LAMPF PLEVA LIPKIND PRUPIS & PETIGROW, PETITIONER V. JOHN
GILBERTSON, ET AL.

   No. 90-333

   In The Supreme Court Of The United States

   October Term, 1990

   On Writ Of Certiorari To The United States Court Of Appeals For The
Ninth Circuit

   Brief For The Securities And Exchange Commission As Amicus Curiae

            TABLE OF CONTENTS
   Question Presented
   Interest of the Securities and Exchange Commission
   Statement
   Summary of argument
   Argument:
      The statute of limitations governing Rule 10b-5
      private actions should be drawn from the five-year
      period found in Section 20A of the Securities Exchange
      Act:
      A. The traditional approach of borrowing state
         limitations periods under Rule 10b-5 has produced
         confusing and inconsistent results
      B. The statute of limitations for a federal claim
         having no express limitations period may be
         drawn from federal law in appropriate cases
      C. The five-year statute of limitations drawn from
         Section 20A should govern all Rule 10b-5
         claims
      D. The one-and-three-year limitations periods governing
         certain express causes of action in the
         federal securities laws should not be applied to
         Rule 10b-5
   Conclusion

                          QUESTION PRESENTED

   Whether the statute of limitations for implied private actions
under the antifraud provisions of Section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. 78j(b), and Rule 10b-5 thereunder, 17
C.F.R. 240.10b-5, should be drawn from state law or from an express
limitations period found in the federal securities laws.

          INTEREST OF THE SECURITIES AND EXCHANGE COMMISSION

   The Securities and Exchange Commission is responsible for the
administration and enforcement of the federal securities laws.  This
case presents the issue whether the statute of limitations for implied
private actions under the antifraud provisions of Section 10(b) of the
Securities Exchange Act of 1934 (Exchange Act or 1934 Act), 15 U.S.C.
78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5, should be
drawn from state law, or from an express limitations period found in
the federal securities laws.  Private actions provide "'a most
effective weapon in the enforcement' of the securities laws and are 'a
necessary supplement to Commission action.'" Bateman Eichler, Hill
Richards, Inc. v. Berner, 472 U.S. 299, 310 (1985), quoting J.I. Case
Co. v. Borak, 377 U.S. 426, 432 (1964).  The Commission has a strong
interest, therefore, in the development of principles governing such
private actions that promote, rather than impede, the purposes of the
securities laws.

                               STATEMENT

   1. From late 1979 through mid-1981, respondents purchased units in
one or more of seven similar limited partnerships.  The partnerships
bought, and then leased to others, computer hardware and software, and
were designed to provide tax advantages for investors.  Petitioner is
a law firm that helped organize the partnerships and provided legal
services, including preparing the tax opinion.  Pet. App. 28A-30A.

   The partnerships failed.  In addition, respondents later learned
that they did not realize tax benefits.  In 1982 and 1983, respondents
were notified that the Internal Revenue Service was investigating the
partnerships.  Pet. App. 31A-32A.  In 1985, according to respondents,
fraud was uncovered following the IRS's disallowance of tax benefits
because of overvaluation of partnership assets and lack of profit
motive.  See Resp. C.A. Joint Reply Br. 12-14.

   2. On November 3, 1986, respondents filed complaints in the United
States District Court for the District of Oregon.  /1/ The complaints
alleged that the offering memoranda misrepresented the tax
consequences of the investments, the profitability of the
partnerships' business, the marketability of the software, and the
accuracy of equipment appraisals, thereby violating, inter alia,
Section 10(b) of the Exchange Act and Rule 10b-5.  Pet. App. 32A-33A.

   On petitioner's motion for summary judgment, the district court
held that respondents' Section 10(b) claims were barred by the
applicable statute of limitations.  The court applied Oregon's
two-year period governing fraud claims, subject to tolling until the
injured party had "actual or inquiry notice" of the facts supporting
the complaint.  Because the court found that respondents were on
inquiry notice of fraud as early as October 1982 -- more than four
years before filing suit -- the court concluded that respondents'
claims were time-barred.  Pet. App. 35A-43A.

   3. The court of appeals reversed, holding that there were
unresolved factual issues regarding when respondents discovered or
should have discovered the alleged fraud that precluded summary
judgment.  Pet. App. 12A-18A.  The court thereby rejected petitioner's
argument that a federal limitations period, drawn from the Exchange
Act, of one year from discovery, but no more than three years from the
violation, should apply to Rule 10b-5 claims.  See Pet. C.A. Joint Br.
14-16, citing In re Data Access Systems Securities Litigation, 843
F.2d 1537 (3d Cir.), cert. denied, 488 U.S. 849 (1988).  The court
concluded that in the Ninth Circuit the "analogous forum state statute
of limitations period continues to govern Section 10(b) claims." Pet.
App. 12A.

                          SUMMARY OF ARGUMENT

   The borrowing of state limitations periods for Section 10(b) and
Rule 10b-5 private actions has generated widespread, persistent
confusion in the lower courts, and has made litigation under these
provisions needlessly complex and unpredictable.  Recently, three
courts of appeals, inspired by this Court's recent formulation of the
analysis for selecting statutes of limitations for federal claims
having no express period, have selected a limitations period from
federal law.  Although we disagree with those courts' selection of the
one-and-three-year periods dating from the original securities acts,
we agree that a uniform federal period should govern private Section
10(b) actions, and we believe that the five-year statute of
limitations contained in Section 20A of the Exchange Act, enacted in
the Insider Trading and Securities Fraud Enforcement Act of 1988, best
accommodates the competing interests.

