Supreme Court Rejects Open-Ended Tolling Of Section 16(B) Claims

The Supreme Court yesterday limited the ability to bring short-swing profit claims years after the alleged improper trading, in Credit Suisse Securities (USA) LLC v. Simmonds, No. 10-1261 (U.S. Mar. 26, 2012). The Court split 4-4 on the question of whether equitable tolling even applies to the two-year period for bringing claims under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as Chief Justice Roberts did not participate in the decision. The Court thus effectively left that issue open for another day. Nevertheless, the eight-Justice Court held unanimously that, assuming the two-year period can be extended, the tolling rules articulated by the Ninth and Second Circuits impermissibly deviated from ordinary equitable tolling principles.

BACKGROUND

Simmonds confronted the intersection of Section 16(a) and Section 16(b) of the Exchange Act. Section 16(a) imposes disclosure obligations on certain insiders. Anyone who directly or indirectly owns more than 10% of any equity security (subject to certain exemptions), or who is an officer or director of the issuer of such a security, must file statements with the Securities and Exchange Commission disclosing that person's beneficial ownership. The disclosure statements, filed on Form 4, must also be updated in the event of a change of ownership.

Section 16(b), in turn, imposes a form of strict liability on certain insiders that trade in corporate securities. The statute creates a civil action that permits a corporation, or any security holder of that corporation on the...