F I L E D

United States Court of Appeals

Tenth Circuit

SEP 2 1998

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

ROMAN STERLIN, on behalf of

himself and all others similarly

situated,

Plaintiff-Appellant, 

v.

BIOMUNE SYSTEMS; DAVID

DERRICK; AARON GOLD;

CHARLES J. QUANTZ; JACK

SOLOMON; THE INSTITUTE FOR

SOCIAL AND SCIENTIFIC

DEVELOPMENT; GENESIS

INVESTMENT,

Defendants-Appellees. 

No. 97-4074

Appeal from the United States District Court

for the District of Utah

(D.C. No. 95-CV-944)

Joel Seligman, Dean of The University of Arizona College of Law, Tucson,

Arizona, (Edward LaBaton, Lynda J. Grant, James M. Strauss of Goodkind,

LaBaton, Rudoff & Sucharow, LLP, New York, New York, and Thomas R.

Karrenberg and John T. Anderson of Anderson & Karrenberg, Salt Lake City,

Utah, with him on the briefs) for Plaintiff-Appellant.

J. Michael Bailey, of Parsons, Behle & Latimer, Salt Lake City, Utah, and Helen

L. Duncan, of LeBoeuf, Lamb, Greene & MacRae, LLP, Los Angeles, California,
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(J. Gordon Hansen, Parsons, Behle & Latimer, Salt Lake City, Utah, on the brief

for Defendants-Appellees Genesis Investment Corporation and Jack Solomon;

Peter N. Greenfeld, of LeBoeuf, Lamb, Greene & MacRae, LLP, on the brief for

Defendants-Appellees Biomune Systems, Inc., David Derrick, Dr. Aaron Gold and

Charles J. Quantz; and Blake T. Ostler of Burbidge, Carnahan, Ostler & White,

Salt Lake City, Utah, on the brief for Defendant-Appellee The Institute for Social

and Scientific Development) for Defendants-Appellees.

Before ANDERSON, BALDOCK, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Appellant Roman Sterlin (“Plaintiff”) brought this securities fraud class

action suit against Biomune Systems, Inc. (“Biomune”), David Derrick, Aaron

Gold, Charles J. Quantz, Jack Solomon, Genesis Investment Corporation

(“Genesis”), and the Institute for Social and Scientific Development (“Institute”)

(collectively, “Defendants”). The district court dismissed the action, concluding

that Plaintiff’s claims were barred by the statute of limitations. From this

dismissal, Plaintiff appeals. This court reverses and remands. 

I. BACKGROUND

Biomune is a biotech company which, during the relevant time period, was

developing a protein called Immuno-C to be used in enhancing human immune

systems. David Derrick was Biomune’s President, CEO, Chairman of the Board,

and main spokesperson. Aaron Gold and Charles Quantz were directors of
1Because this case was dismissed under Rule 12(b), we consider all facts in

the Amended Complaint to be true and construe them in the light most favorable

to Plaintiff. See Edwards v. International Union, United Plant Guard Workers of

Am., 46 F.3d 1047, 1050 (10th Cir. 1995).

-3-

Biomune. Jack Solomon founded Biomune, the Institute, and Genesis, and was a

member of Biomune’s Business Advisory Board. Genesis manages Genesis Trust,

whose beneficiaries are Solomon’s family members. Genesis Trust was at one

time Biomune’s largest shareholder. Both Derrick and Gold were directors of

Genesis. The Institute, a Utah corporation, was also a shareholder of Biomune. 

Gold served as a director of the Institute. 

 Plaintiff asserts this “action arises from a fraud of massive proportions,”

generally consisting of a “scheme to obtain Biomune’s listing on NASDAQ,

manipulate Biomune’s finances and inflate the price of Biomune stock in order to

dump thousands of Biomune shares on the market and earn million[s] of dollars in

profits.” Plaintiff’s specific allegations in the Amended Complaint fall into two

general categories: those concerning Biomune’s NASDAQ listing and those

concerning Biomune’s alleged misrepresentations regarding the efficacy of

Immuno-C.1 

NASDAQ Listing. Plaintiff alleges that Biomune faced two obstacles in

its attempt to obtain a NASDAQ listing. First, Biomune had to convince the

Securities and Exchange Commission (“SEC”) that Solomon, who was subject to
2Regulation S provides generally that offers or sales of securities that occur

outside the United States are exempt from the registration requirements of § 5 of

the Securities Act of 1933. See 17 C.F.R. §§ 230.901-.904. 

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a consent decree for previous securities violations, did not maintain control over

the company. Second, Biomune had to sufficiently increase its capital and surplus

so that it could qualify for listing. 

On March 7, 1994, NASDAQ notified Biomune that it was deferring

consideration of its application pending a review by the NASDAQ Listing

Qualifications Committee. NASDAQ was concerned with disciplinary actions

taken against “a principal shareholder,” which Plaintiff alleges was Solomon. 

According to Plaintiff, Derrick drafted numerous affidavits, executed by himself

and Gold, falsely attesting that Solomon did not maintain a control relationship

with Biomune. 

With respect to the manipulation of Biomune’s capital and surplus, Plaintiff

alleges that a “fraud network,” consisting of relatives and friends of Solomon and

Derrick, effectuated a “cleanup” of Biomune’s balance sheet. Plaintiff alleges

this plan took place in three parts during mid to late 1993. The first part involved

an illegal Regulation S2 offering of securities to increase Biomune’s capital and

surplus. The second part of the plan consisted of Biomune’s purchase of Furtek

Technologies from Brian Furtek, a long-time friend of Derrick, at an inflated

price in an attempt to increase Biomune’s asset base. The third and final part was
3Plaintiff specifically alleges that Defendants disseminated false

information concerning the Upton Study in the following disclosures during 1994:

March 21 press release; April 12 package to investors; April 12 Dow Jones

financial newswire; May “dear shareholder” letters; May 23 press release; June 7

research report; June 15 press release; Form 8-KSB filed June 27; July 18 press

release; August “dear shareholder” letters; August 11 press release; Form 10-QSB

(continued...)

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intended to eliminate Biomune’s long-term debt by entering into a phony

settlement agreement with Genesis Trust. Plaintiff alleges that all of these

transactions were entered into for the purpose of manipulating Biomune’s

finances so that Biomune could obtain a NASDAQ listing. Plaintiff further

alleges that during 1993 and 1994, Defendants made false and misleading

statements regarding the financial stability and commercial success of Biomune.

Immuno-C Misrepresentations. Plaintiff alleges that in late 1993,

Biomune retained Dr. Stephen Upton from the University of Kansas to perform

Immuno-C testing on mice (the “Upton Study”). Plaintiff further alleges that Dr.

