could plead the

statute of limitations to protect it, is to make the law

which was designed to prevent fraud the means by

which it is made sucessful and secure.” 88 U.S.

(21 Wall.) at 349; see Dawson 882 (requiring affirmative

concealment in cases of fraud is “unnecessary” because

there are “elements of immorality on the defendant’s

part * * * in the original injury”). Simply put, petitioners point to nothing in law or logic for the notion

that equity intervenes not at the original wrong (a defendant’s fraud) but only at the subsequent one (a defendant’s concealment of that fraud).

B. In Fraud Cases, The Discovery Rule Is Read Into Federal Statutes Of Limitations Unless Congress Specifies

Otherwise

1. Petitioners argue (Br. 11-18) that applying a

fraud discovery rule is inconsistent with the text of Section 2462, which imposes a five-year time limit without

establishing any express exception for cases involving

fraud or concealment. Whether described as a doctrine

of accrual or tolling, however, the discovery rule has

long been understood as a background principle that

presumptively governs the application of federal limitations statutes unless Congress specifies otherwise. Indeed, nearly a century ago, this Court squarely held that

the discovery rule may delay the running of a limitations

period in cases of fraud, even in the absence of an express statutory “provision that the cause of action

should not be deemed to have accrued until the discovery of the fraud.” Exploration Co., 247 U.S. at 447. As

the Court recognized there, the doctrine’s applicability

does not depend on express language incorporating it

into a federal limitations statute.

The court of appeals therefore correctly reasoned

“that for claims that sound in fraud a discovery rule is

read into the relevant statute of limitation.” Pet. App.

20a. This Court and other courts have long said the

same thing. See, e.g., Holmberg, 327 U.S. at 397 (“This

equitable doctrine is read into every federal statute of

limitation.”); Cada v. Baxter Healthcare Corp., 920 F.2d

446, 450 (7th Cir. 1990) (“[T]he ‘discovery rule’ of federal

common law * * * is read into statutes of limitations in

federal-question cases * * * in the absence of a contrary directive from Congress.”), cert. denied, 501 U.S.

1261 (1991); Dabney v. Levy, 191 F.2d 201, 205 (2d Cir.)

(Hand, J.) (“[I]n cases of fraud, * * * when Congress

does not choose expressly to say the contrary, the period

of limitation set by it only begins to run after the injured

party has discovered, or has failed in reasonable diligence to discover[,] the wrong.”) (internal quotation

marks omitted), cert. denied, 342 U.S. 887 (1951).

For that reason, this Court has repeatedly applied

the fraud discovery rule to limitations statutes that did

not contain express language regarding the plaintiff’s

discovery of his cause of action. See Holmberg, 327 U.S.

at 397; Exploration Co., 247 U.S. at 449; Rosenthal,

111 U.S. at 189; Bailey, 88 U.S. (21 Wall.) at 347; Kirby,

120 U.S. at 136. Petitioners do not attempt to reconcile

the results in those cases with their textual argument.

They characterize (Br. 26, 28 n.22) those decisions as

recognizing an exception only for concealment and not

fraud (which is itself an inaccurate characterization, see

pp. 30-31, supra), but none of the limitations statutes at

issue in those cases contained any express language regarding fraud or concealment. Petitioners’ textual argu-

ment simply cannot be squared with this Court’s understanding and application of the fraud discovery rule.

Abandonment of the long-settled background understanding reflected in this Court’s decisions would be

especially ill-conceived because Congress has relied on

that understanding in drafting innumerable federal limitations statutes. See, e.g., Gomez-Perez v. Potter,

553 U.S. 474, 488 (2008); Kelly v. Robinson, 479 U.S. 36,

46 (1986).

Moreover, petitioners’ argument does not depend

solely on “the plain language of Section 2462.” Br. 11

(capitalization and emphasis omitted). Petitioners contend (Br. 12, 16) that Section 2462’s five-year period

began to run when all of the events necessary to the

SEC’s cause of action had occurred. Petitioners do not

and could not contend, however, that the text of Section

2462 specifically identifies that as the applicable test.

