Law360 (July 24, 2020, 6:11 PM EDT) --
First, in Gabelli v. SEC, the court unanimously rejected the SEC's long-standing position that the time limit shouldn't begin to run until it discovers, or reasonably should discover, the violation.
Four years later, in Kokesh v. SEC, the court unanimously rejected the commission's long-standing position that the time limit shouldn't apply at all when the agency seeks disgorgement of illicit gains.
Given these Supreme Court setbacks, and now facing investigative delays resulting from the COVID-19 pandemic, the SEC is increasingly reliant on its favorite time-stopper of all: tolling agreements.
These agreements ostensibly freeze the clock while the SEC continues an investigation, typically for a period of several months. In some cases, the SEC demands a succession of tolling agreements that together can extend the agency's time limit for years.
Investigative subjects, particularly corporate and other business entities, usually accede to SEC demands for tolling agreements. They fear if they don't agree the SEC staff will impose unreasonably short time deadlines for responding to subpoenas and other investigative demands.
They also fear the SEC staff will rush to judgment and they might not be allowed sufficient time to engage in effective defense advocacy and negotiation aimed at heading off public accusations and sanctions.
But what if all those tolling agreements were unenforceable in court?
Let me stress that I'm not necessarily hoping they're unenforceable, which would make my job as a practicing SEC defense lawyer more difficult. Nor am I saying they are unenforceable. What I'm saying is that the question is a much closer call than most people probably think — that is, if they've thought about it at all.
No Ordinary Statute of Limitations
Whether SEC tolling agreements are enforceable turns largely on whether the agency's five-year time limit is just a run-of-the-mill statute of limitations, as is widely assumed, or something the courts often refer to as a jurisdictional time limit.
Stated differently, does it merely require the SEC to bring its cases within five years, or does it deprive federal courts of power and jurisdiction to hear SEC cases that are not filed within five years?
This distinction is critical because ordinary statutes of limitations generally can be waived — for example, through a tolling agreement or even by failing to raise it in a timely manner — whereas a jurisdictional time limit cannot.
Based on the plain wording of the statute that imposes the SEC's five-year time limit, there's a very credible argument that it is indeed jurisdictional and thus nonwaivable.
The relevant statute, which has antecedents dating back to the Judiciary Act of 1789, is codified at Title 28 of the U.S. Code, Section 2462. The statute actually applies not just to the SEC but also to many other federal agencies and departments. It reads in relevant part:
Section 2462 clearly bears some resemblances to ordinary statutes of limitations. Most obviously, it codifies a time limit for the commencement of a specified category of cases.
But Section 2462 is anything but a run-of-the-mill statute of limitations. To begin with, unlike most statutes of limitations, Section 2462 is indifferent to the nature of the substantive claim asserted by the plaintiff, focusing only on the remedy sought by the plaintiff.
Thus, even where two cases allege identical claims, Section 2462 might completely bar one of the cases, because the relief sought was a fine, penalty or forfeiture, yet allow the other because the relief sought was none of the above.
Indeed, arguably in defiance of a plain reading of the statute, courts and the SEC have frequently entertained entire proceedings based on conduct that occurred more than five years earlier only to wait until the very end to sort out which remedies were barred by the time limit and which were not.
Perhaps most ominous for the SEC and other law enforcement agencies that are subject to Section 2462 is that, unlike ordinary statutes of limitations, Section 2462 focuses not on when the plaintiff must do something but rather on whether the tribunal may or may not entertain the action or proceeding brought before it. That's about as close as Congress can get to delineating a tribunal's power and jurisdiction without explicitly saying so.
In its most natural reading, Section 2462 literally forbids federal courts to entertain a category of cases unless a specific condition exists. Congress of course has constitutional power to do this and has done it in many other statutes.
In Section 2462, the relevant category of cases is those where the plaintiff seeks a fine, penalty or forfeiture, and the required condition that must be met is that the underlying claim first accrued no more than five years earlier.