Upton’s work was preliminary and contained a number of biases. Although

several tests were unsuccessful, in one preliminary test Dr. Upton found that

Immuno-C seemed to reduce the parasite level in mice, indicating that Immuno-C

may be effective in the treatment of intestinal disorders. Plaintiff alleges that

beginning with a press release on March 21, 1994, Defendants “launched their

series of false and misleading announcements about the efficacy of Immuno-C

based upon Dr. Upton’s results.”3
3

(...continued)

filed August 15; September 21 and 22 press releases; October 12 press release;

and November 3 “dear shareholder” letter. 

-6-

Plaintiff further alleges that in late June or early July 1994, Defendants

retained Dr. Mark Healey to perform additional testing of Immuno-C on mice. 

Dr. Healey completed his testing, which included both in vitro and in vivo tests,

in early September 1994. The in vivo tests indicated that Immuno-C “did not

demonstrate therapeutic efficacy,” though Dr. Healey suggested that further in

vivo tests be performed. Dr. Healey’s in vitro tests, however, confirmed that

Immuno-C may be effective, though once again he recommended that further

testing be done. 

Despite Dr. Healey’s recommendations, Defendants decided not to proceed

with additional in vivo testing nor did they immediately disclose the results of the

in vivo studies. Instead, Plaintiff alleges, Defendants disseminated several press

releases emphasizing and exaggerating the importance of Dr. Upton’s preliminary

study results and Dr. Healey’s in vitro test results. Plaintiff further alleges that as

a consequence of Defendants’ misleading statements, Biomune’s stock

consistently traded at over $12.00 per share (pre-split). 

On January 13, 1995, Biomune filed its Form 10-KSB for the fiscal year

ending September 30, 1994. In the Form 10-K, Biomune disclosed the results of
4Plaintiff filed his initial Complaint on October 12, 1995, and, after a

limited merits discovery, filed his Amended Complaint on August 5, 1996. 

Unless otherwise noted, all references to Plaintiff’s “Complaint” refer to his

Amended Complaint. 

-7-

the Healey in vivo study. Plaintiff alleges that as a result of this disclosure,

Biomune’s stock fell to $7.50 per share (pre-split) and has never recovered.

On October 12, 1995, Plaintiff brought this class action Complaint4 on

behalf of two classes: all persons who purchased Biomune common stock during

the period September 15, 1993 through January 12, 1995 (“fraud class”); and all

persons who purchased Biomune common stock contemporaneously with the sales

of Biomune stock by Defendants Derrick, Genesis, and the Institute (“insider

trading class”). In Count I, against all defendants, Plaintiff alleges a violation of

§ 10(b) of the Securities Exchange Act of 1934 (“1934 Act”) and Rule 10b-5

promulgated thereunder. In Count II, against Derrick, Gold, Quantz, and

Solomon, Plaintiff alleges that each individual defendant is a control person of

Biomune and is therefore liable under § 20(a) of the 1934 Act for the allegedly

fraudulent conduct of Biomune. Count III, against Derrick, Genesis, and the

Institute, alleges a violation of § 10(b) and Rule 10b-5 based on the defendants’

conduct in their positions as officers, advisors, and/or major stockholders. 

Finally, Count IV, also against Derrick, Genesis, and the Institute, alleges a
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violation of § 20A of the 1934 Act based on the defendants’ alleged insider

trading.

After Plaintiff filed his Complaint, Defendants moved to dismiss, arguing,

inter alia, the suit was barred by the applicable one-year statute of limitations. 

The district court agreed and dismissed the action. See Sterlin v. Biomune Sys.,

Inc., 960 F. Supp. 1531 (D. Utah 1997). The district court concluded that an

article published in Barron’s on August 1, 1994, which was generally critical of

Biomune and its founders, put Plaintiff on “inquiry notice,” thus commencing the

one-year limitations period. See id. at 1537. Because he did not file within one

year from the date the article was published, the district court concluded that
5The district court dismissed all of Plaintiff’s claims against all the

defendants, concluding the claims were barred by the one-year limitations period

applicable for § 10(b) claims. See Sterlin v. Biomune Sys., Inc., 960 F. Supp.

1531, 1537 (D. Utah 1997). As discussed, in addition to Plaintiff’s § 10(b) claims

against Defendants, Plaintiff also brought an insider trading claim under § 20A of

the 1934 Act against Derrick, Genesis, and the Institute. Section 20A provides:

Any person who violates any provision of this chapter or the rules or

regulations thereunder by purchasing or selling a security while in

possession of material, nonpublic information shall be liable in an

action . . . to any person who, contemporaneously with the purchase

or sale of securities that is the subject of such violation, has

purchased . . . or sold . . . securities of the same class.

15 U.S.C. § 78t-1(a). Section 20A further provides that “[n]o action may be

brought under this section more than 5 years after the date of the last transaction

that is the subject of the violation.” Id. § 78t-1(b)(4). Courts have interpreted

§ 20A as requiring the plaintiff to plead a predicate violation of the 1934 Act or

its rules and regulations. See, e.g., Jackson Nat’l Life Ins. Co. v. Merrill Lynch &

Co., 32 F.3d 697, 703 (2d Cir. 1994); Halkin v. Verifone Inc. (In re Verifone Sec.

Litig.), 11 F.3d 865, 872 (9th Cir. 1993).

The district court apparently dismissed Plaintiff’s § 20A claim because the

predicate offenses under the 1934 Act, namely the § 10(b) claims, were dismissed

as time barred. Plaintiff has not argued on appeal that his § 20A claim should

survive even if the § 10(b) claims are ultimately dismissed. In light of our

conclusion that this case must be remanded for the district court to determine

whether Plaintiff’s § 10(b) claims were timely filed under the standard announced

herein, we need not discuss whether his § 20A claim should survive the dismissal

of his § 10(b) claims. 

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Plaintiff’s claims were time barred.5 See id. Plaintiff appeals, arguing his

Complaint was timely filed. 

II. DISCUSSION 

This court reviews de novo the district court’s determination that Plaintiff’s

claims are barred by the statute of limitations. See Industrial Constructors Corp.

v. United States Bureau of Reclamation, 15 F.3d 963, 967 (10th Cir. 1994). In
6Prior to the Supreme Court’s decision in Lampf, numerous circuits,

including this circuit, applied a state limitations period to § 10(b) claims. See

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 354 & n.1

(1991) (discussing split among circuits). Federal law, however, including federal

equitable tolling principles, determined when the state statute of limitations

period accrued. See Ohio v. Peterson, Lowry, Rall, Barber & Ross, 651 F.2d 687,

691 (10th Cir. 1981). 

7The Court specifically cited § 9(e) and § 18(c) of the 1934 Act and § 13 of

the 1933 Act. See Lampf, 501 U.S. at 360 nn.6-7, 362. Section 9(e) provides:

“No action shall be maintained to enforce any liability created under this section,

(continued...)

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conducting our review, we accept all well-pleaded allegations in the Complaint as

true and construe them in the light most favorable to Plaintiff. See Edwards v.

International Union, United Plant Guard Workers of Am., 46 F.3d 1047, 1050

(10th Cir. 1995).

In Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350

(1991), the Supreme Court addressed the proper limitations period for § 10(b) and

Rule 10b-5 claims. The Court first noted that because private causes of action

under § 10(b) are of judicial creation, there is no statutory period of limitation. 

See id. at 358-59. The Court then concluded that a uniform federal statute of

limitations should apply to § 10(b) claims.6 See id. at 362. In determining the

proper length of the limitations period, the Court rejected the SEC’s contention

that the five-year period under § 20A of the 1934 Act should apply. See id. at

361. The Court opted instead for the one-year/three-year structure contained in

the Securities Act of 1933 (“1933 Act”) and the 1934 Act.7 See id. at 362. The
7

(...continued)

unless brought within one year after the discovery of the facts constituting the

violation and within three years after such violation.” 15 U.S.C. § 78i(e). 

Section 18(c) is virtually identical to § 9(e). See id. § 78r(c). Section 13

provides, in relevant part: 

No action shall be maintained to enforce any liability created under

section 77k or 77l(2) of this title unless brought within one year after

the discovery of the untrue statement or the omission, or after such

discovery should have been made by the exercise of reasonable

diligence . . . . In no event shall any such action be brought to

enforce a liability created under section 77k or 77l(1) of this title

more than three years after the security was bona fide offered to the

public, or under section 77l(2) of this title more than three years after

the sale.

Id. § 77m. The Court noted that to the extent the slight distinctions in

terminology of the various periods might in the future prove significant, it

selected the language of § 9(e) of the 1934 Act as the governing standard for an

action under § 10(b). See Lampf, 501 U.S. at 364 n.9. 

The one-year/three-year structure adopted by the Lampf Court thus

incorporates a statute of limitations (one year from date of discovery) framed by a

statute of repose (three years from date of violation). See Anixter v. Home-Stake

Prod. Co. [Anixter I], 939 F.2d 1420, 1434 (10th Cir.), amended on reh’g, 947

F.2d 897 (10th Cir. 1991), vacated sub nom. Dennler v. Trippet, 503 U.S. 978

(1992). 

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Court therefore concluded that actions under § 10(b) “must be commenced within

one year after the discovery of the facts constituting the violation and within three

years after such violation.” Id. at 364. 

The Court rejected the plaintiffs’ argument that the applicable limitations
8We note that the term “tolling” means “‘to suspend or stop temporarily,’”

whereas the phrase “a cause of action accrues” refers to “‘when a suit may be

maintained thereon.’” Ebrahimi v. E.F. Hutton & Co., Inc., 852 F.2d 516, 520

n.6 (10th Cir. 1988) (quoting Black’s Law Dictionary 1334, 19 (5th ed. 1979)). 

The federal equitable tolling doctrine, however, “is at times misnamed because it

often provides a rule for determining when the limitation period accrues.” Id.

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period must be subject to the doctrine of equitable tolling.8 See id. at 363. Under

that doctrine, 

“where the party injured by the fraud remains in ignorance of it

without any fault or want of diligence or care on his part, the bar of

the statute does not begin to run until the fraud is discovered, though

there be no special circumstances or efforts on the part of the party

committing the fraud to conceal it from the knowledge of the other

party.”

Id. (quoting Bailey v. Glover, 21 Wall. 342, 348 (1875)). Although the Court

recognized that “[t]ime requirements in lawsuits . . . are customarily subject to

‘equitable tolling,’” the Court determined that the doctrine is “fundamentally

inconsistent” with the one-year/three-year structure. Id. (alteration and ellipses in

original) (quoting Irwin v. Department of Veterans Affairs, 498 U.S. 89, 95

(1990) (internal quotations omitted)). Because the one-year period, “by its terms,

begins after discovery of the facts constituting the violation,” the Court reasoned

that tolling is “unnecessary.” Id. Further, because the three-year period is a
9A statute of repose “runs from a fixed date readily determinable by the

defendant,” thus serving the need for finality. Caviness v. Derand Resources

Corp., 983 F.2d 1295, 1300 n.7 (4th Cir. 1993). 

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statute of repose,9 the purpose of which is to “serve as a cutoff,” equitable tolling

may not be applied to extend that period. Id.

Shortly after the Supreme Court’s decision in Lampf, this court stated that

the one-year discovery period set forth in Lampf commences when the plaintiff is

put on “inquiry notice” of possible misrepresentations. Anixter v. Home-Stake

Prod. Co. [Anixter I], 939 F.2d 1420, 1437 (10th Cir.), amended on reh’g, 947

F.2d 897 (10th Cir. 1991), vacated sub nom. Dennler v. Trippet, 503 U.S. 978

(1992). The court noted that those facts triggering inquiry notice have been

characterized as “‘sufficient storm warnings to alert a reasonable person to the

possibility that there were either misleading statements or significant omissions

involved in the sale.’” Id. (quoting Cook v. Avien, Inc., 573 F.2d 685, 697 (1st

Cir. 1978)). 

A. Proceedings Below

The district court concluded that an article published in Barron’s on August

1, 1994, put Plaintiff on inquiry notice, thus commencing the one-year statute of

limitations period. See Sterlin, 960 F. Supp. at 1537. The Barron’s article

expressed doubt about the veracity of Biomune’s claims regarding Immuno-C and
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was generally critical of Biomune’s founders. See id. (citing Kathryn M. Welling,

A Question of Immunity, Barron’s, Aug. 1, 1994, at 5, 5-6). 

 Plaintiff argues the district court erred in concluding the Barron’s article

put him on inquiry notice of his claims. Among other things, Plaintiff argues that

because he could not have discovered the results of the Healey study, and thus

Defendants’ misrepresentations concerning the efficacy of Immuno-C, until

Defendants publicly disclosed the Healey study results in January 1995, he could

not have been on notice of his claims as of August 1, 1994, the date the article

was published. In other words, Plaintiff essentially argues that inquiry notice

cannot exist until the facts underlying the cause of action are discoverable. 

Defendants, on the other hand, contend that the one-year statute of limitations

period commences upon inquiry notice, without regard to when a plaintiff could

reasonably have discovered the facts underlying his claims. Both arguments find

support in circuit case law and, more specifically, in Tenth Circuit case law.

B. Tenth Circuit Case Law

On its face, the Anixter I opinion seems to support Defendants’ argument

that the one-year limitations period begins to run when the plaintiff is placed on

inquiry notice, regardless of whether an inquiry would have borne fruit. A closer

reading of the opinion, however, coupled with subsequent opinions in the Anixter

line of cases, suggests that inquiry notice alone may not be the determinative
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factor, at least when a reasonable investor could not reasonably have discovered

the facts underlying the alleged fraud until some time after being placed on

inquiry notice. Moreover, Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246

(10th Cir. 1997), a 1997 decision by this court, supports the rationale behind

Plaintiff’s argument.