   A federal limitations period should be borrowed when it governs a
claim that is more analogous to the right at issue than is any state
claim, and when policy concerns and litigation practicalities make the
federal period significantly better for securing the pertinent federal
interests.  Section 20A, which codifies a right of action for certain
insider trading violations, satisfies those requirements.  It
represents the only occasion on which Congress has provided an express
private right of action for violations of Section 10(b).  In taking
that step, Congress enacted a statute of limitations of five years
from the last transaction that is the subject of the violation.  Not
only are the elements of a Section 10(b) violation under Section 20A
the same as in other Section 10(b) claims, but the policy balance that
Congress struck in Section 20A, in establishing the appropriate length
of time to sue for certain insider trading violations, readily applies
to the general category of violations covered by Section 10(b).
Finally, borrowing Section 20A's limitations period promotes the
federal interest in uniform and efficient enforcement of the
securities laws throughout the Nation.

   The competing federal alternative is the one-and-three-year periods
provided when Congress enacted the securities laws over half a century
ago.  Not only do these periods represent a far more remote appraisal
of limitations policies, they also apply expressly to rights of action
that are not as closely analogous to Section 10(b) as the Section 20A
remedy.  Moreover, applying the one-and-three-year provisions at this
late date would substantially shorten the prevailing limitations
periods borrowed from state law and would thereby impair investor
protection.

   Selecting the one-and-three-year periods would also stimulate new
limitations disputes in Section 10(b) litigation, as courts and
litigants struggle to determine which of two limitations periods (the
five year or the one-and-three-year) governs a particular case.  The
likely proliferation of those disputes runs counter to the very
reasons for selecting a uniform federal period for Section 10(b) cases
in the first place.  Finally, adoption of the Section 20A period is
consonant with the consistent theme of the securities laws of ensuring
repose at a definite and predictable time, thus guarding against
lingering and stale claims.

                               ARGUMENT

   THE STATUTE OF LIMITATIONS GOVERNING RULE 10b-5 PRIVATE ACTIONS
SHOULD BE DRAWN FROM THE FIVE-YEAR PERIOD FOUND IN SECTION 20A OF THE
SECURITIES EXCHANGE ACT

   A. The Traditional Approach of Borrowing State Limitations Periods
Under Rule 10b-5 Has Produced Confusing and Inconsistent Results

   Congress did not expressly create a private cause of action under
Section 10(b);  accordingly, there is no express limitations period
for implied actions under Rule 10b-5.  /2/ Until recently, courts
faced with limitations questions under Rule 10b-5 routinely turned to
the state limitations period governing what was thought to be the most
appropriate analogy to the federal claim.  This "borrowing" of state
law accorded with the traditional practice of looking to the law of
the forum state to provide a limitations period for federal claims
when federal law is silent on the applicable limitations period.
American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 556 n.27 (1974);
Auto Workers v. Hoosier Cardinal Corp., 383 U.S. 696, 703-705 (1966);
Holmberg v. Armbrecht, 327 U.S. 392, 395 (1946).  On two occasions,
this Court noted the prevailing practice under Rule 10b-5 of applying
state limitations periods;  in neither case did the Court consider the
appropriateness of that practice or the practical difficulties it
engenders.  See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 210-211 &
n.29 (1976);  Herman & MacLean v. Huddleston, 459 U.S. 375, 384 & n.18
(1983).

   Experience has revealed, however, that the borrowing of state
limitations periods for Rule 10b-5 produces confusing and inconsistent
results.  The resort to state limitations periods requires an
assessment of which variety of state claim furnishes the most suitable
"analogy" to the Rule 10b-5 claim.  Courts have disagreed, however, on
the analytical approach to use in searching for the proper analogue.
/3/ Since there is a wide variety of potentially analogous state law
claims, the differing methods for discerning the limitations period
have resulted in borrowing several different types of statutes,
ranging in length from one to ten years.  /4/

   Early cases generally applied the periods governing common law
fraud.  /5/ Two courts of appeals continue to follow that approach,
/6/ although more recently courts have gravitated toward borrowing the
limitations periods governing blue sky private remedies.  /7/ Other
courts of appeals, however, apply either the forum state's blue sky
limitations period or the state's common law fraud period depending on
the State within the circuit.  /8/ One court of appeals applies the
period governing personal injury actions.  /9/

   The unpredictability fostered by inconsistent approaches to
selecting the applicable period is exacerbated by the uncertainty
surrounding subsidiary issues.  Conflict-of-laws principles, as
applied to securities transactions touching many States, make matters
particularly unpredictable.  Further uncertainty can result when the
borrowed state law has been changed or amended.  Confused and
inconsistent approaches to questions such as tolling inject another
level of uncertainty.  /10/ Deciding which features of state periods
to adopt "wastes untold hours." Norris v. Wirtz, 818 F.2d 1329, 1332
(7th Cir.), cert. denied, 484 U.S. 943 (1987).

