On March 26, 2012, the U.S. Supreme Court held, in Credit Suisse Securities (USA) LLC v. Simmonds, that a corporate insider’s failure to file a beneficial ownership report under § 16(a) of the Securities and Exchange Act of 1934, as amended, does not indefinitely toll the two-year statute of limitations for claims seeking recovery of “short-swing” profits under § 16(b) of the Exchange Act.

Overview of Section 16

Section 16(a) requires directors, certain officers, and beneficial owners of more than 10 percent of any registered class of equity securities to report changes in their ownership interests in such securities by filing a Form 4 with the Securities and Exchange Commission. Section 16(a) also requires such insiders to file initial beneficial ownership reports on Form 3 and, subject to certain exceptions, annual statements of beneficial ownership on Form 5.

Section 16(b) provides that a corporation, or any stockholder on behalf of such corporation, may bring suit against any insider who realizes profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any six-month period. The statute does not require proof that the insider traded in the corporation’s securities on the basis of material non-public information; rather, § 16(b) imposes a form of strict liability and creates a cause of action to require insiders to disgorge these “short-swing” profits to the corporation, even if they did not trade on the basis of inside information or intend to profit from such information. However, § 16(b) provides that “no such suit shall be brought more than two years after the date such profit was realized.”

Background of Simmonds in the Lower Courts

In 2007, Vanessa Simmonds filed 55 nearly identical lawsuits under § 16(b) against financial institutions that had underwritten IPOs in the late 1990s and 2000, alleging that the underwriters, together with the issuers’ insiders, had employed various mechanisms to artificially inflate the stock price above the IPO price, enabling them to profit from aftermarket sales of the shares—which sales occurred within six months of purchases of the shares by the underwriters and insiders in the IPOs.

Simmonds made the novel assertion that, as a group, the underwriters and insiders owned in excess of 10 percent of the outstanding stock during the relevant time period, thus subjecting them to the reporting requirements of § 16(a) and disgorgement of profits under § 16(b). The underwriters and insiders never filed reports under § 16(a) and denied that they were required to do so. Simmonds alleged that this failure to comply with § 16(a) tolled the two-year statute of limitations under § 16(b).

Simmonds’ lawsuits were consolidated, and the trial court dismissed all of her complaints as time-barred, finding that § 16(b)’s statute of limitations had long since expired. The U.S. Court of Appeals for the Ninth Circuit reversed the trial court, holding that § 16(b)’s two-year limitations period is “tolled until the insider discloses his transactions in a Section 16(a) filing, regardless of whether the plaintiff knew or should have known of the conduct at issue.” 638 F.3d, at 1095.

The Supreme Court’s Analysis

By an 8-0 vote (Justice Roberts recused himself from the case), the Supreme Court reversed the Ninth Circuit. In his opinion for the Court, Justice Scalia focused on the language of § 16(b), which states that the two-year clock starts “from the date such profit was realized.” Justice Scalia reasoned that “Congress could have very easily provided that ‘no such suit shall be brought more than two years after the filing of a statement under [§ 16(a)].’ But it did not. The text of § 16 simply does not support the [Ninth Circuit’s holding].”

The Court also focused on the unfairness of the Ninth Circuit’s approach, particularly in a case like Simmonds, where the insiders could plausibly claim that they were not required to file reports under § 16(a). Under the Ninth Circuit’s holding, an insider who disputes the applicability of § 16(a)’s reporting requirements would be placed in the untenable position of either filing a report or facing the prospect of § 16(b) liability in perpetuity.

At the same time, however, the Court split 4-4 on the question of whether § 16(b) establishes an absolute two-year period of repose that is not subject to the traditional doctrine of equitable tolling, under which a statute of limitations does not begin to run until the point at which a plaintiff is aware, or should have been aware, of the facts underlying a claim.


The Supreme Court’s unanimous ruling in Simmonds shields corporate insiders from potentially endless exposure to claims for disgorgement of “short-swing” profit under § 16(b) of the Exchange Act. That said, the Court left open the possibility of equitable tolling of the statute of limitations on a case-by-case basis. In particular, it is likely that future courts would apply principles of equitable tolling in the event of any bad-faith attempt to avoid liability under § 16(b) by intentionally neglecting to file required beneficial ownership reports under § 16(a).

Before trading in a corporation’s securities, corporate insiders are urged to be mindful of the applicable reporting requirements under § 16(a) of the Exchange Act and of the fact that § 16(b) imposes a strict liability standard for the disgorgement of any profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any six-month period.