Rather, in arguing that the claims here “accrued” upon

the commission of their violation, petitioners rely on

settled general background understandings of the term

“accrued,” while ignoring the equally settled rule that a

fraud claim “accrues” on the date of actual or constructive discovery. There is no warrant in either history or

the plain text of Section 2462 for petitioners’ pick-andchoose approach.

Section 2462’s five-year time limit likewise contains

no express exceptions for other equitable doctrines like

forfeiture, waiver, and tolling. This Court has repeatedly held, however, that federal statutes of limitations

are generally “subject to rules of forfeiture and waiver,”

and that courts are typically permitted “to toll the limitations period in light of special equitable considerations.” John R. Sand & Gravel Co. v. United States,

552 U.S. 130, 133 (2008); see Holland v. Florida,

130 S. Ct. 2549, 2560 (2010) (explaining that federal statutes of limitations are “normally subject to a ‘rebuttable

presumption’ in favor ‘of equitable tolling’ ”) (quoting

Irwin, 498 U.S. at 95-96; emphasis omitted). As with the

doctrines of forfeiture and waiver, the crucial question

here is not whether Section 2462 explicitly incorporates

the fraud discovery rule, but whether Congress has

clearly displaced the usual rule that limitations periods

in fraud cases are triggered by actual or constructive

discovery.

2. Petitioners also argue (Br. 16-18) that Congress

clearly displaced the fraud discovery rule in the text of

Section 2462. Petitioners note (Br. 17) that Section 2462

imposes a five-year time limit on civil penalty actions

“[e]xcept as otherwise provided by Act of Congress.”

That phrase merely recognizes that Section 2462 is a

catch-all provision governing numerous actions brought

by different federal agencies, and that particular statutes authorizing suits for civil penalties may have their

own limitations provisions. See 3M Co., 17 F.3d at 1461;

see also United States v. Providence Journal Co.,

485 U.S. 693, 705 n.9 (1988). Congress has not “otherwise provided” here, however, because the Advisers Act

authorizes the SEC to seek civil penalties but does not

specify the time within which the Commission must sue.

Because (as explained above) the date of actual or constructive discovery is ordinarily the “accrual” date of a

fraud claim, the introductory language of Section 2462

provides no basis for departing from that approach here.

Similarly, petitioners contend that “the language of

Section 2462 is peremptory” because “[i]t directs that

courts ‘shall’ not entertain” suits for civil penalties after

five years. Br. 17. But that is a common feature of federal limitations statutes. This Court has often invoked

the fraud discovery rule in cases where the limitations

statutes at issue contained the verb “shall.” See Exploration Co., 247 U.S. at 445; Rosenthal, 111 U.S. at 189;

Bailey, 88 U.S. (21 Wall.) at 344. Section 2462’s directive that a court “shall” dismiss an untimely action sheds

no light on whether any particular suit is untimely. In

particular, it does not suggest that Congress departed

here from the usual rule that a fraud claim “accrues” on

the date of actual or constructive discovery.

Petitioners emphasize (Br. 17) that the time limit in

Section 2462 runs “from the date when the claim first

accrued” (emphasis added). The term “first,” however,

adds nothing to the parties’ dispute about when the Commission’s claims “accrued.” Each of the Commission’s

claims could accrue only at a particular point in time.

For petitioners, that point in time is when they committed the fraud underlying the claim; for the government,

it is the Commission’s actual or constructive discovery

of the same fraud. There is consequently no difference

for these purposes between when the Commission’s

claims “accrued” and “first accrued.” See Franconia

Assocs. v. United States, 536 U.S. 129, 145 (2002) (explaining that the words “first accrues” are “unexceptional” and do not create “a special accrual rule”). In

determining when a claim first accrues, courts should

take into account the background principles governing

accrual in a particular context, see ibid., and one of

those principles is the fraud discovery rule.

