U.S. Supreme Court Issues Securities Law Cases

The U.S. Supreme Court issued two securities law decisions in late February 2013 that may affect the number of securities fraud cases brought by Securities and Exchange Commission and the number of securities fraud class actions. One case addressed how quickly the SEC must act when pursuing fraud charges. The second concerned private plaintiffs pursuing fraud claims in class actions.

• The Supreme Court in Gabelli v. Securities and Exchange Commission held that the five-year period for the SEC to bring securities fraud charges starts to run on the occurrence of the alleged fraud. The Court rejected the SEC’s assertion that the five-year period should not start to run until after it discovered the fraud, which could be well after the fraud occurred. The Court concluded that the SEC could not rely on the discovery rule.
• The Supreme Court in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds held that shareholders in a company could bring a class action against the company without first having to establish that the company’s alleged misrepresentations had materially inflated the stock price. This ruling resolved a split among the circuits over whether materiality should be considered when certifying a class.

These cases could possible increase the amount of securities law cases brought in the future. The SEC will have to act more quickly to bring securities fraud charges to meet the five-year deadline, and securities fraud class actions may have become easier to bring.