It's also significant that Congress specifically provided for two exceptions to this categorical prohibition against entertaining such cases — one explicit and one derived by inverse implication. Thus, the initial clause of the statute allows a separate act of Congress to grant an exception to the categorical ban that would otherwise apply.
And the last clause effectively grants an exception when the relevant "offender or property" is not "found within the United States in order that proper service may be made thereon."
Note that Congress did not insert a third exception for cases in which parties to the proceeding have previously agreed that the tribunal can simply ignore the statute. Yet that's in effect what SEC tolling agreements purport to do.
In the context of Section 2462, tolling agreements serve essentially as contractual permission slips, signed by the SEC and a private party, that purport to empower courts to do something that Congress has plainly said they cannot do — namely, to entertain a case that seeks a fine, penalty or forfeiture based on a claim that first accrued more than five years earlier.
Where the SEC and private litigants get this power to contractually empower judicial defiance of a statute — and why federal courts routinely go along, often without even asking to see the tolling agreement — has long been a mystery to me.
But in fairness it's not really that simple.
Wholly outside the securities law context, the Supreme Court has for decades struggled with recurring questions — both substantive and semantic — about whether and when a filing deadline should be considered jurisdictional in nature.
In recent years the court has repeatedly acknowledged that it and other courts have been "less than meticulous" in using the term "jurisdictional" to describe mandatory or even emphatic time prescriptions, and that the term "jurisdiction" itself has become "a word of many, too many, meanings."
In both Gabelli and Kokesh, as well as in the more recent case of Liu v. SEC, the Supreme Court frequently referred to Section 2462 as a statute of limitations and a limitations period. But the court has never said it is run-of-the-mill, nor otherwise purposefully signaled a view that the five-year deadline is not jurisdictional.
The question simply was not presented to the court in any of those cases, and the most reasonable assumption is that the court's opinions merely adopted the shorthand vernacular used by the litigants in their briefing and oral arguments. Indeed, the court's presumably unportentous references to Section 2462 as a statute of limitations appear strangely reminiscent of its admittedly less than meticulous use of the term "jurisdiction" in earlier filing deadline cases.
Other lines of potentially relevant precedent, too numerous and nuanced to analyze in depth here, point in varying directions that I cannot easily harmonize. One says that filing deadlines codified by statute, like Section 2462, and especially deadlines for appealing from one court to another, are more likely to be deemed jurisdictional than those imposed only by rules promulgated by agencies or courts.
Another line of cases says that that most federal filing deadlines are not jurisdictional, and yet another says in particular that courts should apply a rebuttable presumption that deadlines for asserting claims against the government are not jurisdictional.
But these two lines of precedent don't easily reconcile with the foundational premise that federal courts are courts of limited jurisdiction and thus must presume they lack jurisdiction to hear a case unless a statute affirmatively confers jurisdiction.
Although no court case appears to have squarely ruled on whether Section 2462 can be overridden by an SEC tolling agreement, two came close and are worthy of special mention.
Cruelly Ironic Missed Opportunity
A pre-Kokesh SEC administrative proceeding, In the Matter of Moshe Marc Cohen, appears to be the only case in which a litigant has raised the precise issue addressed here. In that proceeding, an SEC administrative law judge ordered pro se respondent Cohen to disgorge his illicit gains but ruled that any civil penalties and industry bars were time-barred under Section 2462.
The SEC's Division of Enforcement then belatedly sought to supplement the record to introduce into evidence a series of tolling agreements signed by Cohen that, if enforced, would render its claims timely for all purposes.
Cohen opposed the division's request on several grounds, including that Section 2462 is a jurisdictional time limit that could not be waived by his tolling agreements, but the administrative law judge denied the division's request on other grounds without reference to the jurisdictional issue.
Both parties then appealed the case to the SEC commissioners. Cohen, then represented by counsel, again argued, among other things, that the division's claims for civil penalties and industry bars were untimely despite his tolling agreements because Section 2462 is a jurisdictional time limit.
