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Securities law statute of limitations ruling overturned.

Congress overturned a favorable ruling by the U.S. Supreme Court that limited the time investors had to bring securities fraud suits.

In Lampf v. Gilbertson, the Court ruled litigation instituted under section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5 must begin within one year after discovery of the violation and no more than three years after the fraudulent act itself (see Legal Scene, JofA, Sept.91, page 28).

Since the decision applied retroactively, lower courts would have dismissed many pending security fraud claims on statute of limitations grounds. Congress, fearing defendants such as Charles Keating and Michael Milken might benefit, began immediate action to overturn the ruling.

As a result, one of the provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, signed into law by the president last December, is elimination of the retroactive impact of Lampf. Under the new law, plaintiffs with securities fraud actions pending on or before June 19, 1991-the date of the Lampf decision-are beneficiaries of the more liberal statute of limitations periods preceding Lampf.

Congress is now considering muting completely the favorable impact of the decision for defendants. Currently pending is the Securities Investors Legal Rights Act of 1991. If enacted, the bill will provide investors with three years to bring an action from the date of discovery of a violation but no more than five years from the date of the fraudulent act. This likely will lead to an increase in litigation against accountants and other defendants involved in securities litigation.
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Publication:Journal of Accountancy
Date:May 1, 1992
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