Finally, petitioners argue (Br. 16-17) that, by creating an exception to Section 2462’s five-year time limit

when “the offender or the property is [not] found within

the United States,” Congress precluded any further exception for cases of fraud or concealment. That argument is inconsistent with the history and nature of the

fraud discovery rule, which English courts applied under a limitations statute—the Statute of James—that

contained express exceptions. See Sherwood, 21 F. Cas.

at 1303 (applying the discovery rule even though “[t]he

statute of limitations * * * contains like exceptions [to

the Statute of James] in favour of infants, femes covert,

&c.”); see also Jackson v. Speer, 974 F.2d 676, 678-680

(5th Cir. 1992); Cada, 920 F.2d at 451. This Court has

applied the fraud discovery rule in the same way. See

Kirby, 120 U.S. at 135-139.

C. When Congress Has Explicitly Addressed Discovery In

Other Federal Limitations Statutes, It Has Generally

Done So In Order To Expand Or Contract The Traditional Rule

1. Petitioners contend (Br. 18-25) that when Congress intends the discovery rule to apply in a particular

context, Congress says so expressly in the relevant federal limitations statute. That contention is incorrect for

the same reasons as petitioners’ plain-text argument. In

cases of fraud or concealment, the discovery rule “is

read into every federal statute of limitation.” Holmberg,

327 U.S. at 397. Accordingly, as the court of appeals

explained, Congress typically has addressed discovery

in other federal statutes not to codify the traditional

fraud discovery rule, but to alter the rule’s usual operation in either of two ways: (a) by expanding the discovery rule to include nonfraud cases or (b) by contracting

the amount of time a plaintiff would otherwise have to

bring suit. See Pet. App. 20a.

a. In some federal statutes, Congress has specified

that a limitations period commences upon discovery of

a cause of action that is not based on fraud. By specifying that the limitations period runs from a claim’s dis-

covery, Congress has ensured that the period does not

run instead from the date of the events giving rise to

the plaintiff’s cause of action. See, e.g., 15 U.S.C.

78u-6(h)(B)(1)(iii)(I)(bb) (Supp. V 2011) (three-year time

limit for antiretaliation actions by securities whistleblowers from “the date when facts material to the right

of action are known or reasonably should have been

known by the employee alleging a violation”); 26 U.S.C.

7431(d) (two-year time limit for certain taxpayer actions

from “the date of discovery by the plaintiff of the unauthorized inspection or disclosure”).

Similarly, Congress sometimes specifies that a limitations period commences upon discovery when the provision governs both fraudulent and nonfraudulent conduct. For instance, Section 2415 of Title 28 establishes

general time limits on contract and tort claims brought

by the United States for money damages. See 28 U.S.C.

2415(a) (six-year time limit for contract claims);

28 U.S.C. 2415(b) (three-year time limit for tort claims).

Those time limits run from the accrual of the government’s right of action. Section 2416(c) provides, however, that those time limits do not run during any period

when “facts material to the right of action are not known

and reasonably could not be known by an official of the

United States charged with the responsibility to act in

the circumstances.” Section 2416(c) thus ensures that

the discovery rule operates with respect to all of the government’s contract and tort claims, regardless of

whether those claims are based on fraud, and regardless

of whether the government’s unawareness of the relevant facts is attributable to affirmative acts of concealment by the defendant.

b. In other statutes, Congress has addressed discovery not to expand the traditional rule, but to contract or

displace it. In particular, Congress sometimes establishes time limits with a two-part structure that combines an express discovery rule with an absolute period

of repose. See, e.g., 21 U.S.C. 335b(b)(3)(B) (requiring

that suit must be commenced within six years from discovery of material facts, but in no event more than ten

years after the violation); 28 U.S.C. 1658(b) (same; two

years from discovery of the facts constituting the violation, but in no event more than five years after the violation). In that type of dual-prong provision, the express

discovery rule functions very differently from its traditional counterpart. First, those express discovery rules

can only shorten the time for bringing suit: a plaintiff

who becomes aware of her claim must bring suit within

the defined period after discovery, even if the repose

period has not yet elapsed. Second, the repose limit displaces the traditional fraud discovery rule in cases

where, as a result of fraud or concealment, plaintiffs

discover violations after the repose period has elapsed.

