February 22, 2013

The Continuing Omission Theory

Pursuant to 28 U.S.C. Sec. 1658(b), a private securities fraud action "may be brought not later than the earlier of (1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation." While there are a number of cases that have explored what triggers the 2-year period (the statue of limitations), fewer courts have examined what triggers the 5-year period (the statute of repose).

In Intesa Sanpaolo, S.p.A. v. Credit Agricole Corporate and Investment Bank, 2013 WL 525000 (S.D.N.Y. Feb. 13, 2013), the plaintiff argued that its securities fraud claim was not time-barred under the 5-year deadline "because a 'violation' for 1658(b) purposes is the transaction that forms the basis of the Sec. 10(b) claim at issue (rather than the alleged misrepresentation)." Alternatively, the plaintiff argued that even if the misrepresentation triggered the time period, its claim was still timely because the defendants had concealed the truth until less than five years before the complaint was filed. The court rejected both arguments.

First, the court found that the majority of courts have held that the "violation" is the misrepresentation, not the securities transaction, and there was no dispute that the last alleged misrepresentation took place more than five years before the plaintiff brought its suit. Second, the court rejected the "continuing omission" theory proposed by the plaintiff. The court noted that "applying the concept of a continuing omission to the five-year deadline would essentially render that element of 1658(b) a nullity with respect to any securities fraud case that does not involve a corrective disclosure."

Holding: Federal claims time-barred.

Quote of note: "For example, if it is assumed that an individual purchased a company's stock in February 2007 in reliance upon an offering memorandum that contained a material omission that was never subsequently acknowledged or corrected, under the continuing omission theory urged by Inesta, not only would a claim based on that omission be timely even today, six years after the omission, despite 1658(b)'s five-year deadline, but the five-year deadline would not have even begun running on the claim."

Posted by Lyle Roberts at February 22, 2013 9:01 PM | TrackBack
Email this entry to:


Your email address:


Message (optional):