The commission disagreed and imposed both civil penalties and industry bars, while also affirming the disgorgement order, citing some of the precedent alluded to earlier in this article.
But the commission's opinion was far from thorough on whether Section 2462 is jurisdictional, and it essentially assumed the answer away by starting from the premise that Section 2462 was a run-of-the-mill statute of limitations.
In any event, when Cohen then sought judicial review in the U.S. Court of Appeals for the Second Circuit — at this point again pro se — with tragic irony he filed his petition two days late and the court granted the SEC's motion to dismiss it as untimely. As mentioned above, statutory appellate deadlines are generally deemed jurisdictional and unforgiving.
The court of appeals therefore did not consider whether the SEC was correct in holding that Section 2462 is not jurisdictional.
Close to the Bull's Eye
Perhaps the most worrisome precedent for the SEC should be SEC v. Graham, another pre-Kokesh case that began and ended in the U.S. District Court for the Southern District of Florida with an interim stop at the U.S. Court of Appeals for the Eleventh Circuit.
The district court initially dismissed the SEC's entire case against Graham, holding that all of the remedies sought by the SEC against him — an obey-the-law injunction, disgorgement of illicit gains, and civil penalties — were subject to and barred by the five-year time limit of Section 2462.
Although the case does not appear to have involved any tolling agreements, for other reasons the district court analyzed whether Section 2462 imposes a jurisdictional time limit and, quoting from a 1977 Supreme Court decision involving a similarly worded statute, emphatically held that Section 2462 is indeed jurisdictional:
The SEC then appealed to the Eleventh Circuit, which affirmed the district court's dismissal of the SEC's claims for disgorgement and civil penalties but reinstated the SEC's demand for an injunction against future violations of law, which it held was not subject to the five-year time limit of Section 2462.
Importantly, the appeals court explicitly noted but declined to address the question of whether the five-year time limit imposed by Section 2462 is jurisdictional, effectively leaving intact the district court's answer in the affirmative.
Despite — and indeed because of — their prevalence, the routine use of tolling agreements in SEC investigations is problematic for many reasons. One is that they're usually not entirely voluntary; refuse to sign one and you can expect to get no courtesies when responding to investigative demands and to be sued without much opportunity to convince the SEC that charges are unwarranted. Another is that they naturally invite and nurture protracted, overly broad and unduly expensive investigations, of which there are already far too many.
Don't expect the SEC to voluntarily wean itself off these agreements any time soon. But as discussed above, the agency could be in for an unwelcome surprise someday if litigants ever seriously challenge their enforceability in court.
Russell G. Ryan is a partner at King & Spalding LLP. Previously, he served as assistant director of enforcement at the SEC and deputy chief of enforcement at the Financial Industry Regulatory Authority.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
 568 U.S. 442 (2013).
 137 S. Ct. 1635 (2017).
 See, e.g., Kontrick v. Ryan , 540 U.S. 443, 454 (2004).
 __ S. Ct. __, 2020 WL 3405845, at *2 (U.S. June 22, 2020).
 Compare Bowles v. Russell , 551 U.S. 205, 210-213 (2007) (statute) with Hamer v. Neighborhood Housing Services of Chicago , 138 S. Ct. 13, 17-20 (2017) (rule).
 See, e.g., United States v. Wong , 135 S. Ct. 1625, 1638 (2015).
 See, e.g., Irwin v. Department of Veterans Affairs , 498 U. S. 89, 95-96 (1990).
 See SEC ALJ Initial Decision Release 733 (Jan. 7, 2015).
 See SEC Admin. Proc. Rulings Rel. No. 2297 (February 9, 2015).
 Cohen v. SEC, No. 16-3819 (Order dated Jan. 25, 2017).
 21 F. Supp. 3d 1300, 1316-17 (S.D. Fla. 2014).
 Id. at 1308 (citations omitted).
 SEC v. Graham , 823 F.3d 1357 (11th Cir. 2016).
 Id. at 1363 n.1.
For a reprint of this article, please contact firstname.lastname@example.org.