Supreme Court Rejects 9th Circuit Rule on Tolling for Short-Swing Trading Claims

by Joseph E. Bringman and Ronald Berenstain

Perkins Coie experts on Credit Suisse Securities v. Simmonds: U.S. Supreme Court unanimously rejects the 9th Circuit's 30-year-old rule that tolls the statute of limitations for short-swing profit claims under Section 16(b) of the 1934 Act. Instead, the courts must follow standard equitable tolling principles, which look to when the claimant discovers or should have discovered facts that support a claim.

Excerpt:

In Credit Suisse Securities (USA) LLC v. Simmonds, No. 10-1261, 132 S. Ct. 1414; 182 L. Ed. 2d 446; 2012 U.S. LEXIS 2535 (Mar. 26, 2012) [enhanced version of this opinion is available to lexis.com subscribers], the U.S. Supreme Court unanimously rejected the Ninth Circuit's 30-year-old rule that tolls the statute of limitations for short-swing profit claims under Section 16(b) of the Securities Exchange Act of 1934 until the insider discloses his transactions, typically in an SEC Form 4. Instead, the Court held that, to the extent that Section 16(b)'s statute of limitations is subject to tolling, courts must follow standard equitable tolling principles, which look to when the claimant discovers or should have discovered facts that support a claim. The Court left open the possibility that the statute of limitations for Section 16(b) claims may not be subject to tolling at all.

Short-Swing Profits Prohibited by Section 16(b)

Section 16(b) imposes a form of strict liability on executive officers, directors and 10% shareholders of public companies who both purchase and sell, or sell and purchase, their corporation's equity securities within a period of less than six months. The statute applies regardless of whether these corporate insiders actually had inside information. Under Section 16(b), a public company (or a security holder in the event that the company fails to pursue the claim) may sue these corporate insiders to compel disgorgement of all profits from such trades. Section 16(b) expressly states that "no such suit shall be brought more than two years after the date such profit was realized."

In 2007, Vanessa Simmonds filed 55 actions against the underwriters of various initial public offerings and insiders of the companies that were taken public, alleging that the defendants, as a group, were subject to, and had violated, both Section 16(b)'s prohibition on short-swing insider trading and Section 16(a)'s requirement to disclose changes to their beneficial ownership on Form 4.

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Joseph E. Bringman is of counsel in Perins Coie' Commercial Litigation practice, and has over 25 years of experience in both state and federal courts. In his early years with the firm, Joe was an integral part of the Perkins Coie team that assisted the Federal Savings and Loan Insurance Corporation and its successors to recover tens of millions of dollars from persons deemed responsible for the failure of several savings and loan associations in the Northwest and Alaska. While his practice continues to include director and officer liability issues, it currently emphasizes securities litigation defense, corporate governance litigation, insurance coverage litigation, foreclosure and other real property litigation (including receiverships), professional liability litigation, and a variety of appellate work.

Ronald Berenstain is a partner at the Seattle office of Perkins Coie and is co-chair of the firm's Securities & Corporate Governance Litigation practice. He has been lead counsel in scores of high-stakes securities and corporate governance cases for more than thirty years. His practice is focused on representing public companies and their officers, and directors as well as underwriters and accountants in shareholder class action litigation, shareholder derivative litigation, merger and acquisition litigation, ERISA class action litigation, SEC enforcement proceedings and internal investigations. He has extensive experience with accounting irregularity issues, financial restatements, compliance with disclosure regulations, insider trading claims and director and officer insurance issues. Mr. Berenstain has counseled public companies and their boards of directors on disclosure and compliance issues and corporate governance matters.