Yes, Virginia

…the law applies to the Federal government, too.  At least to the SEC, as the Supreme Court has ruled.  In a case involving alleged special treatment for a mutual fund advisor—the fund supposedly allowed one investor to engage in frequent trading of the fund in violation of a rule that applied to all of the fund’s other investors—the SEC claimed it could alter, on its own recognizance, the statute of limitations for bringing an action against the trader.

As The Wall Street Journal described the matter,

The SEC faced a five-year statute of limitations on bringing a case.  The agency alleged the market timing took place between 1999 and 2002, but it didn’t bring a complaint until 2008.  The defendants, Marc J Gabelli and Bruce Alpert, argued the agency’s five-year clock ran from the time of the alleged offense, but the SEC said the clock should have started later, in late 2003, when it says it discovered the conduct.

The Supremes waved the BS flag at that claim.  Chief Justice John Roberts, writing for a unanimous Court, said

This Court, how­ever, has never applied the discovery rule in this context, where the plaintiff is not a defrauded victim seeking recompense, but is instead the Government bringing an enforcement action for civil penalties.

Roberts expanded on his statement:

There are good reasons why the fraud discovery rule has not been extended to Government civil penalty enforcement actions.  The dis­covery rule exists in part to preserve the claims of parties who have no reason to suspect fraud.  The Government is a different kind of plaintiff.  The SEC’s very purpose, for example, is to root out fraud, and it has many legal tools at hand to aid in that pursuit. The Gov­ernment in these types of cases also seeks a different type of relief.  The discovery rule helps to ensure that the injured receive recom­pense, but civil penalties go beyond compensation, are intended to punish, and label defendants wrongdoers.  Emphasizing the im­portance of time limits on penalty actions, Chief Justice Marshall admonished that it “would be utterly repugnant to the genius of our laws” if actions for penalties could “be brought at any distance of time.”

The opinion can be read here.

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