For both of those reasons, petitioners are wrong in arguing (Br. 21 & n.18, 23) that such dual-prong provisions

codify the traditional fraud discovery rule.10

2. Petitioners are correct (Br. 20-21) that, on rare

occasions, Congress has expressly codified the traditional fraud discovery rule. See 19 U.S.C. 1621 (requir10

It makes no difference if, in a limitations provision that combines

an express discovery rule with an absolute period of repose, the outer

limit runs from the date on which the claim accrued rather than the

date of the violation. See 15 U.S.C. 77www(a) (2000) (requiring suit

“within one year after the discovery of the facts constituting the cause

of action and within three years after such cause of action accrued”);

15 U.S.C. 78r (2000). The text and structure of such a provision make

clear that, even in cases of fraud or concealment, a claim’s accrual is

governed by general accrual principles, not by the traditional fraud

discovery rule.

ing that suit be commenced “within 5 years after the

date of the alleged violation or, if such violation arises

out of fraud, within 5 years after the date of discovery of

fraud”); 19 U.S.C. 1641(d)(4) (similar); cf. 15 U.S.C.

1679i (extending the limitations period in misrepresentation cases against credit repair organizations until

“the date of the discovery by the consumer”). By doing

so, Congress “may have simply intended to remove any

doubt” that the fraud discovery rule applies in those

contexts. Ali v. Federal Bureau of Prisons, 552 U.S.

214, 226 (2008); see Fort Stewart Schs. v. FLRA,

495 U.S. 641, 646 (1990) (noting that “technically unnecessary” exceptions may have been “inserted out of an

abundance of caution”). In any event, petitioners cite no

authority for the counterintuitive proposition that, when

Congress codifies an established canon of construction

in a particular federal law, the canon ceases to govern

the interpretation of other federal statutes. Congress’s

occasional express endorsement of the fraud discovery

rule does not render the rule inapplicable to statutes

where it is neither explicitly incorporated nor explicitly

displaced.

D. The Fraud Discovery Rule Applies Equally To The Government As To Private Plaintiffs

1. Petitioners contend (Br. 31, 33) that the fraud

discovery rule applies only to suits brought by private

plaintiffs, not to government actions for civil penalties.

Nearly a century ago, however, this Court explained

that there is “no good reason why the rule, now almost

universal, that statutes of limitations upon suits to set

aside fraudulent transactions shall not begin to run until

the discovery of the fraud, should not apply in favor of

the Government as well as a private individual.” Explo-

ration Co., 247 U.S. at 449; see ibid. (“We cannot believe

that Congress intended to give immunity to those who

for the period named in the statute might be able to conceal their fraudulent action from the knowledge of the

agents of the Government.”); Koenig, 557 F.3d at 739

(“[T]he United States is entitled to the benefit of [the

fraud discovery] rule even when it sues to enforce laws

that protect the citizenry from fraud, but is not itself a

victim.”) (citing Exploration Co.). To the extent that

Section 2462 is unclear, its interpretation is governed by

the canon that “when the sovereign elects to subject

itself to a statute of limitations, the sovereign is given

the benefit of the doubt if the scope of the statute is ambiguous.” BP Am. Prod. Co. v. Burton, 549 U.S. 84, 96

(2006). Petitioners provide no reason to abandon that

approach here. Equitable-tolling principles are presumptively applicable to private suits against the government, see Irwin, 498 U.S. at 95-96, and it would be

perverse to deny the sovereign alone the benefit of the

fraud discovery rule.

