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As with almost all business-related cases that go before the Supreme Court these days, the outcome of the securities fraud case Credit Suisse v. Simmonds will be scrutinized for where it ends up on the pro- or anti-business spectrum. Based on oral arguments Tuesday, the Court seemed headed toward the middle, giving both shareholder plaintiffs and the corporate and investment bank defendants something to like. Assistant to the solicitor general Jeffrey Wall even pitched his argument that way, telling the justices at the end of his presentation that “We’ve occupied the reasonable middle ground. Hope you like it.” The justices laughed approvingly. “Thank you, Mr. Wall. That’s a nice note on which to end,” said Justice Antonin Scalia. At issue is the statute of limitations under Section 16(b) of the Securities Exchange Act that requires certain insider trading suits to be filed within two years of the improper profits being realized. Is that a hard and fast deadline, as defendants want? Or can it be tolled, or delayed, until two years after the transactions are disclosed under Section 16(a) of the law, as plaintiffs want? The government’s middle ground would allow the two-year clock to start running at the point when an investor should reasonably become aware of the transactions. Justice Antonin Scalia presided over the argument on Tuesday because of the recusal of Chief Justice John Roberts Jr. The last time Credit Suisse was before the high court, in 2007, Justice Anthony Kennedy recused because his son Gregory worked there. Roberts also recused at first, but rejoined the case just before oral arguments, apparently after selling off possibly conflicting stocks. This time Kennedy stayed in the case because his son no longer works at Credit Suisse. The reason for Robert’ new recusal was not clear from his financial disclosure forms. Arguing for Credit Suisse on Tuesday was a former clerk of Scalia’s, Kirkland & Ellis partner Christopher Landau. He advocated viewing the two-year limit as a “statute of repose,” which means that it cannot be extended. But Justices Ruth Bader Ginsburg, Elena Kagan and Sonia Sotomayor peppered him with questions suggesting they view it as a “plain vanilla” statute of limitations, as Ginsburg put it. If their view prevails, that would be a victory for plaintiffs, because ordinary statutes of limitation are subject to “equitable tolling” or delay, if plaintiffs could not reasonably be expected to know they were injured until after the deadline. Landau countered that plaintiffs can be expected to be diligent and have many ways of finding out about insider transactions. “Buying and selling shares is not something that can be done alone in the dark of night,” Landau said. “You need to have other people involved with you. You need to have brokers complicit.” Sotomayor shot back, “So what is the likelihood that a broker’s going to turn you in?” The first statement from the bench sympathetic to defendants came during Wall’s argument for the government, which did not take sides in the case. Justice Stephen Breyer voiced concern that if the starting point of the two-year deadline was the filing of the insider trading report, the deadline might never run out, because sometimes a report is never filed. “A person who really thinks he doesn’t have to file, and so he doesn’t, will be liable forever,” said Breyer. Jeffrey Tilden of the Seattle firm Gordon Tilden Thomas & Cordell argued for the plaintiffs, shareholders seeking to recover from losses suffered from investments in initial public offerings before the dot-com bust. He said that a strict two-year deadline for filing suits “has an attractiveness if you are the defendant, but it doesn’t work well for the rest of us.” During the questioning of Tilden, Justices Kagan, Breyer and Sotomayor indicated they thought the solicitor general’s compromise of allowing the deadline to be extended but also requiring some diligence by shareholders, might be the best outcome. “It’s very simple and makes everything logical,” said Breyer. Tony Mauro can be contacted at [email protected].

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