The plaintiffs in Anixter I had invested in various oil and gas production

programs, known as Program Operating Corporations (“POCs”), with the

expectation of receiving not only a return on their investment but also tax benefits

through individual deductions of intangible drilling costs. See Anixter I, 939 F.2d

at 1430. The POCs were formed annually and were separately registered with the

SEC. See id. The plaintiffs alleged that contrary to the defendants’

representations, their investments were not directed at developing oil property but

were instead distributed to subsequent investors in the form of Ponzi payments. 

See id. The plaintiffs alleged various violations of the federal securities laws

based on the defendants’ conduct. See id. at 1429. The district court certified

nine separate plaintiff classes, representing investors in the 1964-1972 POCs. See

id. at 1430, 1436-37. A jury found in favor of the plaintiffs and awarded damages

of approximately $130 million. See id. at 1430. 

On appeal, the Anixter I court first held that the claims of the 1964-1969

classes were barred by the three-year statute of repose. See id. at 1436. The court
10The Anixter I court initially discussed whether the plaintiffs’ § 11 and

§ 12 claims were timely filed under the one-year/three-year limitations period of §

13 of the 1933 Act. See Anixter I, 939 F.2d at 1433-40. After concluding those

claims were untimely under § 13, the court then discussed whether the plaintiffs’

§ 10(b) claims were similarly barred. The court held the claims were barred

“based on [its] prior discussion of section 13 to plaintiffs’ express causes of

action.” Id. at 1441-42. In its opinion partially granting the plaintiffs’ petition

for rehearing, the court clarified that, in accordance with the Supreme Court’s

decision in Lampf, the plaintiffs’ § 10(b) claims were subject to the oneyear/three-year limitations period of § 9(e) of the 1934 Act rather than § 13 of the

1933 Act. See Anixter v. Home-Stake Prod. Co. [Anixter II], 947 F.2d 897, 899

(10th Cir. 1991), vacated sub nom. Dennler v. Trippet, 503 U.S. 978 (1992). The

court held, however, that the analysis of when the limitations period accrues is the

same under § 9(e) as under § 13. See id. at 899. In reaching this conclusion, the

court rejected the plaintiffs’ argument that § 9(e) requires actual rather than

inquiry notice. See id. The Anixter I court’s analysis discussing the accrual of §

11 and § 12 claims under the limitations period of § 13 therefore applies to claims

brought under § 10(b). 

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then considered whether the one-year statute of limitations barred the claims of

the 1970-1972 classes. See id. at 1440. 

 In determining when the one-year discovery period accrued for purposes of

the 1970-1972 classes, the court stated that “[n]otice is the key to our analysis,

and merely ‘inquiry notice’ will do.”10 Id. at 1437. Accordingly, the one-year

period “does not ‘commence only when a plaintiff has full knowledge of the

existence of a claim. On the contrary, the one-year limitations period begins to

run even when a plaintiff is placed on “inquiry notice” of possible

misrepresentations.’” Id. (quoting DeBruyne v. Equitable Life Assurance Soc’y of

the United States, 920 F.2d 457, 466 (7th Cir. 1990)). 
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The court determined the 1970 and 1971 plaintiff classes were put on

inquiry notice in early 1971 and that their claims filed March 30, 1973, were

therefore barred. See id. at 1440. In February 1971, the SEC filed a complaint

against the defendants with respect to the 1970 POC, alleging violations of the

registration and antifraud provisions of the federal securities laws. See id. at

1430-31. Shortly thereafter, the Wall Street Journal published an article detailing

the SEC’s allegations. See id. at 1431. The district court ultimately ordered the

defendants to make a rescission offer to all participants in the 1970 POC. See id.

On April 30, 1971, each participant in the 1970 POC was mailed a copy of the

final judgment and a rescission offer prospectus. See id. Participants in the 1971

POC were also informed of the rescission offer by means of the 1971 prospectus. 

See id. at 1438 n.36. In 1973, the IRS and SEC again undertook investigations of

the defendants. See id. at 1431. In March 1973, the IRS informed the

participants in the 1970 and 1971 POCs that it intended to disallow their claimed

deductions for intangible drilling costs arising from the POCs based on its

discovery that the defendants had not expended funds on drilling wells. See id. at

1438. In September 1973, the defendants filed a petition for reorganization under

Chapter X of the Bankruptcy Act. See id. at 1431. 

In holding that the claims of the 1970 and 1971 plaintiff classes were

barred by the one-year limitations period, the Anixter I court rejected the
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plaintiffs’ arguments that they could not have discovered the fraud until March

1973 when the IRS informed them that the defendants had not expended funds on

intangible drilling, but rather had converted the funds to its own uses. See id. at

1437. Instead, the court concluded the Wall Street Journal article, court order,

and the rescission offer were sufficient to put plaintiffs on inquiry notice of their

claims by April 30, 1971, thereby commencing the one-year limitations period. 

See id. at 1438, 1440. Because their complaint was not filed until March 30,

1973, almost two years later, the claims of the 1970 and 1971 plaintiff classes

were barred. See id. at 1440. 

The 1972 plaintiff class was added to the action by amendment on May 24,

1974. See id. The court concluded the filing of the original action on March 30,

1973 put the 1972 plaintiff class on inquiry notice, triggering the one-year statute

of limitations period. See id. Consequently, the claims of the 1972 class were

barred as well. See id. 

The Anixter I court stated that the one-year statute of limitations period

commenced when plaintiffs were put on inquiry notice, which the court described

as sufficient facts to put a reasonable investor on notice of the possibility of

fraud. See id. at 1437. Under a strict application of this standard, the one-year

limitations period may begin to run before a reasonably diligent investor should
11The Anixter I court did not focus on when the plaintiffs should have

reasonably discovered the facts underlying the alleged fraud. In the background

section of the opinion the court noted in passing that the Anixter jury had returned

interrogatories on the question of equitable tolling and further noted that the

district court held as a matter of law that the “plaintiffs did not discover nor

should have discovered by the exercise of reasonable diligence the violations until

September 1973, presumably when [the defendant company] filed for bankruptcy

reorganization.” Anixter I, 939 F.2d at 1432-33. In the section of the opinion

discussing when the one-year limitations period accrued, however, the court did

not discuss the interrogatories or the district court’s finding. The court seemed to

view the plaintiffs’ decision to “postpone” filing suit until March 1973 as a

tactical decision. See id. at 1439 (“Against these representations, individual

investors made their own decisions based as much on tax considerations as

investment concerns.”); id. at 1440 (“Although [the 1970 and 1971 class

representatives] knew about the 1971 SEC investigation and settlement, both

chose neither to investigate further nor to rescind based on personal investment

decisions.”). Not until the Anixter IV decision, discussed infra, did the court

discuss the effect of the tolling interrogatories on the statute of limitations

analysis.

