December 7, 2004

Second Circuit Declines To Revive Time-Barred Claims

The Sarbanes-Oxley Act of 2002 extends the statute of limitations for federal securities fraud to the earlier of two years after the discovery of the facts constituting the violation or five years after the violation. Although the legislation clearly provides that it "shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act [July 30, 2002]," left unresolved is whether Congress intended to revive claims that had already expired under the earlier one year/three years statute of limitations.

A growing majority of district courts has held that these claims must be dismissed. The U.S. Court of Appeals for the Second Circuit agrees. In In re Enterprise Mortgage Acceptance Co., LLC, Sec. Litig., 2004 WL 2785776 (2nd Cir. Dec. 6, 2004), the court, which combined a number of cases presenting this issue into one decision, held that Congress did not clearly provide or intend for retroactive application of the new statute of limitations. Accordingly, the court declined to revive any previously time-barred claims. (Note that this issue is also currently before the Eleventh Circuit.)

Holding: Dismissals affirmed.

Addition: In reaching its decision, the Second Circuit took judicial notice of the amicus brief filed by the SEC in the AIG Asian Infrastructure case, which urged the court to hold that Sarbanes-Oxley revived previously time-barred claims. The court rejected the SEC's position and noted that the SEC was not entitled to any deference on the issue given that the new statute of limitations is only applicable to private actions, and not to SEC enforcement actions.

Posted by Lyle Roberts at December 7, 2004 6:35 PM | TrackBack
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