The SEC Historical Society Strikes Again

The SEC Enforcement Staff has been back in the archives again.  Last week, they dusted off another accounting fraud from 1999 and charged IBM employee Kevin Collins with assisting Dollar General in cooking the books.  As a result, a settled civil injunctive action containing the usual remedies was filed, as well as a related administrative proceeding.  Perhaps the markets are now safe since the SEC has dug back in history and obtained orders precluding future violations of the federal securities laws by Mr. Collins based on the ancient conduct alleged in the enforcement proceedings.  The SEC’s Litigation Release on this matter can be viewed at 

This is not the first time comments have been made in this space questioning whether the current enforcement staff should be reassigned to the SEC historical society.  A post on March 28, 2007 raised the same question when the SEC filed two settled cases focused in 1999, 2000 and 2001.  That post also recounted the fact that earlier this year, one District Court had refused to enter the statutory injunction the SEC sought viewing it as punitive time barred since the five year statute of limitations had expired, while another Court dismissed a Commission enforcement action seeking an injunctive relief for want of prosecution (the case had been brought after the statute of limitation for penalties had run).  

Despite these court rulings the Collins case filed last week demonstrates the apparent resolve of the SEC and its enforcement staff to continue bringing years old enforcement cases.  For what reason?  The SEC is supposed to police the capital markets and keep them safe for all.  The remedies given to the SEC by Congress reflect this serious mission.  Those remedies are largely equitable and remedial.  Their focus is on halting on-going conduct and preventing future violations.  SEC enforcement actions – save perhaps the current debate over financial penalties which will be the subject of another post – has never been about punishment or being punitive.  It has always been about being remedial and ensuring the integrity of the markets for the future.  

Bringing years-old enforcement actions, however, has little to do with the mission of the SEC or its traditional remedies.  Demanding a statutory injunction against future violations based on events that took place eight years ago has little, if anything, to do with preventing future violations.  It is difficult at best to claim such a demand is remedial.  The market reaction to the filing of this action reflects this fact – it had no discernable impact on the share price of IBM or Dollar General.  The reason – no investor was made to feel more safe from this action.  

Rather, Judge Casey in SEC v. Jones, No. 07 Civ 7044 (S.D.N.Y Feb. 26, 2007) was right when he held that a request for a statutory injunction under circumstances similar to those in the Collins case was not remedial, but punitive, and thus subject to the statute of limitations.  To ensure that the SEC focuses on policing the markets rather that shuffling through the archives, it is time to for Congress to pass a statute of limitations setting a time limit within which the SEC must bring an action or be time barred.  At the same time, perhaps more Courts will follow the lead of Judge Casey and start denying injunctions where no remedial purpose can be served by entering such an order other than to permit the SEC to claim what is surly a hollow victory that does little to implement its important statutory mandate.