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have discovered the facts underlying the alleged fraudulent activity.11 In its

opinion partially granting the plaintiffs’ petition for rehearing (“Anixter II”),

however, the court seemed to equate inquiry notice with the time when the

plaintiffs reasonably should have discovered the facts underlying the alleged

fraud. See Anixter v. Home-Stake Prod. Co. [Anixter II], 947 F.2d 897, 899 (10th

Cir. 1991), vacated sub nom. Dennler v. Trippet, 503 U.S. 978 (1992). The

Anixter II court stated that the “plaintiffs were required to show their complaint

was timely filed within one year of their notice of the violation, when they knew

or should have known.” Id. In a footnote, the court stated that the general rule

for when a cause of action accrues under federal law “is an objective test, knows
-20-

or should have known; discovers or in the exercise of reasonable diligence should

discover, the facts giving rise to the claim.” Id. at 899 n.5; see also Olcott v.

Delaware Flood Co., 76 F.3d 1538, 1549 (10th Cir. 1996) (applying Third Circuit

law and stating: “Inquiry notice of the underlying facts giving rise to a potential

Rule 10b-5 cause of action is sufficient. The statute of limitations period accrued

when [the plaintiff] knew or should have known of the Rule 10b-5 violation.”

(citation omitted)). The court concluded, however, that its “previous analysis of

when plaintiffs were on notice of the violation remain[ed] applicable to their

§ 10(b) claims.” Anixter II, 947 F.2d at 899. 

After the Anixter I court dismissed the plaintiffs’ § 10(b) claims as time

barred under the one-year/three-year limitations period, Congress passed

legislation effectively overruling the retroactive application of the Supreme

Court’s decision in Lampf. See FDIC Improvement Act of 1991, Pub. L. No. 102-

242, § 476, 105 Stat. 2236, 2387 (codified as Securities Exchange Act of 1934

§ 27A, 15 U.S.C. § 78aa-1). Under § 27A, courts were required to apply to preLampf § 10(b) claims the limitations period applicable in the appropriate

jurisdiction prior to Lampf. See id. Following passage of § 27A, the Anixter

plaintiffs sought reinstatement of their § 10(b) claims, arguing that under

Oklahoma’s two-year limitations period, their claims were timely filed. See

Anixter v. Home-Stake Prod. Co. [Anixter III], 977 F.2d 1533, 1542 (10th Cir.),
12See Anixter I, 939 F.2d at 1431 n.6.

-21-

reh’g granted in part, 977 F.2d 1549 (10th Cir. 1992). After concluding that

§ 27A was constitutional, the Anixter III court granted the plaintiffs’ motion and

reinstated their § 10(b) claims. See id. at 1547-48. 

On petition for rehearing, however, the court determined that a remand to

the district court was necessary to determine whether the 1971 plaintiff class’s 

§ 10(b) claims against the defendant law firm, which was added by amendment on

May 24, 1974,12 were timely filed in light of the court’s previous determination

that the plaintiffs were on inquiry notice as of April 30, 1971. See Anixter v.

Home-Stake Prod. Co. [Anixter IV], 977 F.2d 1549, 1551-52 (10th Cir. 1992). 

The Anixter IV court first noted that although state law determines the length of

the statutory period, federal law governs when the statute begins to run. See id. at

1551. The court then stated that “‘[t]he crucial issue of fact with respect to the

commencement of the running of the applicable two-year statute of limitations is

when the plaintiff actually knew, or in the exercise of reasonable diligence should

have known, of the existence of the alleged fraudulent . . . activity on the part of

the defendants.’” Id. (ellipses in original) (quoting Dzenits v. Merrill Lynch,

Pierce, Fenner & Smith, Inc., 494 F.2d 168, 171 (10th Cir. 1974)). The court

recognized that in the Anixter trial, the jury had answered a special interrogatory

finding that the 1971 plaintiff class, in the exercise of reasonable diligence, could
13In determining when the federal one-year limitations period accrued in

this case, this court may look to the Anixter IV court’s analysis of when the

Oklahoma two-year statute of limitations period accrued. Although the Anixter IV

court applied federal equitable tolling principles to determine when the state

limitations period accrued, the Supreme Court noted in Lampf that these same

principles are embodied in the federal one-year limitations period. See Lampf,

501 U.S. at 363 (“The 1-year period, by its terms, begins after discovery of the

facts constituting the violation, making tolling unnecessary.”).

-22-

not have discovered the defendant law firm’s involvement in the alleged fraud

until September 1973, presumably when the defendant company filed for

bankruptcy. See id. The court determined, however, that “[g]iven the many

theories of fraudulent concealment presented to the jury and the court’s

instructing the jury on equitable estoppel, [it could not] say with certainty whether

the jury’s factual finding . . . implicitly incorporated a finding that the statute [of

limitations] was equitably tolled.” Id. The court therefore remanded to the

district court to determine whether the § 10(b) claims against the law firm were

timely filed. See id. at 1552.

 Thus, although the Anixter I opinion on its face states that the one-year

limitations period commences upon inquiry notice, or the point when a reasonable

investor is put on notice of the possibility of fraud, the subsequent Anixter

opinions13 recognize that when the plaintiffs could not have reasonably discovered

the facts underlying the alleged fraud until some period after they were put on

inquiry notice, the limitations period should not begin to run upon inquiry notice. 
-23-

This reading of the Anixter line of cases is supported by this court’s recent

opinion in Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246 (10th Cir. 1997). 

The plaintiff in Schwartz filed his class action complaint on May 5, 1995,

alleging violations of the federal securities laws. See id. at 1255. The plaintiff

alleged that during 1993 and 1994 the defendants misrepresented the

circumstances surrounding a potential marketing agreement with another

company. See id. at 1249. In May 1994, the defendant company announced it had

entered into discussions to amend or terminate the agreement; after the

announcement, the defendant company’s stock prices declined. See id. In

considering whether the federal one-year statute of limitations barred the

plaintiffs’ claims, this court rejected the defendants’ argument that company

reports of limited success in 1993 and predictions of limited success in 1994 put

the plaintiff on inquiry notice. See id. at 1255. Instead, the court held the action

was timely filed because “[n]ot until the May 9, 1994 Form 10-Q [which first

announced the defendant company was considering terminating the agreement]

could plaintiff reasonably have discovered the violations.” Id.

C. Other Circuits’ Case Law
14Not all circuits have addressed whether, under the Supreme Court’s

analysis in Lampf, an inquiry notice standard, as opposed to an actual notice

standard, should apply to § 10(b) claims. As discussed above, this circuit has

determined that the one-year discovery period set forth in Lampf is subject to an

inquiry notice standard. See Anixter II, 947 F.2d at 899. The cases discussed in

this section apply an inquiry notice standard and address various securities claims

under both state and federal statute of limitations periods (i.e., both pre- and postLampf). Because the cases discuss when, applying an inquiry notice standard, the

applicable statute should accrue under federal law, the cases are helpful in

determining when the one-year limitations period should accrue in this case.

15This inconsistency may be largely attributable to the fact that in many

cases the court need not decide exactly when the one-year limitations period

began to run, i.e., upon inquiry notice or only when the plaintiff reasonably

should have discovered the facts underlying the alleged fraud. See, e.g.,

Cooperativa de Ahorro y Credito Aguada v. Kidder, Peabody & Co., 129 F.3d

222, 225 (1st Cir. 1997) (recognizing First Circuit precedent supported two

different accrual dates but concluding court need not decide between dates

because even assuming later accrual date, plaintiff still filed too late); Law v.

