Bear Stearns Wins Dismissal of Hedge Fund's Securities Fraud Suit

In an opinion issued today, Judge Sweet dismissed the securities fraud claims of hedge fund SRM Global against Bear Stearns, its auditors and former executives. The suit dated back to the collapse of the mortgage-backed securities market and "near-collapse" of Bear Stearns itself in 2008. Judge Sweet ruled that the suit was time-barred. SRM had opted out of a class action that made substantially similar allegations and settled in 2012. SRM filed the instant suit on April 24, 2013, which was more than 5 years after alleged fraud was revealed in March 2008. As Judge Sweet explained, while the statute of limitations for securities fraud (which is 2 years) may be stayed during the pendency of a class action, the statute of repose (which is 5 years) was not. As the Second Circuit recently held in Police & Fire Ret. Sys. of Detroit v. IndyMac MBS, Inc.:

Statutes of limitations limit the availability of remedies and, accordingly, may be subject to equitable considerations, such as tolling, or a discovery rule. In contrast, statutes of repose affect the underlying right, not just the remedy, and thus they run without interruption once the necessary triggering event has occurred, even if equitable considerations would warrant tolling or even if the plaintiff has not yet, or could not yet have, discovered that she has a cause of action.

Judge Sweet also ruled that SRM did not have a private right of action for securities claims based on total-return swaps it had purchased on Bear stock.  Judge Sweet ruled that the swaps - transacted in from 2006 to 2008 - were not securities under then-existing securities laws.  In 2010, the Dodd-Frank reform act modified the definition of securities to include swaps, but Judge Sweet would not apply the definition retroactively.  Judge Sweet also dismissed the Section 18, 20 and common law fraud claims against Bear and its auditors.