Supreme Court rules on statute of limitations in insider trading cases

[JURIST] The US Supreme Court [official website] ruled [opinion, PDF] unanimously Monday in Credit Suisse Securities LLC v. Simmonds [JURIST report] that normal statute of limitations tolling applies to insider trading cases. The Securities Exchange Act of 1934 [§ 16(b)] states that the statute of limitations begins "more than two years after the date such [profits from insider trading] was realized." The court found for an interpretation of the law where the statute of limitations runs firmly from a reasonable person's discovery of the alleged misconduct, rejecting a rule favored by the US Court of Appeals for the Ninth Circuit in Whittaker v. Whittaker [opinion text], where the statute tolls when the trader discloses all of his conduct, not when his illegal actions are discovered. Justice Antonin Scalia wrote for the court:

The inequity of the Whittaker rule is especially apparent in a case such as this, where the theory of §16(b) liability of underwriters is so novel that petitioners can plausibly claim that they were not aware they were required to file a §16(a) statement. And where they disclaim the necessity of filing, the Whittaker rule compels them either to file or to face the prospect of §16(b) litigation in perpetuity. Simmonds has acknowledged that "under her theory she could buy stocks in companies who had IPOs 20 years ago and bring claims for short-swing transactions if the underwriters had undervalued a stock." The potential for such endless tolling in cases in which a reasonably diligent plaintiff would know of the facts underlying the action is out of step with the purpose of limitations periods in general. And it is especially at odds with a provision that imposes strict liability on putative insiders. Had Congress intended this result, it most certainly would have said so.
Chief Justice John Roberts did not participate in the consideration of the case.

Vanessa Simmonds filed 54 complaints against Credit Suisse, which were rejected on varying grounds including statute of limitations. She argued that the statute of limitations can be tolled to include the discovery of the trading or even the filing of a report about the illegal action. This view was endorsed by the Ninth Circuit's ruling [text] that led to the Supreme Court.

 

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