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We are going to take a back-door entry to our discussion of  the Sarbanes-Oxley Act, and, in the process, will minimize the events leading to the adoption of the Act. We will discuss those events in greater detail in the context of SEC enforcement. For what we need to know in this respect, go to § 2:1, 2:3, 2:5. Read these sections with a view to getting the broad picture; the details are for later. Sarbanes-Oxley studiously avoids the area of private actions, with one exception and that is the statute of limitations. Before we can get there, however, we have look at the existing statute of limitations scheme on which Sarbanes-Oxley builds, keeping in mind that our mission is to determine in what respects it is changed by Sarbanes-Oxley..

The Securities Acts contain statute of limitations relating to the express private actions. Section 13 of the Securities Act is applicable to private actions brought pursuant to Section 11, 12(1), and 12(a)(2). The Section 9(e) private action under the Exchange Act has its own built in statute of limitations and Section 18(a) private action has a separate statute of limitations (Section 18(c)) that is substantially identical. Unfortunately from this perspective, most private actions under the Exchange Act are brought under Rule 10b-5, which is an implied private action and, therefore, has no express period of limitations. Without getting into the detail, our courts sensibly generally find an analogous statute of limitations to apply to any implied cause of action. Somewhat less sensibly, it  took 47 years for the judicial system to make the obvious choice, the statute of limitations applicable to Section 9(e) is applicable to a Rule 10b-5 private action. See § 1.12.

Go to the complaint in SeaChange and use Find to go to paragraph 70 of the complaint. Click HERE. Note the allegations that the plaintiff makes that are statute of limitations related with respect to Count I, the Section 11 claim. Similar but abbreviated allegations are made at paragraph paragraph 76 with respect to Count II, which relates to the Section 12(a)(2) claim. Go to the complaint in Footstar (click HERE), use Find to go to the First Claim and search the allegations to determine whether you can find any statute of limitations allegations. What is the purpose of the allegations in paragraphs 70 and 76 of the complaint in Sea Change?  Why are there not similar allegations in the Footstar complaint? Might it have been advisable to include such allegations in the Footstar complaint. See § 1.02[4].See § 1.12[8].

Note the difference between Section 9(e) (within one year after the discovery) language and the Section 13 counterpart within one year after the discovery provision. See also § 1.12[2][b]. We could but won't spend several class sections trying to sort out the case law on applying the within one year after the discovery bar. To be candid, several courts have utilized this provision as a means of controlling what many regarded as out of control securities fraud class actions even before the adoption of the PSLRA. See § 1.12[3]; See § 1.12[4]. Judge Posner, notwithstanding the Seventh Circuit may be the worst offender in this regard, changed directions by taking into account what plaintiff needs to know in order to plead a 10b-5 claim. See § 1.12[5].

We take another look at the seven new cases on the Milberg Weiss Home Page on December 12, 2002,  Click HERE.. SmartForce announced its intention to restate its financial statements on November 19, 2002. The action was filed by Milberg Weiss on December 11. On November 8, 2002, Nash Finch issued press release disclosing SEC inquiry into its accounting practices. Milberg Weiss filed an action on December 4, 2002. Annuity Life on November 19, 2002 announced intention to file restatement of its financial results; Milberg Weiss filed on December 3, 2002.  DPL on July 1, 2002, announced would be revising its earnings estimate; Milberg Weiss filed on on December 2, 2002. Syncor on November 6, 2002, announced it was investigating possible payments in violation of the foreign corrupt practices act; Milberg Weiss filed on November 28, 2002. November 13, 2002, Footstar announced substantial discrepancies in reporting accounts payable; Milberg Weiss filed on November 14, 20002. So obviously, Milberg Weiss (and securities fraud class action lawyers generally) in most instances have no trouble in filing within one year of the discovery (or should have discovered) alleged violation, if we assume that the company's bad news announcement is the first indication of the alleged fraud. This is likely to be the case, but on some occasions there may have been something on the information superhighway that a court might deem to have given earlier notice. See § 1.12[4][f]. SeaChange Section 11 claim based on January 29, 2002 prospectus; filed on Oct. 30, 2002 (according to press release; November 14 according to listing of case on home page). Note of all seven cases, the one that goes back to the earliest date in naming the class period is DPL which alleges a class period from March 30, 1999 to August 14, 2002. Second in this regard is SmartForce from January 18, 2000 to September 6, 2002.

 The one provision of Sarbanes-Oxley that directly impacts private actions is Section 804 of the Act. See § 1.12[9] and § 1.12[10].. Section 804 is not an amendment to the Securities Act or the Exchange Act, but purports to apply to all "claims of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))." Be prepared to discuss the statutes of limitations generally and consider the following specific questions with respect to Section 804.

(1) How does extending the one to two years after discovery help the Milberg Weiss of the world? How might it help the main street lawyer who brings an occasional securities fraud actions, but not on a contingency?

(2) We noted above that the DPL case was filed on December 3, 2002 and the purported class period extended from March 30, 1999 to August 14, 2002.  If you represented the defendant, among other grounds for a motion to dismiss, what would you assert as to the class period? If you represent the plaintiff, how would you respond.

(3) Assume facts similar to those in SeaChange and someone who purchased in the offering came to you 15 months after the company was held liable for infringing a critical patent. Assume that you allege the case very much as was done in the SeaChange complaint as to the alleged misrepresentations, does Section 804 solve the statute of limitations problem for you? How might you allege the misrepresentations differently focusing solely on the need to bring yourself within the Section 804 period of limitations?