Credit Suisse Securities v. Simmonds

Whether the two year statute of limitations in section 16(b) of the Securities Exchange Act of 1934 is subject to tolling, and if so, when does tolling begin.

Following the initial public offering (IPO) of 54 Issuing Companies' shares between 1999 and 2000, respondent alleges that the Underwriters of these IPOs engaged in activities with company insiders that resulted in the Underwriters profiting from the post-IPO increases in the Issuing Companies' stock prices. These alleged activities include the Underwriters sharing stock profits with customers they issued stock to, the Underwriters allocating stock purchases to Issuing Company insiders from which the Underwriters expected a kick-back in the form of increased investment banking business, and the Underwriters inflated stock prices to profit insiders by engaging in improper research related activities. Respondent, as shareholder, argues these activities violated section 16(b) and the Underwriters should be forced to disgorge their profits from these transactions.

The Ninth Circuit held that section 16(b)'s two year statute of limitations begins to run at the time Petitioners file disclosure statements required under section 16(a) of the Securities Exchange Act. Because Petitioners did not file 16(a) reports, the Court concluded the Statute of Limitations is tolled until they do so, thus, Respondent's claim is not time-barred.

Petitioners argue that section 16(b) is a statute of repose, and as such, the two year statute of limitations is not dependent on filing section 16(a) reports, or affected by when Respondents discovered the facts underlying the claim. Petitioners argue that their conclusion is supported by the structure of the Securities Exchange Act, where Congress created statutory extension mechanisms in other causes of action by linking the discovery of the violation to when the statute of limitations began to run. In Section 16(b), petitioners argue that Congress purposefully did not include such a provision.