   Recently, the Second, Third, and Seventh Circuits have charted a
new course.  /11/ Those courts have held that the limitations periods
governing certain of the express causes of action under the federal
securities laws are the most appropriate source from which to draw a
limitations period for Rule 10b-5 actions.  We disagree with those
courts that some variation of the one-year-from-discovery, but
no-more-than-three-years-from-the-violation periods, provided more
than a half century ago in the original securities acts, is the
appropriate limitations period for Rule 10b-5 claims.  We do believe,
however, that a uniform federal limitations period should be applied
to such private actions.  In our view, the five-year limitations
period in Section 20A of the Exchange Act, enacted in the Insider
Trading and Securities Fraud Enforcement Act of 1988, Pub. L. No.
100-704, Section 5, 102 Stat. 4681, affords Congress's most recent
views on the accomodation of competing interests, provides the closest
federal analogy, and promises to yield the best practical and policy
results in Rule 10b-5 litigation.  /12/

   B. The Statute Of Limitations For A Federal Claim Having No Express
Limitations Period May Be Drawn From Federal Law In Appropriate Cases

   In a recent series of decisions, this Court has clarified the
analytical framework for determing the appropriate statute of
limitations when a federal statute is silent with respect to the
applicable limitations period.  "(A) clear majority of the Court (has)
rejected (the) single path" of resorting only to state law, Agency
Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 146
(1987), and has ruled that the Court's task is to select "the most
suitable statute or other rule of timeliness from * * * (a) source" in
state or federal law.  DelCostello v. International Bhd. of Teamsters,
462 U.S. 151, 158 (1983).  /13/

   The first step of the inquiry is to determine "whether all claims
arising out of the federal statute 'should be characterized in the
same way, or whether they should be evaluated differently depending
upon the varying factual circumstances and legal theories presented in
each individual case.'" Agency Holding Corp., 483 U.S. at 147;  Reed
v. United Transp. Union, 488 U.S. 319, 325-326 (1989) (adopting
uniform characterization where necessary to avoid "(t)ime-consuming
litigation as to (a) collateral question" that would divert resources
and discourage the assertion of claims under Section 101(a)(2) of the
Labor Management Reporting and Disclosure Act, 29 U.S.C. 411(a)(2)).
/14/ The characterization of a federal claim for this purpose is
usually governed by federal law.  Agency Holding Corp., 483 U.S. at
147;  Wilson v. Garcia, 471 U.S. 261, 269-270 (1985).

   The second step is "whether a federal or state statute of
limitations should be used." Agency Holding Corp., 483 U.S. at 147.
In view of the Court's historical borrowing of state law, it can
generally be assumed "that Congress intends by its silence that we
borrow state law." Ibid.  However, "'state statutes of limitations can
be unsatisfactory vehicles for the enforcement of federal law,'"
ibid., quoting DelCostello, 462 U.S. at 161, in which event a federal
statute may supply the better choice.

      (R)esort to state law remains the norm for borrowing of
      limitations periods.  Nevertheless, when a rule from elsewhere
      in federal law clearly provides a closer analogy than available
      state statutes, and when the federal policies at stake and the
      practicalities of litigation make that rule a significantly more
      appropriate vehicle for interstitial lawmaking, we have not
      hesitated to turn from state law.

DelCostello, 462 U.S. at 171-172.

   Four Terms ago, the Court applied that two-step analysis and held
that the Clayton Act limitations period, 15 U.S.C. 15b, rather than
state statutes of limitations, should govern civil RICO claims.
Agency Holding Corp., 483 U.S. at 148-157.  See also DelCostello,
supra (applying limitations period provided in Section 10(b) of the
National Labor Relations Act to Section 301/fair representation
claims);  Occidental Life Ins. Co. v. EEOC, 432 U.S. 355 (1977)
(refusing to apply a state statute of limitations to EEOC enforcement
actions);  McAllister v. Magnolia Petroleum Co., 357 U.S. 221 (1958)
(applying federal limitations period to unseaworthiness action under
maritime law);  Holmberg v. Armbrecht, supra (applying federal
doctrine of laches, rather than state limitations period, to equitable
enforcement of federal right).  Here, the same principles mandate the
adoption for Section 10(b) and Rule 10b-5 of the five-year limitations
period found in Section 20A of the Exchange Act.

   C. The Five-Year Statute of Limitations Drawn From Section 20A
Should Govern All Rule 10b-5 Claims

   1. All private Rule 10b-5 claims should be characterized in a
consistent way.  Applying the first step in the analysis, we believe
that all Rule 10b-5 claims deserve a consistent characterization for
selecting the appropriate statute of limitations.  Like RICO and
Section 1983, Section 10(b) and Rule 10b-5 "encompass numerous and
diverse topics and subtopics." Data Access, 843 F.2d at 1543.  An
action under Section 10(b) and Rule 10b-5 "can be brought by a
purchaser or seller of 'any security' against 'any person' who has
used 'any manipulative or deceptive device or contrivance'."
Huddleston, 459 U.S. at 382.  This sweeping language encompasses
claims that, on their particular facts, may be analogized to actions
for common law fraud, breach of fiduciary duty, breach of contract,
misappropriation, and violations of blue sky laws, among others.  See
p. 24 n.36, infra (describing examples of Rule 10b-5 claims).

