Investment Bank Dispute Ordered Reconsidered by High Court
The U.S. Supreme Court (1000L) told a lower court to reconsider deadlines for some securities lawsuits, in a dispute about whether investment banks must face accusations that they manipulated dozens of initial public offerings.
The ruling ordered lower courts to reconsider how long an investor can wait before filing lawsuits seeking to hold underwriters and corporate insiders accountable for “short swing” trades, those involving stock held for less than six months. Under federal securities law, insiders with large enough holdings must give back any profits from short-swing trades.
The high court overturned part of a decision by the 9th U.S. Circuit Court of Appeals, which said a two-year time limit for lawsuits over short-swing profits doesn’t begin until corporate insiders disclose the transactions in regulatory filings.
The justices split 4-4 on whether the law permits any extension of the deadline beyond two years after the stock-sale profits are realized. Chief Justice John Roberts didn’t participate in the case. The tie vote on that part of the case leaves intact the portion of the lower court decision that permits extensions of the deadline under some circumstances.
The justices, in an opinion written by Justice Antonin Scalia, sent the case back for further proceedings to determine what those circumstances may be, under rules that permit extensions of a statute of limitations in situations where a defendant has fraudulently concealed wrongdoing.
The justices told a federal appeals court to consider whether shareholder Vanessa Simmonds had enough information about the alleged wrongdoing that she should have filed suit sooner.
Investment banks had urged a firm two-year limit starting when stock-sale profits are realized, while Simmonds’s attorneys contended the two-year clock shouldn’t begin running until the insiders filed the disclosure forms.
Simmonds was a college student when she bought the stock in 55 companies that went public at the height of the IPO boom in the late 1990s and 2000. Her father, David Simmonds, is one of the lawyers pressing the case.
Other defendants include units of Citigroup Inc. (C), Credit Suisse Group AG (CS), Deutsche Bank AG (DB), JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC), as well as Morgan Stanley and Goldman Sachs.
A federal appeals court previously threw out 30 of the suits on other grounds.
The short-swing provision is unusual because any money won in litigation goes to the company, not the plaintiffs. The driving force behind lawsuits is the prospect of attorney’s fees, the U.S. Chamber of Commerce said in court papers supporting the investment banks.
Roberts gave no reason for not participating in the case. The chief justice in some previous cases has disqualified himself because of financial conflicts of interest.
The case is Credit Suisse v. Simmonds, 10-1261.
Bloomberg moderates all comments. Comments that are abusive or off-topic will not be posted to the site. Excessively long comments may be moderated as well. Bloomberg cannot facilitate requests to remove comments or explain individual moderation decisions.