On July 12, 2018, the US District Court for the Eastern District of New York dismissed civil claims brought by the Securities and Exchange Commission (SEC) against two former hedge-fund executives, Michael L. Cohen and Vanja Barros. In its initial complaint filed in January 2017, and an amended complaint filed in May 2017, the SEC alleged, among other things, that both defendants violated the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). The complaint detailed nine allegedly corrupt transactions, including but not limited to two transactions specifically related to projects in Libya. All of the allegedly corrupt transactions occurred between May 2007 and April 2011. As relief, the SEC requested civil penalties, disgorgement of allegedly ill-gotten gains, and a permanent injunction barring defendants from violating these provisions in the future.
Defendants moved to dismiss and argued, among other things, that the claims were time-barred. The SEC argued, among other things, that the claims against Michael L. Cohen were timely because they were based on the four most recent transactions alleged, for which Mr. Cohen agreed to toll the running of "any statute of limitations applicable to any action or proceeding against [him] authorized, instituted, or brought by or on behalf of the [SEC] or to which the [SEC] is a party arising out of the investigation . . . including any sanctions or relief that may imposed therein." Securities and Exchange Commission v. Cohen, No. 17-CV-00430, at *1 (E.D.N.Y. July 12, 2018) (citing tolling agreements) (emphasis in original). Each of the tolling agreements Mr. Cohen entered into with the SEC defined "investigation" as the SEC's investigation In the Matter of Libyan Investment Authority (LIA Investigation). However, the four most recent transactions were related to a separate investigation.
The SEC took the position that, because its entire investigation "arose from its LIA [I]nvestigation, Mr. Cohen agreed to toll the statute of limitations with respect to all transactions alleged in the amended complaint, not just those relating to the LIA Investigation." Applying contract law to the tolling agreements, the court held that they did not apply to the SEC's claims because they were based on transactions other than those at issue in its LIA Investigation. According to the court, "[i]t is implausible that the parties manifested their intent to toll the statute of limitations with respect to claims arising from [a] separate investigation by referring only to the LIA [I]nvestigation." Thus, the court ruled that the SEC's claims were untimely and granted defendants' motion to dismiss.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
