Earlier this year, the U.S. Supreme Court issued its ruling in SEC v. Gabelli, which provided guidance about the time within which the Securities and Exchange Commission may seek civil penalties for stockbroker fraud. Specifically, the case gives the SEC five years to act from the point at which the fraud ends, not the point at which the fraud is discovered.
A recently issued decision in a case involving Samuel and Charles Wyly is one of the first in the country to apply the Court’s decision in Gabelli. Over a period of 13 years, the Wyly brothers are alleged to have run a $550 million fraud and to have engaged in insider trading. District Judge Shira Scheindlin ruled that the SEC could not pursue civil penalties against the brothers for much of the 13 period of the fraud.
Samuel Wyly argued that the SEC could only impose civil penalties for the period between February 1, 2001 and February 1, 2006, at which time the brothers entered into a tolling agreement with the SEC. The alleged fraud, however, had been ongoing since approximately 1992.
In 2010, the SEC filed suit against the Wylys, claiming that they had set up a series of overseas trusts to hide the proceeds from a series of stock sales between 1992 and 2004. The sales involved stock from several companies that were founded by the brothers.
The SEC dropped its case against Charles Wyly in 2011 after he died in a car accident. The SEC is currently evaluating the judge’s decision and how to proceed in its case against Samuel Wyly.
Source: Thomson Reuters News & Insight, “Judge limits SEC penalty claims in fraud case against Wyly brothers,” Jonathan Stempel, June 7, 2013