Petitioners argue that, in Exploration Co., “the government was suing for restitution [and] standing in for

a private stakeholder who was defrauded by a private

party.” Br. 28 n.22. That is incorrect. The defendants

in Exploration Co. had obtained federal lands by fraud,

and the United States brought suit to annul the land

patents. See 247 U.S. at 445-446. The same type of action was at issue in United States v. Minor, 114 U.S. 233

(1885). In both cases, this Court held that equitable

doctrines—the discovery rule in Exploration Co. and

laches in Minor—apply in the same way to suits brought

by the government as to suits brought by private plaintiffs. See Minor, 114 U.S. at 238 (“Of course, lapse of

time[] as a defence to a suit for relief for these frauds

did not begin to run until the fraud was discovered.”).

Just as the government brought those cases to vindicate

the public interest in lawful disposal of federal lands, the

Commission brought this case to vindicate the public

interest in lawful participation in the securities markets.

See, e.g., SEC v. Capital Gains Research Bureau, Inc.,

375 U.S. 180, 189-190 (1963).11

2. Petitioners maintain (Br. 30-33) that the discovery rule applies only “where the party injured by the

fraud remains in ignorance of it.” Bailey, 88 U.S.

(21 Wall.) at 348 (emphasis added). Petitioners contend

that, because the Commission need not establish injury

as an element of its fraud claims under the Advisers Act,

the discovery rule does not apply to “a statutory [Advisers Act] claim—or any other statutory fraud claim.”

Br. 31. But equity’s primary justification for the fraud

discovery rule has centered on the defendant’s misconduct, not on the particular disadvantage the plaintiff

would suffer if its suit were dismissed as untimely. See

Glus, 359 U.S. at 232 (“[W]e need look no further than

the maxim that no man may take advantage of his own

wrong.”); Holmberg, 327 U.S. at 386 (“[F]raudulent con11

Notably, the arguments that the defendants advanced in Exploration Co. are virtually indistinguishable from those pressed by petitioners here. See Appellants’ Br., Exploration Co., supra (No. 277). The

defendants in that case argued that the plain text of the limitations

provision did not contain an exception for fraud, id. at 36; that Congress

could have included such an exception if it had desired, id. at 27-35,

60-62; that the defendants had not taken affirmative steps to conceal

their fraud, id. at 42, 72-73; that the discovery rule could be invoked

only by private litigants, not the government, id. at 63-66; and that

adopting a contrary approach would raise administrability concerns and

permit the government to delay investigating land patent fraud, id. at

67-72. The Court in Exploration Co. squarely rejected each of those

arguments.

duct on the part of the defendant * * * may make it

unfair to bar appeal to equity because of mere lapse of

time.”). Indeed, that equitable principle provides the

core justification for distinguishing cases that involve

fraud or concealment from other cases in which the

plaintiff is reasonably unaware of the facts giving rise to

his cause of action. See p. 19, supra. That principle is as

applicable to government enforcement actions as to private suits.

To be sure, the Court in Bailey referred to the discovery rule as applying when the eventual plaintiff was

“injured by the fraud [and] remains in ignorance of it.”

88 U.S. (21 Wall.) at 348. But in Bailey and other cases

where that language was repeated, the plaintiffs were

private parties that had been injured by the defendants’

fraud. See id. at 343; see also Holmberg, 327 U.S. at

393; Kirby, 120 U.S. at 131-132. Because private plaintiffs who sue for fraud typically must prove injury, see

Restatement (Second) of Torts § 525 (1976), the language in Bailey accurately describes most of the cases

in which the fraud discovery rule has been applied. But

as the Court recognized in Exploration Co., equity’s

rationale for the discovery rule is fully applicable to

cases where Congress has authorized the government to

bring fraud claims without a showing of injury. Indeed,

the Court sometimes has stated that a limitations period

does not begin to run “until the discovery of the facts

constituting the fraud.” Amy, 130 U.S. at 324-325; Case

of Broderick’s Will, 88 U.S. (21 Wall.) at 518-519. That

formulation accurately captures the relevant inquiry and

encompasses the current SEC enforcement action for

civil penalties.12

3. Petitioners contend (Br. 23) that it would be

anomalous to allow the SEC, but not private plaintiffs,

to bring suit more than five years after the defendant’s

fraudulent conduct occurred. See 28 U.S.C. 1658(b) (establishing a five-year period of repose in private

