Source: https://www.calfee.com/newsroom-news-supreme-court-begins-resolving-series-of-important-securities-issues
Timestamp: 2019-04-21 14:53:52+00:00

Document:
The U.S. Supreme Court recently issued decisions in two high-profile securities cases. The first decision impacts the powerful “disgorgement” tool used by the U.S. Securities and Exchange Commission (SEC) in enforcement actions. The second decision addresses whether the statute of repose found in Section 13 of the Securities Act of 1933 (the Securities Act) is subject to equitable tolling while a securities class action is pending. As a result of these decisions: (a) SEC claims for disgorgement are now subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462; and (b) class members who choose to opt out of a securities class must file any individual actions under Section 11 prior to expiration of Section 13’s three-year statute of repose.
The SEC has long used “disgorgement” as a remedy to recover ill-gotten gains from individuals violating federal securities laws. The question before the Supreme Court in Kokesh v. SEC, No. 16-529, was whether the five-year statute of limitations that applies to any “action, suit or proceeding for the enforcement of any civil fine, penalty or forfeiture, pecuniary or otherwise,” 28 U.S.C. § 2462, applies to “claims for disgorgement imposed as a sanction for violating a federal securities law.” The Court answered that question unanimously in the affirmative, holding that “disgorgement” in the SEC enforcement context is a “penalty” within the meaning of 28 U.S.C. § 2462, and therefore disgorgement actions are subject to a five-year statute of limitations.
The issue before the Supreme Court in California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373, was whether the commencement of a securities class action tolls the three-year statute of repose set forth in Section 13 of the Securities Act under the Supreme Court’s prior holding in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). In other words, if a plaintiff files a class action complaint prior to expiration of the statute of repose, does that operate as a timely-filed complaint for all class members, including class members who later choose to opt out of the class? The Court’s decision in American Pipe that the filing of a class action lawsuit operates to toll the statute of limitations for claims of unnamed class members left this statute of repose issue open. Compare Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000) (holding that American Pipe tolling applies to the three-year statute of repose in Section 13), with Police & Fire Ret. Sys. v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013) (holding that American Pipe tolling is inapplicable to the statute of repose embodied in Section 13).
On June 26, 2017, the Supreme Court, in an opinion delivered by Justice Kennedy, held that, because Section 13’s time limitation is in fact a statute of repose, it is not subject to equitable tolling. The Supreme Court reiterated that “[a] statute of repose implements a ‘legislative decisio[n] that . . . there should be a specific time beyond which a defendant should no longer be subjected to protracted liability,'” and that “statutes of repose are not subject to equitable tolling.” The Supreme Court confirmed that class members who later choose to opt out of the securities class must file their individual actions prior to the expiration of the statute of repose, and cannot simply rely upon a timely-filed class action complaint.

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