   In view of the broad remedial purposes animating the federal
securities laws, see, e.g., Huddleston, 459 U.S. at 386-87, legal
rules that serve the goal of "facilitating Rule 10b-5 litigation"
promote the "congressional policy embodied in the 1934 Act." Basic
Inc. v. Levinson, 485 U.S. at 245.  Protracted disputes over the
collateral issue of the appropriate statute of limitations disserve
the legislative purpose of facilitating an effective remedy for
defrauded investors.  Under these circumstances, uniform
characterization "is required to avoid intolerable 'uncertainty and
time-consuming litigation.'" Agency Holding, 483 U.S. at 150, quoting
Wilson v. Garcia, 471 U.S. at 272.

   2. No state law claim provides a suitable analogy for Rule 10b-5
claims.  For many of the same reasons, there is no adequate state law
analogy for Rule 10b-5 claims.  The inability of the lower courts to
agree on an appropriate period, despite decades of litigation,
highlights the shortcomings of state law.  A comparison of the two
leading contenders -- common law fraud and blue sky law -- serves to
illustrate the problem.

   Common law fraud actions initially appealed to courts seeking a
Rule 10b-5 analogue.  Yet, this Court has observed that common law
fraud doctrines were developed in contexts "light years away from the
world of commercial transactions to which Rule 10b-5 is applicable."
Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 744-745 (1975).
Indeed, one of Congress's paramount objectives in enacting Section
10(b) was to "rectify perceived deficiencies in the available common
law protections by establishing higher standards of conduct."
Huddleston, 459 U.S. at 389.  Thus, "(a)ctions under Rule 10-b are
distinct from common-law deceit and misrepresentation claims * * * and
are in part designed to add to the protections provided investors by
the common law." Basic Inc. v. Levinson, 485 U.S. at 244 n.22.  In
view of these differences, common law fraud provides only a rough
analogy to claims under Section 10(b) and Rule 10b-5 -- and the
limitations period governing common law fraud provides only a crude
approximation of the balance of competing interests at stake in
Section 10(b) private litigation.

   Likewise, the blue sky civil remedy provisions generally vary in
significant respects from claims under Section 10(b) and Rule 10b-5.
Many jurisdictions have adopted antifraud provisions patterned after
Section 410(a) of the Uniform Securities Act, which provides an
express private right of action similar to Section 12(2) of the
Securities Act of 1933 (Securities Act or 1933 Act), 15 U.S.C. 77l(2).
 Like Section 12(2), but unlike Section 10(b), these blue sky
provisions do not require proof of scienter, reliance, or causation.
Significantly, blue sky civil remedy provisions "come() in a variety
of shapes and sizes" varying considerably from state to state.  L.
Loss, Fundamentals of Securities Regulation 877-879 (2d ed. 1988).  In
view of the nuances and variation among the state securities laws,
their limitations periods do not provide a promising source for a
uniform, predictable rule.

   3. Section 20A of the Exchange Act provides a closer analogy to
Rule 10b-5 than do state law alternatives.  Here, as in Agency Holding
Corp., 483 U.S. at 150, "it is a federal statute that offers the
closest analogy" to Rule 10b-5 -- Section 20A of the Exchange Act, 15
U.S.C. 78t-1.  Indeed, Section 20A is more than a mere "analogy." It
provides an express cause of action (on behalf of certain victims of
insider trading) based on violations of the very provisions at issue
here, Section 10(b) and Rule 10b-5.  Section 20A codifies an express
private right of action on behalf of persons trading contemporaneously
in the market against "(a)ny person who violates any provision of this
title or the rules or regulations thereunder by purchasing or selling
a security while in possession of material, nonpublic information."
/15/ Section 20A(b)(4), 15 U.S.C. 78t-1(b)(4), sets forth an express
statute of limitations:

      No action may be brought under this section more than 5 years
      after the date of the last transaction that is the subject of
      the violation.

   Unlike any other express action in the federal securities laws,
Section 20A specifically authorizes recovery for a particular type of
Rule 10-5 violation.  Actions brought under Section 20A, based on Rule
10b-5 violations, therefore require the plaintiff to establish the
same elements of the violation as any claim brought under Rule 10b-5:
(1) that the defendant engaged in fraud or manipulation, Santa Fe
Indus., Inc. v. Green, 430 U.S. 462, 471-474 (1977);  (2) that he
acted with scienter, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193
(1976);  (3) that the misconduct related to a "material" fact, Basic
Inc. v. Levinson, 485 U.S. at 238;  and (4) that the misconduct
occurred "in connection with" a securities transaction, Blue Chip
Stamps v. Manor Drug Stores, 421 U.S. at 749.  /16/ Moreover, a claim
under Section 20A, when premised on a violation of Rule 10b-5, is
designed to further the same federal antifraud policies vindicated in
any lawsuit under Section 10(b).  /17/

