SEC Supports Extension on Statute of Limitations on Fraud Cases
The Securities and Exchange Commission has asked a U.S. federal appeals court to allow investors to sue companies for fraud even if the alleged violation took place after the statute of limitations had expired.
Investors have been allowed to file lawsuits within one year of discovering fraudulent behavior and three years after the violation occurred. The Sarbanes-Oxley Act of 2002 changed those time limits to two years and five years, respectively.
However, investors who have recently alleged fraud have done so even though the three-year limit had expired. The SEC, in a friend-of-the-court brief filed Tuesday, supports allowing those investors to revive their claims, the Wall Street Journal reported.
"The pre-Sarbanes statute of limitations for private securities-fraud actions was inappropriately short and left many existing defrauded investors without recourse in the complicated and long-standing frauds then being uncovered," the SEC said, according to the newspaper.
In the example of fallen energy giant Enron, the accounting problems did not become obvious until the fall of 2001. Under the three-year rule, pension employees in Georgia, Ohio and Washington have been unable to bring legal action against Enron for securities fraud in 1997 and 1998.
The SEC filed its brief with the U.S. Court of Appeals for the Second Circuit in Manhattan, in the case AIG Asian Infrastructure Fund LP vs. Chase Manhattan Asia Ltd. and J.P. Morgan Partners. The case involved a 1998 purchase of securities, the Journal reported.