Section 16(b) and its Limitations Period: The Case for Equitable Tolling

Abstract

This coming term, in Credit Suisse Securities (USA) LLC v. Simmonds,the Supreme Court will explore the contours of the limitation period for the private right of action under Section 16(b) of the Securities Exchange Act of 1934. Limitations periods mitigate the risk that evidence of meritorious claims will become stale and relieve potential defendants from unending uncertainty about whether they will be brought into court. The appropriate limitation period must be balanced, however, against allowing potential plaintiffs sufficient time to discover and file meritorious claims. This balance is manifest in the judicial and congressional effort to fashion limitation periods for private rights of action under the securities laws.

The Supreme Court has already made several attempts to strike the appropriate balance in its interpretation of the statute of limitations for securities fraud claims under Section 10(b) of the 1934 Act. Now, the Court will endeavor to strike a balance for the private right of action under Section 16(b) in Simmonds. The Court will address whether the two-year limitation period for claims to recover shortswing profits under Section 16(b) is subject to tolling, and if so, whether the defendant's failure to file necessary disclosures under Section 16(a) tolls that time. This Article argues that tolling is consistent with the statutory text, Supreme Court precedent, and the overarching purpose of the prohibition on insider short-swing trading.