   Although Section 20A is addressed solely to insider trading, that
consideration does not undermine its comparability to other Rule 10b-5
violations for purposes of choosing a limitations period.  Contrary to
the Second Circuit's view that Section 20A has "no relationship" to
many types of Section 10(b) claims, Ceres Partners v. GEL Associates,
No. 89-7666 (Nov. 8, 1990), slip op. 7271, the correspondence of
elements required to establish a violation creates a compelling
"analogy" between Section 20A and Rule 10b-5 generally;  no other
express cause of action under the securities laws reflects that match.
 /18/ Moreover, the competing policies that Congress had to balance in
enacting Section 20A's five-year limitations period, in the context of
legislation dealing with insider trading, carry over to other forms of
action based on Rule 10b-5.  As the Second Circuit noted, a central
concern of Congress was to address "the difficulties of ferreting out
evidence sufficient to prosecute insider trading cases," Ceres
Partners, slip op. 7271.  Other Rule 10b-5 plaintiffs face equally
daunting problems in ferreting out evidence of fraud.  /19/
Consequently, Congress's accommodation of policies, in determining to
limit fraud claims under Section 20A by a five-year statute, fairly
reflects the appropriate balance in other Rule 10b-5 contexts as well.
 /20/

   4. Policy and practical considerations favor Section 20A over state
law.  There are compelling reasons to reject the application of state
law to Rule 10b-5 claims.  A principal purpose of the Exchange Act is
to regulate the securities markets, which are inherently national in
scope.  See Blue Chip Stamps, 421 U.S. at 744-745.  The securities
laws are built around a jurisdictional nexus to interstate commerce or
the mails, and were enacted in part because no single State's laws are
capable of regulating the Nation's capital markets.  See 15 U.S.C.
78b.  Cf. Agency Holding Corp., 483 U.S.C. at 153-154.  "Congress
enacted a national rule against fraud because it believed that
national law ought to govern multistate transactions.  Returning to
state law to fetch a period of limitations is inconsistent in spirit
with this decision." Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385,
1388 (7th Cir. 1990), petition for cert. pending, No. 90-526;  see
Ceres Partners, slip op. 7266.

   Moreover, reference to state limitations periods under Rule 10b-5
results "in wholly unjustified disparities in the rights of parties
litigating identical claims in different states." American Bar
Association, Report of the Task Force on Statute of Limitations for
Implied Actions, 41 Bus. Law. 645, 647 (1986) (hereinafter ABA
Report).  Multidistrict cases and class actions starkly illuminate
those disparities.  /21/ Not only are different limitations periods
unfair, they also invite use of the broad venue provisions of the
securities laws to engage in forum shopping.  Ibid.  Although
conflicts principles and borrowing statutes may discourage abuses, the
application of choice-of-law doctrines complicates an already baffling
and unpredictable process.  Given the multistate nature of claims
under Section 10(b) and Rule 10b-5, the borrowing of state law has
resulted in "complex and expensive litigation over what should be a
straightforward matter." Agency Holding Corp., 483 U.S. at 154.

   Courts /22/ and commentators /23/ agree that federal policy and the
efficiency of litigation are impaired by the borrowing of state law.
The use of a limitations period drawn from Section 20A eliminates the
quagmire that has resulted from looking to a "grab-bag," L. Loss,
supra, at 995, of more or less analogous state statutes.  It ensures
that federal interests are protected by a defined, nationally uniform
limitations period that is suited to the policies underlying the
securities laws.

   D. The One-And-Three-Year Limitations Periods Governing Certain
Express Causes of Action In The Federal Securities Laws Should Not Be
Applied To Rule 10b-5

   The competing federal alternative to Section 20A is some form of
the one-and-three-year limitations periods applicable to the express
causes of action in the 1933 Act and to certain of the express actions
in the 1934 Act.  Congress, acting for the first time in 1988 to
codify a private right based on a Section 10(b) violation, did not
select those periods.  Likewise, in our view, this Court should not
apply those periods to Section 10(b) private actions generally.  /24/

   1. The one-and-three-year periods apply to rights of action that
are not more analogous to Rule 10b-5 than is Section 20A.

   a. Rule 10b-5 differs from the express rights of action that are
subject to the one-and-three-year periods in the 1933 and 1934 Acts in
ways that substantially undercut the force of any analogy between
those rights and Rule 10b-5.  /25/ Sections 11 and 12 of the 1933 Act,
15 U.S.C. 77k, 77l, unlike Section 10(b), provide remedies that do not
require the plaintiff to prove scienter, reliance, or causation and
that shift certain burdens of proof to the defendant.  See L. Loss,
supra, at 883-886, 887-895, 896-900.  /26/ Section 9 of the 1934 Act,
15 U.S.C. 78i -- unlike the flexible Section 10(b) -- is aimed at a
static range of particular manipulative practices, and applies only to
securities registered on a national securities exchange (and therefore
has no application to the securities offered here).  /27/ Section 18
of the 1934 Act, 15 U.S.C. 78r, pertains only to false or misleading
reports filed with the Commission (again, irrelevant here), and,
unlike Section 10(b), does not require that the plaintiff prove
scienter;  in fact, it shifts the burden to the defendant to show good
faith.  /28/ In contrast, private actions under Section 10(b)
ordinarily require that the plaintiff prove scienter, reliance, and
causation.  Indeed, the 73d Congress enacted the relatively short
limitations periods for the express rights in part because of the
comparatively light burden placed on a plaintiff in an action under
many of the express remedy provisions.  /29/