Medco Research, Inc., 113 F.3d 781, 785 (7th Cir. 1997) (citing Seventh Circuit

cases applying inconsistent standards and noting that “none of the cases treats the

difference between the two formulas as an issue,” perhaps because “it made no

difference in those cases or the parties had chosen not to make it an issue”). 

Thus, although there appears to be different standards for determining when the

one-year limitations period should accrue, these differences may be more

semantic than substantive. 

-24-

Cases from other circuits generally apply an inquiry notice standard14

coupled with some form of reasonable diligence requirement in determining

whether a plaintiff’s securities claims are timely filed. The circuits are not

consistent, however, in their determination of exactly when the one-year

limitations period accrues. Moreover, this inconsistency exists not only among

circuits but also within circuits.15
16Courts generally have not specified under this standard within what time

frame the plaintiff must be able to discover the facts.

17The opinion in Great Rivers could also be read as holding that the oneyear limitations period does not begin to run until the plaintiff reasonably should

have discovered the facts underlying the alleged fraudulent activity. The court

first noted that a reasonable investor would have been suspicious of possible

misrepresentations upon reading an article in a newsletter about a class action suit

against the defendant. See Great Rivers Coop. v. Farmland Indus., Inc., 120 F.3d

893, 898 (8th Cir. 1997). The court further determined that a reasonable investor,

exercising due diligence, would have acquired actual notice of the alleged

misrepresentations by contacting the representatives and attorneys of that suit. 

See id. at 898. The court thus concluded that the plaintiff “had inquiry notice

shortly after reading the article,” id. at 899, implying that the plaintiff must be

given some opportunity to actually discover the facts underlying the fraud before

the statute of limitations begins to run. See also id. at 896 (“[T]he one-year

limitation period begins to run when the victim should have discovered the

misrepresentation through the exercise of reasonable diligence. This objective

standard is commonly referred to as the doctrine of ‘inquiry notice.’”). 

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Some courts have indicated the one-year limitations period begins to run

once the plaintiff is put on inquiry notice, so long as the plaintiff could acquire

actual knowledge of the facts underlying the fraudulent activity with the exercise

of reasonable diligence.16 For example, in Great Rivers Cooperative v. Farmland

Industries, Inc., 120 F.3d 893 (8th Cir. 1997), the Eighth Circuit stated that

“[i]nquiry notice exists when the victim is aware of facts that would lead a

reasonable person to investigate and consequently acquire actual knowledge of

the defendant’s misrepresentations.”17

 Id. at 896. Similarly, in Caviness v.

Derand Resources Corp., 983 F.2d 1295 (4th Cir. 1993), the Fourth Circuit, in

discussing the one-year limitation period of § 13, stated that “[§ 13] provides for
-26-

the commencement of the one-year limitations period when the plaintiff knows of

the facts on which the action is based or has such knowledge as would put a

reasonably prudent purchaser on notice to inquire, so long as that inquiry would

reveal the facts on which a claim is ultimately based.” Id. at 1303. 

Other courts have indicated the one-year limitations period commences

when the plaintiff is placed on inquiry notice, unless the plaintiff can show the

actual exercise of reasonable diligence to discover the fraud. If the plaintiff can

show the exercise of such diligence, the limitations period begins to run when the

plaintiff actually discovers the facts underlying the alleged fraud. If, however,

the plaintiff cannot show such actual diligence, constructive knowledge of the

fraud is imputed to the plaintiff as of the date of inquiry notice. For example, in

Dodds v. Cigna Securities, Inc., 12 F.3d 346 (2d Cir. 1993), the Second Circuit

stated that “when the circumstances would suggest to an investor of ordinary

intelligence the probability that she has been defrauded, a duty of inquiry arises,

and knowledge will be imputed to the investor who does not make such an

inquiry.” Id. at 350. The Dodds court further stated that the doctrine of

“[e]quitable tolling will stay the running of the statute of limitations only so long

as the plaintiff has exercised reasonable care and diligence in seeking to learn the

facts which would disclose fraud.” Id. (internal quotations omitted). 
18The Marks case dismissed the defendant’s reliance on Whirlpool,

reasoning that the court in Whirlpool was “dispos[ing] of the plaintiff’s equitable

tolling argument rather than addressing an inquiry notice argument.” Marks v.

CDW Comupter Ctrs., Inc., 122 F.3d 363, 368 n.1 (7th Cir. 1997). 

-27-

The Seventh Circuit, essentially merging the inquiry notice and reasonable

diligence standards into one governing standard, has indicated that a plaintiff is

not put on inquiry notice until the plaintiff reasonably should have discovered the

fraud. See Marks v. CDW Comupter Ctrs., Inc., 122 F.3d 363, 368 (7th Cir. 1997)

(“[I]nquiry notice does not begin to run unless and until the investor is able, with

the exercise of reasonable diligence (whether or not actually exercised), to

ascertain the information needed to file suit.”); see also Law v. Medco Research,

Inc., 113 F.3d 781, 785 (7th Cir. 1997) (“[T]he plaintiff gets a year after he

learned or should have learned the facts that he must know to know that he has a

claim.”). An earlier Seventh Circuit case, however, rejected the plaintiff’s

argument that “in spite of reasonable diligence, it could not discover the facts

underlying the defendants’ fraud” and held that the one-year limitations period

began to run once the plaintiff was placed on inquiry notice of the possibility of

fraud.18 Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605, 610 & n.3 (7th

Cir. 1995).

The First Circuit, based on the same rationale as the Seventh Circuit, has

stated that while “‘storm warnings’ of the possibility of fraud trigger a plaintiff’s
-28-

duty to investigate in a reasonably diligent manner, . . . his cause of action is

deemed to accrue on the date when he should have discovered the alleged fraud.” 

Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, 128 (1st Cir. 1987) (citation

omitted). In Cooperativa de Ahorro y Credito Aguada v. Kidder, Peabody & Co.,

129 F.3d 222 (1st Cir. 1997), however, the First Circuit stated that it “need not

decide whether the statute of limitations begins to run on the date the storm

warnings appear or the later date on which an inquiring investor would through

reasonable diligence have discovered the fraud. The time between the two dates

in most cases is not likely to be long enough to affect the outcome.” Id. at 225

(citations omitted) (citing First Circuit cases supporting both accrual dates). 

