Crowdfunding Amicus Curiae on Gabelli v. Securities and Exchange Commission

William Michael Cunningham, of Socially Responsible Investment Research is attempting to crowdfund the filing fee for a friend of the court brief at the US Supreme Court.

The case involves defendant Mark Gabelli, who was the portfolio manager for the Gabelli Global Growth Fund (GGGF), as well as several affiliated funds, from 1997 until 2004. Defendant Bruce Alpert had been the Chief Operating Officer of Gabelli Funds, a company that advises GGGF, since 1988. Beginning in 1999, Gabelli permitted another company, Headstart, to engage in “market-time” trading with GGGF. “Market-time” trading is premised on the fact that price movements during the New York trading day can cause corresponding movements in the international markets that will not be incorporated into new stock prices until the following day. Traders can then buy and sell at artificially low and high prices, respectively. Basically, it is like being able to place a bet at the races after the winners are known.

By early 2002, Alpert became concerned about the effects of market-timing and instructed Headstart to reduce the number of those transactions. On August 7, 2002, Gabelli announced that all market-timing must stop, and Headstart pulled its money from GGGF.

Headstart, the favored client, made “185 percent, 160 percent, and 73 percent, respectively..the rate of return for all other (fund) shareholders over the same period was, at best, negative 24.1 percent.”

On September 3, 2003, the New York Attorney General announced an inquiry into market-timing. On April 24, 2008, the SEC sued the defendants and alleged that Gabelli and Alpert knew of Headstart’s market-timing but deliberately mislead GGGF’s Board and shareholders in violation of the Securities and Exchange Act of 1934. The district court dismissed the SEC’s claims for failure to bring the suit within the five-year statute of limitations, and the SEC appealed. The United States Court of Appeals for the Second Circuit reversed.

The case will be heard by the US Supreme Court and revolves around the following question: Does the five-year statute of limitations begin when the SEC can first bring an action, or when the alleged violation is committed?

I’m familiar with the process, although not at the Supreme Court level, having helped with this brief in the case of Apache Corporation v John Chevedden. In our case, I believe our arguments would have swayed the court had they given the benefit of the doubt to the filer, as required by SEC rules.  Instead, they judge gave the benefit of the doubt to Apache, contrary to SEC Rule 14a-8(g).

Whether Cunningham’s efforts will make a difference, I’m not sure. However, helping him stand up for what’s right seems worth a few bucks. It takes time to put complicated cases together. The clock for the five-year statute of limitations should begin when the SEC brings action, not when the crime is committed. Go to Crowdfunding the Supreme Court and chip in a few bucks for the sake of justice and accountability.

Follow the case at Gabelli v. Securities and Exchange Commission.



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