   This Court has shaped the private right of action under Section
10(b) with the understanding that the one-and-three-year limitations
periods do not apply to it.  In Ernst & Ernst v. Hochfelder, the Court
held that scienter, rather than negligence, must be established in a
Section 10(b) action.  As one factor supporting that conclusion, the
Court noted that while the express causes of action under the 1933 Act
permit recovery on a negligence theory, they are subject to
"significant procedural restrictions not applicable under Section
10(b)," 425 U.S. at 208-209, including the one-and-three-year
limitations period.  Id. at 210.  Section 10(b) claims, the Court
observed, enjoyed the benefit of state statutes of limitations that
"usually are longer than the period provided under (the 1933 Act)."
Id. at 210 n.29.  Because Section 10(b) claims lack the "procedural
limitations" applicable to the express causes of action, the
negligence standard of those provisions could not be extended to
Section 10(b) "consistently with the intent of Congress." 425 U.S. at
210.  Building on the same principle, Herman & McLean v. Huddleston
concluded that the rights of action under Section 10(b) and Section 11
of the 1933 Act are cumulatively available to a defrauded investor.
459 U.S. at 381-387.  In reaching that conclusion, the Court again
relied on the differences between Section 11 and Section 10(b) --
including the fact that while Section 10(b) requires scienter, it
lacks procedural restrictions, such as a short statute of limitations.
 459 U.S. at 384 n.18 (state limitations period for "Section 10(b) * *
* is usually longer than the period provided for Section 11 actions").

   b. Quite apart from the fact that engrafting the one-and-three-year
periods onto Section 10(b) is inconsistent with those aspects of
Hochfelder and Huddleston, it is also crucial to note that there is no
single "one-and-three-year" period in the securities laws;  rather,
there are only multiple variations on a theme, each uniquely fashioned
for a particular express right of action.  See L. Loss, supra, at
988-991.

   Section 9(e) of the 1934 Act provides a period of one year after
"discovery of the facts constituting the violation," but no more than
three years after "such violation." 15 U.S.C. 78i(e).  Section 18(c),
in contrast, starts the one-year period after discovery of facts
constituting "the cause of action," and bars suits three years after
the cause of action "accrued." 15 U.S.C. 78r(c).  And, Section
29(b)'sone-and-three-year periods are tied to the date of the "sale or
purchase" involving the violation.  15 U.S.C. 78cc(b).  These
variations in language can produce strikingly different results when
applied to the same set of facts.  /30/ Section 13 of the 1933 Act, in
turn, provides still other variations for each of its express rights
of action.  15 U.S.C. 77m.  In particular, claims under Sections 11
and 12(2) -- unlike claims under Sections 9, 18, and 29 of the 1934
Act -- must be filed within one year of actual or constructive
discovery ("after such discovery should have been made by the exercise
of reasonable diligence").  /31/ The three-year outside periods also
begin to run from different events -- after the security was "bona
fide offered" for Section 11, but after the "sale" for Section 12(2).
/32/

   Although these variations can make a critical difference for the
timeliness of any particular action, the courts of appeals that have
embraced the one-and-three-year periods appear not to have appreciated
the quandary.  The Third Circuit, leading the way in Data Access,
purported to apply the general one-and-three-year "schema" in the
Exchange Act, 843 F.2d at 1546, but ultimately adopted a limitations
period of "one year after the plaintiff discovers the facts
constituting the violation, and in no event more than three years
after such violation", id. at 1550, a formulation that corresponds to
Section 9(e) of the 1934 Act.  /33/ The Seventh Circuit, following on
the heels of Data Access, mistakenly thought that the Third Circuit
had selected Section 13 of the 1933 Act;  it then concluded that
Section 12(2) formed the appropriate model for Rule 10b-5, and
ultimately adopted Section 12(2)'s one-and-three-year limitations
provision.  Short, 908 F.2d at 1390-1391.  But that provision includes
a constructive discovery limitation on the one-year period, in
conflict with the choice made by Data Access.  /34/ Finally, the
Second Circuit held that Rule 10b-5 claims would be governed by "the
statute of limitations provided in the 1934 Act for express rights of
action under Sections 9(e) and 18(a) of that Act," Ceres Partners,
slip op. 7274, even though the language of those two provisions
differs.  The three-way conflict generated by the courts of appeals
underscores the futility of searching for an apt analogy in any of the
express rights of action enacted in 1933 and 1934 for purposes of
selecting the appropriate statute of limitations for Rule 10b-5.

   2. Policy considerations militate against the one-and-three-year
system.  Applying the relatively short one-and-three-year periods
frustrates important policy goals as well.  /35/ As the law has
developed, Rule 10b-5 is vastly more important in combatting fraud
than are the express remedies provided in the 1933 and 1934 Acts.
Borrowing the shorter limitations periods found in those Acts for Rule
10b-5 would impede enforcement of the Rule's requirements, and would
thereby impair the securities laws' function of protecting investors.

