Before Sarbanes-Oxley, the law stated that investors who were made aware of fraudulent activities had to file lawsuits against the misbehaving companies within one year of discovering the fraud and within three years of the actual fraudulent activity. The Sarbanes-Oxley Act of 2002 (SOX) extended the time period for filing claims to two years from the discovery and five years from the fraudulent activity.

Now some investors who have lost money as a result of the many corporate fraud cases that have been discovered in recent years, would like the extended time that SOX allows for filing investor lawsuits to be retroactive. For example, state pension funds in Washington, Georgia, and Ohio that are victims of alleged securities fraud at Enron Corp. in the late 1990s (pre-SOX) cannot file suit against Enron because the statute of limitations has expired. Were the SOX time periods made retroactive, lawsuits could still be filed.

But on Monday, December 6, 2004, the Second U.S. Circuit Court of Appeals ruled that, due to ambiguous language in SOX regarding the effective dates of the time periods and the fact that there is no clear information as to the intent of Congress on the issue, there is no precedent for making the claim period retroactive.

The Securities and Exchange Commission filed a friend-of-the-court brief asking that the court approve the retroactive time periods, but it fell on deaf ears. "In the absence of clear congressional intent favoring such a result, we decline to apply Section 804 of Sarbanes-Oxley retroactively to revive plaintiffs' stale securities fraud claims," wrote the appeals court panel.