D. Determination of Proper Standard

In this case the time between the date Plaintiff was allegedly placed on

inquiry notice and the date Plaintiff claims he could reasonably have discovered

the facts underlying the alleged fraud does affect the outcome. If this court

accepts the district court’s determination that Plaintiff was on inquiry notice as of

August 1, 1994, the date the Barron’s article was published, but agrees with

Plaintiff that a reasonable investor should not have discovered the facts

underlying the fraud until January 1995, then the timeliness of Plaintiff’s October

1995 filing hinges on the resolution of whether the limitations period begins to
19We recognize that our phrasing of what constitutes inquiry notice is

different from that of the Seventh Circuit. That circuit apparently holds that

inquiry notice does not exist until the investor is able to discover the facts

underlying the fraudulent activity. See Marks, 122 F.3d at 368. Our holding,

however, recognizes that inquiry notice, which is triggered by evidence of the

possibility of fraud, may exist before a reasonable investor is able to discover the

facts underlying the alleged fraud. 

-29-

run when an investor is placed on inquiry notice or instead when the investor

should reasonably have discovered the fraud. 

This court concludes that inquiry notice, as defined by Anixter I, triggers an

investor’s duty to exercise reasonable diligence and that the one-year statute of

limitations period begins to run once the investor, in the exercise of reasonable

diligence, should have discovered the facts underlying the alleged fraud. We

reach this conclusion after a considered analysis of this circuit’s precedent, other

circuits’ case law, and the policies underlying the securities laws.

As indicated above, language in the Anixter line of cases and in Celestial

Seasonings supports our holding. See supra Part II.B. Further, consistent with

our holding, a recent case from the Seventh Circuit has recognized that the oneyear limitations period should not begin to run until a reasonable investor should

have discovered the facts underlying the alleged fraudulent activity.19 See Marks,

122 F.3d at 367-68. Delaying the accrual of the one-year limitations period until

this time is also consistent with the Supreme Court’s statement in Lampf that
-30-

equitable tolling is “unnecessary” because the doctrine is already reflected in the

one-year discovery period. Lampf, 501 U.S. at 363. 

Our holding further strikes a balance between two competing policies

underlying the securities laws. While we recognize there is a strong federal

interest in requiring plaintiffs to file suit soon after they are put on notice of their

claims, the applicable statute of limitations should not precipitate groundless or

premature suits by requiring plaintiffs to file suit before they can discover with

the exercise of reasonable diligence the necessary facts to support their claims. 

See Anixter I, 939 F.2d at 1440; Law, 113 F.3d at 786.

The purpose behind commencing the one-year limitations period upon

inquiry notice is to discourage investors from adopting a wait-and-see approach. 

See Tregenza v. Great Am. Communications Co., 12 F.3d 717, 722 (7th Cir. 1993)

(stating inquiry notice standard discourages tactic of “[h]eads I win, tails you

lose.”); Anixter IV, 977 F.2d at 1552 (stating securities laws are intended “‘to

protect the innocent investor, not one who loses his innocence and then waits to

see how his investment turns out before he decides to invoke the provisions of the

Act’” (quoting Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1413 (9th Cir.

1987)). Adopting inquiry notice as the point when the one-year limitations period

begins to run, however, could lead to valid suits being barred because the

plaintiff, although on inquiry notice, could not reasonably have discovered within
20As discussed above, some courts have indicated that a plaintiff must

actually exercise due diligence in order to “toll” the one-year limitations period. 

See, e.g., Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d Cir. 1993). This court,

however, has indicated that although a plaintiff has an “obligation of diligence,”

the plaintiff need not show the actual exercise of diligence in order to “toll” the

limitations period. Peterson, Lowry, Rall, Barber & Ross, 651 F.2d at 693 n.10,

694-95, 695 n.16 (noting that “[e]quity’s requirement that plaintiff prove actual

diligence has survived in a few modern federal cases” but applying test based on

“hypothetical diligence”). Rather, in deciding whether the statute should be

tolled, it must be determined whether a “reasonably diligent plaintiff” would have

discovered the fraud. Id. at 694. 

-31-

one year sufficient facts to file a suit which satisfies the particularized pleading

requirements of § 9(b). The objective of encouraging investors to file suit as

soon as possible is not undermined by delaying the accrual of the statute of

limitations until the plaintiffs, in the exercise of reasonable diligence, should have

discovered the facts underlying the alleged fraud.20 Delaying the accrual of the

one-year limitations period until this time does, however, ensure that plaintiffs are

given the opportunity to adequately develop the facts and determine whether those

facts merit bringing suit, thus giving meaning to the term “inquiry.” 

E. Application of Standard

1. Inquiry Notice

The district court determined that an article published in Barron’s on

August 1, 1994, entitled “A Question of Immunity,” put Plaintiff on inquiry

notice of his claims. In support of its conclusion, the district court quoted the

following passages from the article:
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“The story you’re about to read is true. And in its broad

outlines, alas, oft-told. Not even the names have been changed. 

Maybe its retelling will protect a few innocents.

[The main body of the article is critical of Biomune’s research

and claims regarding the effectiveness of Immuno-C.]

Concludes Hatch, who studied under one of Biomune’s

founders at Brigham Young University in the mid-Seventies, ‘I don’t

rule out the one in 100 chance that Biomune actually has something. 

But if I were betting, I’d say the other 99% is going to rule.’

And that’s a bet, it turns out, based on considerably more than

the scientific evidence. As Hatch knows—and anyone else who cares

to take the trouble to research Biomune’s corporate history can

discover—ever since its December 1981 founding as New Age

Corp.—the company’s true raison d’etre hasn’t been shrimp farming

in Ecuador or tomato cultivation in Egypt or immunity enhancers or

any of the other ventures it’s run through. It’s been to sell

shares—or, at the least, to use shares as currency to keep any number

of its promoters’ ventures afloat.

And who are those promoters? The list is long and their

connections colorful, but we will list only one. Biomune founder and

consultant of long-standing is a Salt Lake City philanthropist, Jack

D. Solomon. He owns no Biomune shares, according to the

company’s SEC filings. But a byzantine array of entities in one way

or another affiliated with Solomon own more than 35% of its stock. 

As it happens, way back when—in 1983—the federal district court in

Nevada permanently enjoined Solomon from violations of the

registration, antifraud, stock ownership reporting and proxy

solicitation provisions of the securities laws. Without admitting or

denying the charges, Solomon consented to the filing of that

injunction rather than fight SEC charges that, as president and

chairman of Advanced Patent Technology Inc., he had illegally sold

about 8.7 million shares of unregistered stock in purported private

placements between 1975 and late 1980 to raise money for APT’s

purchase of a Las Vegas slot machine route business and other

gaming-related enterprises. Over that span, APT’s shares climbed

from pennies to just under $10—and they subsequently went back to

pennies, before being delisted from Nasdaq.

There’s a lesson there somewhere.”
21Defendants correctly note that many of these supposedly “sarcastic

comments” made their way into Plaintiff’s original Complaint. 

-33-

Id. at 1533-34 (quoting Kathryn M. Welling, A Question of Immunity, Barron’s,

Aug. 1, 1994, at 5, 5-6).