securities-fraud suits). When Congress established that

repose period on private suits in 2002, it did nothing to

indicate that it intended to displace the traditional fraud

discovery rule in enforcement actions brought by the

government. And even under petitioners’ reading of

Section 2462, that provision is more generous to the government than Section 1658(b) is to private plaintiffs,

because Section 2462 establishes a five-year period to

sue even when the violation is discovered immediately,

whereas suits under Section 1658(b) must be filed within

“2 years after the discovery of the facts constituting the

violation.”

In any event, there is nothing unusual about permitting greater remedies to the government than to private

parties. See, e.g., Minor, 114 U.S. at 240; United States

v. Hoar, 26 F. Cas. 329, 330 (1821) (No. 15, 373) (Story,

J.). Congress wants to deter securities violations

through the Commission’s enforcement authority, and

that purpose is separate from seeking to compensate

This Court has extended the traditional discovery rule for cases of

fraud or concealment to two other contexts: “latent disease and medical

malpractice.” TRW, 534 U.S. at 27; see, e.g., Rotella v. Wood, 528 U.S.

549, 555 (2000); Urie v. Thompson, 337 U.S. 163, 170-171 (1949). In

those contexts, the application of the discovery rule may be linked to

the nature of plaintiffs’ injuries, but those cases are distinct from “the

historical exception for suits based on fraud.” TRW, 534 U.S. at 37

(Scalia, J., concurring in the judgment).

injured victims. In addition, Section 2462 governs civil

penalty actions in other contexts where the limitations

provisions that apply to private suits may not clearly

displace the discovery rule. In those contexts, it would

be petitioners’ approach creating the anomaly: private

plaintiffs would be able to invoke the discovery rule in

cases of fraud or concealment, but the government alone

would not.

E. The Fraud Discovery Rule Balances The Need For Repose Against The Need To Prevent Abuse Of Limitations

Statutes

1. Petitioners argue (Br. 37-43) that the fraud discovery rule is “at odds with the basic policies of all limitations provisions: repose, elimination of stale claims,

and certainty about a plaintiff ’s opportunity for recovery and a defendant’s potential liabilities.” Rotella v.

Wood, 528 U.S. 549, 555 (2000). But the fraud discovery

rule does not reject those policies altogether; it simply

balances them against competing values in cases where

the defendant’s own deceptive conduct has hindered his

adversary’s ability to seek redress. Its core justification

is that defendants are not entitled to repose when their

own deceptive conduct has effectively foreclosed potential plaintiffs from seeking redress. If defendants want

to eliminate stale claims and uncertainty about their

liabilities, they need only make public whatever they

have previously concealed. Here, if petitioners had disclosed the market timing scheme to the fund’s investors

or to the Commission, the limitations period in Section

2462 would have commenced to run.

Petitioners argue (Br. 34-37) that this approach

would allow perpetual penalties when the government

alleges fraudulent violations of the securities laws. This

Court’s response to that concern, however, has never

been to require affirmative acts of concealment over and

above the defendant’s fraud. Rather, the Court has limited the potential consequences of the fraud discovery

rule by emphasizing that actual or constructive discovery will trigger the limitations period. See, e.g., Credit

Suisse Secs. (USA) LLC v. Simmonds, 132 S. Ct. 1414,

1420 (2012); Merck, 130 S. Ct. at 1794-1795. Where a

defendant’s fraud or concealment would prevent a diligent plaintiff from learning the facts that give rise to his

cause of action, the discovery rule appropriately ensures

that the defendant does not benefit from his own wrongdoing. See, e.g., Prevost v. Gratz, 19 U.S. (6 Wheat.)

481, 498 (1821) (observing that although the “length of

time necessarily obscures all human evidence,” it is likewise true that “the length of time, during which the

fraud has been successfully concealed and practised, is

rather an aggravation of the offence, and calls more

loudly upon a Court of equity to grant ample and decisive relief”).

