SEC v. Pentagon Capital Management, No. 12-1680 (2d Cir. 2013)
Annotate this CaseAfter defendants were found liable for securities fraud stemming from their practice of late trading in the mutual fund market, the district court ordered disgorgement and imposed a civil penalty. The court affirmed the district court's determination of liability and there was no abuse of discretion in the amount of disgorgement award. The court concluded, however, that, in light of the Supreme Court's recent decision in Gabelli v. SEC, the court must vacate the district court's civil penalty award and remand for reconsideration. In Gabelli, the Supreme Court held that the so-called "discovery rule," which tolls a statute of limitations for crimes that were difficult to detect, did not apply to toll the five-year statue of limitations for fraud cases in SEC enforcement actions. The court also concluded that the language in 15 U.S.C. 77t(d)(2) did not permit the district court's interpretation that the civil penalty be imposed jointly and severally. Accordingly, the court reversed the district court's imposition of joint and several liability for the civil penalty, vacated the penalty, and remanded for further proceedings.
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