March 28, 2012
Supreme Court Fails to Resolve Whether Equitable Tolling Extends 16(b) Liability for Short-Swing Profits
The U.S. Supreme Court recently addressed the issue of the two-year statute of limitations under section 16(b) of the Securities Exchange Act, although it decided little in the opinion except that the Ninth Circuit was wrong. Credit Suisse Securities (USA) LLC v. Simmonds (No. 10-1261 Mar. 26, 2012). The Ninth Circuit had ruled below that the limitations period is tolled until the insider files the section 16(a) disclosure statement "regardless of whether the plaintiff knew or should have known of the conduct at issue."
The Supreme Court, however, held that even assuming that the two-year period can be extended (an issue on which the Court was equally divided), the Ninth Circuit erred in determining that it is tolled until a section 16(a) statement is filed. The Ninth Circuit's ruling was not supported by the text of section 16(b) -- from "the date such profit was realized" -- or the principle of equitable tolling for fraudulent concealment. The Court remanded for the lower courts to consider in the first instance how usual equitable tolling rules apply in this case.
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