SEC v. Graham, No. 13 Civ. 10011 (KLG), 2014 WL 1891418 (S.D. Fla. May 12, 2014), a recent decision by the Southern District of Florida, may be a dagger in the heart of the SEC’s long-standing position that the five year statute of limitations imposed by 28 U.S.C. § 2462 does not apply to actions that it initiates in which it is seeking equitable remedies.

28 U.S.C. § 2462 provides for a five-year statute of limitations for SEC actions “for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise.” For years, the SEC has taken the position that a claim does not accrue until the agency discovers the alleged fraud thus allowing it to circumvent § 2462’s five-year limitation period. In 2013, the Supreme Court rejected the SEC’s invocation of the fraud discovery rule in SEC v. Gabelli, 133 S. Ct. 1216, 1220-21 (2013), holding that “a claim…accrues — and the five-year clock begins to tick — when [the conduct giving rise to the claim occurs].”

Gabelli did not, however, address application of § 2462 to actions by the SEC seeking equitable remedies. Following Gabelli, the SEC has maintained that § 2462 is limited to legal relief, thereby allowing the agency to seek equitable remedies for claims accruing beyond the five-year period. The district court in Graham flatly disagreed. The court held that § 2462 bars SEC claims commenced five years after the claim accrued, irrespective of whether the relief sought was equitable or monetary. The court said that the purpose of the equitable remedies sought by the SEC were to punish defendants and therefore fell within the “pecuniary or otherwise” penalties that Congress intended to be subject to the five-year limitations period. Having found the SEC’s claim untimely, the court dismissed the suit with prejudice for lack of subject-matter jurisdiction. Graham is currently on appeal to the Eleventh Circuit.

More recently, the district court in SEC v. LeCroy, No. 2:09 Civ. 2238 (AKK), 2014 WL 4403147 (N.D. Ala. Sept. 5, 2014), interpreted Gabelli’s holding to be limited to legal relief, and for that reason, unlike Graham declined to extend § 2462 to equitable remedies. This issue is one that will certainly continue to percolate in the lower courts and may ultimately require higher review.