   Section 10(b) and Rule 10b-5 have come to embrace a diversity of
claims which could not have been envisioned in 1934.  This Court has
consistently construed those provisions broadly, noting that they "are
obviously meant to be inclusive." Affiliated Ute Citizens v. United
States, 406 U.S. 128, 151 (1972).  See Huddleston, 459 U.S. at 386;
United States v. Naftalin, 441 U.S. 768, 773 (1979).  /36/ By
contrast, the express remedies governed by the one-and-three-year
limitations periods are much more limited in scope.  Indeed, the
implication of a right of action under Rule 10b-5 is justified in part
because the specific liabilities created by the express causes of
action in the Exchange Act "do not cover all the variegated activities
with which that act is concerned." 3 L. Loss, Securities Regulation
1785 (2d ed. 1961).

   The one-and-three-year periods, if applied to Rule 10b-5, would
deprive many defrauded investors of a satisfactory opportunity to
vindicate their rights.  Especially in complex cases, plaintiffs often
"do not discover the fraud until long after its perpetration." ABA
Report, supra, at 656.  /37/ Violations involving financial fraud, for
instance, often go undetected until the enterprise fails, an event
that may occur years after the violation.  Moreover, as the securities
markets have grown in size and complexity, frauds have become
increasingly difficult to discover.  /38/ Thus, we do not agree with
the Seventh Circuit's sanguine view that "(p)rudent investors can
almost always sniff out fraud (or enough smoke to justify litigation)
within three years," Short, 908 F.2d at 1392;  in the Commission's
experience, a considerable number of frauds are simply not detected
within that period of time.

   Because "the interests of plaintiffs in (Rule 10b-5) suits are
significant," Huddleston, 459 U.S. at 390, and private actions
"constitute() an essential tool for enforcement of the 1934 Act's
requirements", Basic Inc., 485 U.S. at 231, the adequacy of a
limitations period to serve the purposes of the Rule is an important
consideration.  In this case, application of the short
one-and-three-year periods threatens to undermine the effectiveness of
the Rule 10b-5 remedy.  Cf. Agency Holding Corp., 483 U.S. at 154
(rejecting use of "unduly short state statutes of limitations that
would thwart the legislative purpose of creating an effective
remedy");  DelCostello, 462 U.S. at 166, 167-168 (rejecting state
limitations periods that were too short to vindicate federal rights).

   3. Applying the one-and-three-year periods would perpetuate
uncertainty over limitations issues.  Adoption of a one-and-three-year
provision would mean that actions based on Rule 10b-5 violations would
be subject to two different statutes of limitations -- those periods
and Section 20A(b)(4).  This would inevitably engender confusion.  As
the Seventh Circuit noted, "(c)lever lawyers could describe even a
garden variety fraud as 'purchasing or selling a security while in
possession of material, nonpublic information' -- that is, the truth
-- blurring the line between the offenses and making the choice of a
period of limitations difficult." Short, 908 F.2d at 1391.  /39/
Application of different periods to different types of claims based on
Section 10(b) will give parties an incentive to engage in "artful
pleading" in the hope of "persuad(ing) the court that the facts and
legal theories of a particular * * * claim" fall within Section 20A's
longer limitations period.  Owens v. Okure, 488 U.S. 235, 240 (1989).
Courts and parties would be called upon to wrestle with these
characterization questions -- a result which runs counter to the
reasons for choosing a uniform federal rule in the first place.
Section 20A eliminates those problems.

   The problem with selecting the one-and-three-year periods is
accentuated in Rule 10b-5 insider trading cases.  In Section 20A,
Congress codified a Rule 10b-5 cause of action for contemporaneous
traders;  the legislative history, however, acknowledged that "there
clearly are injuries caused by insider trading to others beyond
contemporaneous traders." H.R. Rep. No. 910, supra, at 27.  For
example, the Committee Report cited Anheuser-Busch Co. v. Thayer, No.
CA3-0794-R (N.D. Tex. 1986), in which Anheuser-Busch sued one of its
directors alleging that he had disclosed information about
Anheuser-Busch's proposed acquisition of another firm to persons who
purchased stock in the target company and thereby drove up the
acquisition price.  H.R. Rep. No. 910, supra, at 28.  Although
Congress did not cover that form of injury in Section 20A, the theory
of Anheuser-Busch was recognized as a valid basis for recovery under
Section 10(b).  Ibid.  As a result, when a defendant misappropriates
information from an acquiring company, contemporaneous traders have
five years to sue under Section 20A.  But, if the one-and-three-year
periods apply to other Rule 10b-5 actions, the acquiring firm -- a
direct victim of the fraud -- would have a significantly shorter time
to sue for the same violation.  Anomalies like that serve no useful
purpose and underscore the need for a single, consistent statute.

   4. Section 20A better reflects Congress's current appraisal of the
relevant policies.  As a result of the passage of time and "the
peculiar blend of legislative, administrative, and judicial history
which now surrounds (the) Rule," Blue Chip Stamps, 421 U.S. at 749,
the force of arguments for choosing the half-century old limitations
periods in the 1933 and 1934 Acts for Rule 10b-5 has significantly
diminished.  For over 40 yeras, courts assumed that state limitations
periods, and not the federal one-and-three-year periods, governed
claims under Rule 10b-5.  Since the one-and-three-year periods "are
shorter than the typical periods in whatever state statutes the courts
have looked to traditionally," /40/ applying them would represent a
substantial retrenchment from the present state of the law.  /41/ In
contrast, the five-year limitations provision in Section 20A would
better approximate the traditional state law periods, while providing
the requisite uniformity.

