Statute of Limitations for Securities Fraud
The statute of limitations is a procedural rule that governs the time period within which a legal cause of action must be filed in court. A lawsuit that is filed after the expiration of the relevant statute of limitations period is absolutely time-barred and must be dismissed. A plaintiff can file a securities fraud action under either the federal securities laws or the securities laws of the state in which he resides.
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Federal Securities Fraud Statute
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The most common anti-fraud provision used for securities fraud actions brought pursuant to federal law is Rule 10b-5 of the Securities Exchange Act of 1934. Rule 10b-5 is an omnibus anti-fraud provision that prohibits fraud in connection with the purchase or sale of any security.
Statute of Limitations for 10b-5 Actions
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The statute of limitations period for filing a 10b-5 action is two years from the discovery of the facts constituting the fraud, or a maximum of five years from the date of the alleged violation.
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State Securities Laws
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Many states have enacted securities fraud statutes that closely mirror the provisions of the federal securities laws. Massachusetts General Laws Chapter 110A §410 is typical of many such state anti-fraud statutes. §410(e) of the Massachusetts statute has a four-year statute of limitations period, which runs from the time a plaintiff discovers the facts that constituted the fraud. The statute of limitations period for federal securities law violations may differ from the period established under state securities fraud statutes.
Common Law Claims
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In addition to causes of action for violations under the federal and state securities anti-fraud statutes, a plaintiff could seek relief under common law fraud or, if stock was purchased through a brokerage firm, for breach of the customer account agreement. Each jurisdiction establishes its own distinct limitations period for common law fraud and breach of contract actions. The limitations period for the identical cause of action may vary from state to state.
Considerations
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The specific limitations period for securities fraud actions established by each jurisdiction may exceed or be more restrictive than the period provided under the federal securities laws. If a plaintiff's federal and state statutory claims are time-barred, he may still be able to proceed with his common law theories of recovery. For example, the limitations period for bringing breach of contract actions in Massachusetts is six years, which exceeds the five-year maximum limitations period under the federal statute as well as the four-year period under the Massachusetts statute.
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