Petitioners rely (Br. 34-37) on a presumption against

perpetual penalties, but that presumption is inapposite

here. Congress has consistently described the SEC’s

monetary penalties imposed for regulatory violations as

“civil” in nature, see, e.g., 15 U.S.C. 77t(d) (2000),

78u(d)(3) (2000), 80b-9(e)(1), and “only the clearest proof

will suffice to override legislative intent and transform

what has been denominated a civil remedy into a criminal penalty,” Hudson v. United States, 522 U.S. 93, 100

(1997) (internal quotation marks omitted); see Taylor v.

United States, 44 U.S. (3 How.) 197, 210-211 (1845)

(Story, J.) (recognizing that civil penalty provisions are

not penal laws to which the rule of lenity applies). Moreover, Section 2462 actually prevents the imposition of

perpetual penalties by placing a five-year time limit on

civil penalty actions. Cf. Adams v. Woods, 6 U.S.

(2 Cranch) 336, 342 (1805) (Marshall, C.J.) (holding that

a criminal forfeiture action should be subject to a limitations period). Although that limitations period is suspended in cases of fraud or concealment, the delay results from the defendant’s conduct, not the government’s.

2. As noted above, the traditional discovery rule

accounts for the importance of repose by providing that

the limitations period in a fraud case begins to run when

a reasonably diligent plaintiff could have discovered the

relevant facts, even if the actual plaintiff did not discover them until later. Petitioners suggest in passing

(Br. 29) that the Commission did not exercise reasonable

diligence here. As the court of appeals recognized, however, that argument is, “at best, premature.” Pet. App.

21a. This case arises on petitioners’ motion to dismiss,

and the complaint alleges that the SEC “did not discover

[petitioners’] illegal conduct until late 2003” and “could

not have discovered that wrongdoing earlier.” J.A. 89.

The court of appeals therefore correctly held that “at

this stage in the litigation [petitioners] have not met

their burden of demonstrating that a reasonably diligent

plaintiff would have discovered this fraud prior to September 2003.” Pet. App. 21a-22a.

F. The Fraud Discovery Rule Has Proved To Be Judicially

Administrable For More Than Two Centuries

Petitioners advance various policy arguments why

the traditional discovery rule should not apply to the

Commission’s civil penalty actions. None is persuasive.

1. Petitioners argue (Br. 43-49) that the decision

below will be difficult to administer in two respects.

First, petitioners assert (Br. 47-49) that it will be hard

for courts to determine whether a cause of action is

based on fraud. That is not a difficult inquiry here. The

relevant provisions of the Advisers Act make it unlawful

for an adviser “to employ any device, scheme, or artifice

to defraud any client or prospective client,” 15 U.S.C.

80b-6(1) (emphasis added), or “to engage in any transaction, practice, or course of business which operates as a

fraud or deceit upon any client or prospective client,”

15 U.S.C. 80b-6(2) (emphasis added). Nor do petitioners

identify any prior case in which the inquiry has been

difficult. In cases of fraud or concealment, courts in

England and America have applied the discovery rule

for centuries. And, as explained earlier, this Court has

long distinguished between cases involving fraud or concealment and cases in which the plaintiff is unaware for

some other reason of the facts underlying his cause of

action. Petitioners offer no reason to suppose that this

distinction has proved unworkable in practice.

Petitioners also assert (Br. 44) that it will be hard for

courts to determine when a large agency like the Commission constructively discovered a defendant’s fraud.

Again, petitioners identify no cases in which that inquiry

has proved to be difficult. See Koenig, 557 F.3d at

739-740; Tambone, 550 F.3d at 148-149; see also Exploration Co., 247 U.S. at 438 (“There was nothing in the

[government] records * * * which could possibly have

aroused a suspicion * * * until the reports of the special agents of the General Land Office were made in the

latter part of 1909.”); cf. Merck, 130 S. Ct. at 1798

(“[C]ourts applying the traditional discovery rule have

long had to ask what a reasonably diligent plaintiff

would have known and done in myriad circumstances.”).

