* Case involves dispute over statute of limitations
* A victory for SEC could boost investigatory powers
* Critics say SEC victory could harm defendants
By Sarah N. Lynch and Jonathan Stempel
WASHINGTON, Jan 8 The U.S. Supreme Court will on
Tuesday join the legal battle over how much leeway the
government should have to conduct investigations and impose
Tuesday's case involves whether the U.S. Securities and
Exchange Commission waited too long to bring a civil action
accusing mutual fund manager Marc Gabelli and his colleague,
Bruce Alpert, of letting a client engage in so-called "market
timing" without disclosing it to investors.
Gabelli and Alpert, chief operating officer of Gabelli Funds
LLC, argued the five-year statute of limitations starts to tick
down when the alleged wrongful act is committed. The SEC said
the it begins only when the agency is reasonably able to detect
A victory for the SEC could give the regulator and others,
including the U.S. Department of Justice and U.S. Commodity
Futures Trading Commission, more firepower in civil cases.
This might be helpful in particularly complex investigations
that require more time, including litigation stemming from the
housing meltdown and the 2008 global financial crisis.
But many defense lawyers believe a ruling for the SEC would
be unfair to the targets of investigations because such probes
could drag on for years and make it harder to mount defenses.
"Evidence becomes stale. Memories fade. Evidence is lost,"
said Koji Fukumura, a partner at Cooley LLP who is not involved
in the case. "It makes it increasingly difficult, if not
impossible, for a defendant to defend himself or herself."
The SEC contended that from 1999 to 2002, Gabelli and Alpert
let a firm now known as Headstart Advisers Ltd conduct hundreds
of market-timing trades, a strategy that involves rapid trading
to exploit market or pricing inefficiencies.
While market-timing is not illegal, it is a privilege not
available to ordinary investors.
The SEC did not sue until April 2008, more than five years
after the last market-timed trade occurred. But it was less than
five years after market-timing first attracted public attention
in September 2003, when then-New York Attorney General Eliot
Spitzer began to challenge the practice.
The SEC prevailed before the 2nd U.S. Circuit Court of
Appeals, where U.S. District Judge Jed Rakoff wrote for the
court that the regulator could not have reasonably uncovered the
market timing until Spitzer's probe became known.
Lawyers for Gabelli and Alpert said four other circuit
courts ruled differently in similar cases.
Robert Anello, a litigation partner at Morvillo, Abramowitz,
Grand, Iason, Anello & Bohrer who is not involved in the case,
expects the Supreme Court to rule against the SEC.
"It is a sign of the times," he said. "You can see both the
liberals and conservatives here saying: 'SEC, get your act
The case is Gabelli et al v. SEC, U.S. Supreme Court, No.