Plaintiff argues the district court erred in concluding the Barron’s article

put him on inquiry notice. He characterizes the article as “consist[ing] primarily

of sarcastic comments”21 and asserts that nothing in the article even “raises the

possibility” that Defendants made knowing misrepresentations about Immuno-C

or knowingly manipulated the market for Biomune stock. With respect to the

alleged misrepresentations about Immuno-C, Plaintiff contends that any storm

warnings raised by the article were premature, as the article was published only

nine days after the Healey study commenced and over six weeks before the

Healey results became available. Likewise, with respect to the fraud claim

premised on Biomune’s NASDAQ listing, i.e., the illegal Regulation S offering,

the acquisition of Furtek Technologies, and the settlement arrangement with

Genesis, Plaintiff asserts that because the article did not even mention these

transactions, “it would have been impossible” for the article to put him on notice. 

Finally, Plaintiff argues that two “dear shareholder” letters written by Derrick a

few days after the Barron’s article was published sufficiently negated any
-34-

suspicions raised by the article so that Plaintiff could not have been placed on

inquiry notice. 

Plaintiff misunderstands the nature of inquiry notice. As this court in

Anixter I recognized, Plaintiff “‘need not . . . have fully discovered the nature and

extent of the fraud before [he was] on notice that something may have been amiss. 

Inquiry notice is triggered by evidence of the possibility of fraud, not full

exposition of the scam itself.’” 939 F.2d at 1438 (quoting Kennedy v. Josephthal

& Co., 814 F.2d 798, 802 (1st Cir. 1987)). In other words, 

“facts in the sense of indisputable proof or any proof at all, are

different from facts calculated to excite inquiry which impose a duty

of reasonable diligence and which, if pursued, would disclose the

fraud. Facts in the latter sense merely constitute objects of direct

experience and, as such, may comprise rumors or vague charges if of

sufficient substance to arouse suspicion.”

Cook v. Avien Inc., 573 F.2d 685, 697 n.25 (1st Cir. 1978) (quoting Tobacco &

Allied Stocks v. Transamerica Corp., 143 F. Supp. 323, 331 (D. Del. 1956)).

The district court correctly ruled that the Barron’s article, as a whole,

created sufficient “storm warnings” to put a reasonable investor on notice of the

possibility of fraudulent activity. Importantly, the Barron’s article questioned

whether Biomune’s purpose was to create a viable product, Immuno-C, or whether

it was in business simply to “sell shares.” The article pointed out that Solomon,

who, according to Biomune’s SEC filings, owned no stock, actually owned more

than 35% of Biomune’s stock through a “byzantine array of entities.” This
22Although the determination of whether Plaintiff was on inquiry notice is

judged by an objective standard, this court notes that Plaintiff’s own buying

pattern of Biomune stock supports our conclusion that the Barron’s article was

sufficient to put Plaintiff on inquiry notice. In the 11 months prior to the date the

article was published, Plaintiff made 10 purchases of Biomune stock totaling

approximately 13,000 shares. The day the article was published, August 1, 1994, 

Plaintiff purchased 333.33 shares, and after that date, he purchased only 33.33

shares. 

-35-

statement related directly to Plaintiff’s claim that Defendants fraudulently

represented to the SEC that Solomon owned no Biomune stock in order to obtain

Biomune’s NASDAQ listing. The article also stated that Solomon had been

permanently enjoined in 1983 from violating various provisions of the securities

laws. While insufficient by itself to establish inquiry notice, Solomon’s prior

history may be considered in determining whether Plaintiff was on inquiry notice. 

Cf. Lenz v. Associated Inns & Restaurants Co. of Am., 833 F. Supp. 362, 375

(S.D.N.Y. 1993) (“[A]wareness of other lawsuits or criminal fraud convictions

involving a defendant puts a plaintiff on inquiry notice of the probability of fraud

within another transaction involving the defendant.”). The article further raised

serious questions about Biomune’s claims regarding the FDA approval process

and expressed skepticism about Biomune’s assertions regarding the efficacy of

Immuno-C. Finally, as Plaintiff acknowledges in his Complaint, the market

apparently took notice of the Barron’s article, as the price of Biomune’s stock

“suffered a slide” after the article was published.22 Cf. Law, 113 F.3d at 784
23This court expresses no opinion on Plaintiff’s argument that the “dear

shareholder” letters affected his ability to discover the facts underlying the fraud.

-36-

(noting that market did not respond to articles criticizing defendants and

concluding that articles consisted of “premature” storm warnings).

Contrary to Plaintiff’s assertions, the Barron’s article need not discuss each

and every aspect of the alleged fraudulent activity to put him on notice of the

need to inquire. See In re Valence Tech., Inc. Sec. Litig., 987 F. Supp. 796, 802-

03 (N.D. Cal. 1997) (rejecting plaintiffs’ argument that because Forbes article did

not address core allegations, it could not have put them on inquiry notice). 

Rather, the article need only alert a reasonable investor to the possibility of fraud. 

See Anixter I, 939 F.2d at 1438. 

Once the storm clouds gathered, the “dear shareholder” letters from Derrick

refuting the claims in the article could not dissipate them.23 See id. at 1438-39 &

1439 n.37 (holding rescission offer and article put plaintiffs on inquiry notice

even though defendant’s CEO issued assurances in response); Great Rivers Coop.,

120 F.3d at 898 (“[The defendant’s] self-serving statements about the invalidity

of the suit do not . . . negate the other pertinent information presented in the

article.”); In re Valence Tech., Inc. Sec. Litig., 987 F. Supp. at 803-04 (noting that

defendant’s letter disputing substance of article “should have heightened, not

alleviated, a reasonable investor’s suspicion of potential fraud”); Lenz, 833 F.
24Defendants have advanced nine additional arguments for upholding the

district court’s dismissal of Plaintiff’s Complaint. Because the district court

concluded the Complaint was barred by the statute of limitations, it did not

consider any of these arguments. This court declines to consider the arguments at

this time and leaves them for the district court to address in the first instance.

-37-

Supp. at 376 n.12 (noting that “reassurances accompanying the relevant notice”

do not “relieve[] the plaintiff of his duty to undertake reasonable inquiry”). 

In sum, a reasonable investor would have investigated further after reading

the Barron’s article. Contrary to Plaintiff’s assertions, the “dear shareholder”

letters did not relieve him of his duty to investigate. This court therefore

concludes the article put Plaintiff on inquiry notice, triggering the duty to

exercise reasonable diligence. 

2. Reasonable Diligence

The district court did not address whether, in the exercise of reasonable

diligence, Plaintiff should have discovered the facts underlying the alleged

fraudulent activity prior to October 12, 1994, one year before he filed suit. 

Rather, the district court held the statute began to run on August 1, 1994, the date

the Barron’s article was published. We therefore remand to the district court to

determine whether Plaintiff’s Complaint was timely filed under the standard

adopted herein.24

III. CONCLUSION
-38-

Based on the foregoing discussion, this court REVERSES the district

court’s dismissal of Plaintiff’s Complaint and REMANDS for a determination of

whether, under the standard announced herein, Plaintiff’s Complaint was timely

filed.