Supreme Court Rejects Ninth Circuit Rule On Tolling For Short-Swing Trading Claims

In Credit Suisse Securities (USA) LLC v. Simmonds, No. 10-1261, ___ U.S. ___, 2012 WL 986812 (Mar. 26, 2012), 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...