Timeliness of Securities Class Actions Under Supreme Court Scrutiny

By | January 18, 2017

The U.S. Supreme Court last Friday agreed to resolve a legal dispute over whether certain securities class action lawsuits can be barred because they were filed too late.

The justices agreed to hear an appeal filed by the California Public Employees’ Retirement System seeking to revive a lawsuit against various financial institutions over their alleged role in the collapse of Lehman Brothers.

The retirement system, known as Calpers, was part of extensive litigation against Lehman and its former directors following the bank’s 2008 collapse, which contributed to that year’s global financial crisis.

Investors said underwriters helped perpetuate misstatements about Lehman’s finances leading up to its historic downfall. Calpers opted out of a $417 million settlement reached in 2011 between investors and multiple defendants, including Bank of America Corp. and Morgan Stanley, preferring to pursue its own case separately.

In a July 2016 ruling, the New York-based 2nd U.S. Circuit Court of Appeals upheld a district judge’s decision to dismiss the lawsuit.

The legal fight is over whether Calpers waited too long after the bank’s collapse to sue or whether the three-year window for suing was put on hold because of the other related lawsuits that had been filed prior to the settlement.

Lower courts are split on the question of whether the window for filing certain securities claims is suspended if investors can show they would have been parties in a previously filed class action lawsuit had it not been dismissed

The legal issue was presented to the court in a 2014 case it agreed to hear concerning claims against underwriters of securities issued by a unit of the now-defunct IndyMac Bancorp Inc. under the Securities Act. The court never decided the case because the parties settled, meaning it was dismissed before a ruling was issued.

(Reporting by Lawrence Hurley; Editing by Will Dunham)


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