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Statutes of Limitation for State and Federal Securities Fraud Claims

Posted by: on Thu, May 16, 2013

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Applicable Statutes of Limitations for State and Federal Securities Claims

The statute of limitations is the rule of law governing the period of time during which a disgruntled investor must file a private civil claim for a violation of the state and/or federal securities law. These time limits vary from state to state, and under the Federal securities statutes. In most states, including Nevada and the Federal statutes, the statute of limitations does not necessarily begin to run at the time the investor purchased the security, rather it begins to run when he or she discovers or reasonably should have discovered the act or conduct giving rise to his or her securities claim. This is known as the “discovery rule.”

A separate applicable time limitation is known as the statute of repose, which imposes a stricter deadline than the statute of limitations. The statute of repose begins to run from either the date of purchase or the date of the act or transaction constituting the securities violation. The statute of repose sets forth the outermost time in which a person or entity may assert their private civil claim. The statute of repose does not address when the investor discovers the alleged fraud. It is a complete bar to all claims under the securities laws and begins to run from the date of purchase or transaction rather than discovery of a fraud.

For example the federal securities act contains both a two (2) year statute of limitations and a five (5) year statute of repose. The act provides the following:

“A private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws…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.” 28 USC Sec. 1658(b)(1)

Likewise, in Nevada, NRS 90.670, quoted below, has both an early (statute of limitations) and later (statute of repose) time limit period, of 2 years and 5 years respectively. The statute reads as follows:

NRS 90.670 Statute of limitations. A person may not sue under NRS 90.660 unless suit is brought within the earliest of 2 years after the discovery of the violation, 2 years after discovery should have been made by the exercise of reasonable care, or 5 years after the act, omission or transaction constituting the violation.

(Added to NRS by 1987, 2183; A 1989, 160; 1993, 1229; 2003, 20th Special Session, 273).

In Strategic Diversity, Inc. v. Alchemix Corp., an opinion marked for publication, the United States Court of Appeals for the Ninth Circuit recently held that for federal securities fraud claims, the statute of limitations begins to run when a reasonably diligent plaintiff would have discovered the underlying violations, and not from when a reasonably diligent plaintiff should have begun investigating the potential violations.

About the Authors: The law firm of Albright, Stoddard, Warnick & Albright is an A-V Rated Nevada-based full-service law firm having attorneys licensed in Nevada, California and Utah. We have a broad range of experience in advising and representing lenders, borrowers, developers, buyers and sellers in a wide variety of commercial real estate transactions, including purchase and sale agreements, permitting, leasing and financing. We represent lenders in all aspects of commercial and residential loan transactions and litigation. We represent owners and developers in all aspects of permitting and commercial development, zoning and leasing. We have a significant amount of experience representing lenders and borrowers with workouts, foreclosures and the restructuring of troubled existing financing. The firm has extensive experience in defending contractors and subcontractors from construction defect claims.

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