Indeed, petitioners concede (Br. 43-44) that other fed-

eral statutes require courts to undertake virtually identical inquiries into the knowledge of government officials.

2. Petitioners assert that the Commission “has extensive powers and the five-year statute of limitations

gives it sufficient time to fulfill the interest in law enforcement.” Br. 40. That assertion places the cart before the horse. The Commission “can take evidence,

subpoena documents, and compel testimony,” ibid., but

its ability to exercise those powers does not put it on

notice of the need to do so in a particular case when a

defendant’s fraud has concealed a violation of the securities laws. Indeed, petitioners’ approach unrealistically

envisions that the Commission (and other federal agencies that employ Section 2462) could constantly monitor

every regulated entity and transaction for any hint of

hidden fraud. That inefficient approach would only increase the burden on regulated entities generally, including those entities that have not engaged in any fraud

or concealment.

In any event, the SEC’s argument is not that “it has

insufficient time to investigate” securities fraud, Br. 41,

but that it should receive the five years granted to it by

Congress in Section 2462. In authorizing the Commission to seek civil penalties, Congress recognized that

increasingly “[i]nvestigations involve more complex issues of fact and law, the collection of evidence from foreign countries and the prosecution of defendants who, in

many cases, have the financial means to fight and delay

SEC actions for long periods of time, thus requiring a

greater commitment of the SEC’s resources.” S. Rep.

No. 337, 101st Cong., 2d Sess. 6 (1990). Fraud claims

are typically more difficult to investigate and pursue

than other types of claims, see Lampf, 501 U.S. at 377

(Kennedy, J., dissenting) (“The most extensive and corrupt schemes may not be discovered within the time allowed for bringing an express cause of action.”), and

there is no reason why Congress would have wanted the

Commission and other agencies to have less time to do

so.

3. Finally, petitioners suggest (Br. 39) that the court

of appeals’ approach would weaken the Commission’s

incentives to investigate fraud cases. Under the traditional fraud discovery rule, however, Section 2462’s limitations period begins to run when a reasonably diligent

plaintiff could have discovered the relevant facts, regardless of the date of actual discovery. Defendants can

take limited discovery and can obtain summary judgment if there is no genuine issue of fact that the SEC

failed to file in time. See, e.g., Corwin v. Marney, Orton

Invs., 843 F.2d 194, 197-198 (5th Cir.), cert. denied,

488 U.S. 924 (1988). To bring an enforcement action like

this one, moreover, the Commission must satisfy not

only Section 2462’s timing requirement, but also the

pleading standards for fraud, which may become more

difficult to meet as the defendant’s conduct becomes

more remote in time. See, e.g., SEC v. Cuban, 620 F.3d

551, 552-553 & n.4 (5th Cir. 2010) (discussing those standards). If an enforcement suit is allowed to go forward

and the Commission prevails on the merits, the district

court has discretion to set the amount of any civil penalty, and it can consider the passage of time as well

as other relevant factors.

See, e.g., 15 U.S.C.

80b-9(e)(2)(A) (providing that the “amount of the penalty shall be determined by the court in light of the facts

and circumstances”). Taken together, the relevant statutory provisions create ample incentives for the Com-

mission to pursue its claims diligently, as it did in this

case.

CONCLUSION

The judgment of the court of appeals should be affirmed.

Respectfully submitted.

MARK D. CAHN

General Counsel

MICHAEL A. CONLEY

Deputy General Counsel

JACOB H. STILLMAN

Solicitor

HOPE HALL AUGUSTINI

DOMINICK V. FREDA

Senior Litigation Counsels

DAVID LISITZA

Senior Counsel

Securities and Exchange

Commission

DECEMBER 2012

DONALD B. VERRILLI, JR.

Solicitor General

MALCOLM L. STEWART

Deputy Solicitor General

JEFFREY B. WALL

Assistant to the Solicitor

General

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.