In a unanimous opinion in Gabelli v. Sec. & Exch. Comm’n, No. 11-1274 (U.S. Feb. 27, 2013) the U.S. Supreme Court held that the five-year limitations period that governs S.E.C. enforcement actions begins to run immediately when the alleged fraud is complete. This limitation is not extended by the S.E.C.’s failure to discover the fraud, as the Second Circuit found.

Ordinarily the deadline to file suit begins to run upon a party’s injury, but in cases of fraud, when the injury itself is concealed, courts have protected individuals, who are after all not required to be in a constant state of investigation. The Supreme Court explained, however, that rationale does not apply to the S.E.C. because its mandate is to investigate and prevent fraud and it has statutory authority to demand detailed records, including extrajudicial subpoenas.

In deciding that the S.E.C. has a set window to investigate and file suit, the Supreme Court did not address other doctrines, available to the S.E.C. and other private litigants. For example, an applicable limitations period can be extended when the defendant takes steps beyond the challenged conduct itself to conceal that conduct.

This decision means that there will be more and more occasions where the only source of securities fraud enforcement will be private lawsuits.