   The Seventh Circuit supported its preference for a
one-and-three-year provision in part because of its belief that that
period alone could secure an outer limit of "repose";  Section 20A,
the court thought, may be subject to equitable tolling.  Short, 908
F.2d at 1391-1392.  We agree that the fixing of a defined point of
repose is an important structural component of Congress's plan for
private securities law actions.  But the same benefit is available
under Section 20A.

   First, although the Court has stated that equitable tolling is
"read into every federal statute of limitations," Holmberg v.
Armbrecht, 327 U.S. at 397, the Court, to our knowledge, has never had
occasion to apply that principle to a right of action implied from a
statute containing express rights systematically governed by
non-tollable limitations periods.  /42/ That is the situation with
respect to Section 20A.

   Second, the outside period of repose in the 1933 and 1934 Act
periods reflects a general congressional policy against tolling of
securities claims that applies equally to Section 20A.  This policy
stems from the view that, if tolling is available, potential
defendants will be subject to contingent liabilities for indefinite
periods.  /43/ Not only might this "deter (individuals) from serving
on boards of directors" because of fear of lingering liabilities, 78
Cong. Rec. 8200 (1934) (remarks of Sen. Byrnes), it could make it more
difficult for public companies to "assess the impact of possible
litigation under rule 10b-5" for financial statement purposes, thereby
possibly adversely affecting the accuracy of their disclosure and
"depriv(ing) investors of information adequate for informed evaluation
of such companies' potential liabilities" for a longer period of time.
 ABA Report, supra, at 646-47.

   Third, the language of Section 20A(b)(4) suggests that tolling is
inappropriate.  In contrast to statutes in which the limitations
period runs from the time the "cause of action accrued," /44/ Section
20A(b)(4) provides a limitations period that runs from the "date of
the last transaction that is the subject of the violation." /45/ That
is a much more exact starting point, especially since courts often
view a cause of action as accruing at the date of discovery.  /46/

   Fourth, barring private actions after five years does not insulate
the wrongdoer from all exposure;  Rule 10b-5 actions brought by the
Commission (except for certain penalty claims) are not subject to any
limitations period.

   In sum, a five-year non-tollable limitations period drawn from
Section 20A would provide a more appropriate statute of limitations
than the unduly short one-and-three-year periods, and would be in
keeping with the important congressional interest in repose.  Against
that background, we see no adequate textual, historical, or policy
justification for this Court to prefer a limitations period enacted by
Congress more than half a century ago, with certain quite different
and delimited rights of action in mind, over a limitations period that
Congress so recently enacted for certain violations of Rule 10b-5
itself.  /47/

                              CONCLUSION

   A five-year limitations period drawn from Section 20A of the
Securities Exchange Act, not subject to tolling, should be applied to
claims under Section 10(b) and Rule 10b-5.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JOHN G. ROBERTS, JR.

      Deputy Solicitor General

   MICHAEL R. DREEBEN

      Assistant to the Solicitor General

   JAMES R. DOTY

      General Counsel

   PAUL GONSON

      Solicitor

   JACOB H. STILLMAN

      Associate General Counsel

   THOMAS L. RIESENBERG

      Assistant General Counsel

   RADA L. POTTS

   MICHAEL G. LENETT

      Attorneys Securities and Exchange Commission

   DECEMBER 1990

   /1/ On June 4, 1987, a third complaint was filed by respondent
Anthony Catalan.  The district court consolidated the three actions
for discovery and pretrial proceedings.  Resp. C.A. Joint Br. 5 n.4.

   /2/ See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196 (1976).
Shortly after the Commission adopted Rule 10b-5, a district court held
that there was an implied right of action under the Rule.  Kardon v.
National Gypsum Co., 69 F. Supp. 512 (E.D. Pa. 1946).  Since that
time, an implied right of action under Rule 10b-5 has been uniformly
recognized by courts and sanctioned by congressional acquiescence.
Basic Inc. v. Levinson, 485 U.S. 224, 230-231 (1988).  The existence
of the implied right of action is today "simply beyond peradventure."
Herman & MacLean v. Huddleston, 459 U.S. 375, 380-381 & n.10 (1983).

   /3/ Some courts apply a "substantive resemblance" test, which
examines the similarity of the elements of the state and federal
claims;  other courts apply a "commonality of purpose" test, which
examines the similarity of the policies vindicated by the two claims.
See generally Note, Limitation Borrowing in Federal Courts, 77 Mich.
L. Rev. 1127, 1136-1139 (1979);  5C A. Jacobs, Litigation and Practice
Under Rule 10b-5 Section 235.02 (rev. 2d ed. 1990).  The two
approaches frequently lead to divergent results.  Compare O'Hara v.
Kovens, 625 F.2d 15 (4th Cir. 1980) (using "commonality of purpose"
approach and selecting state blue sky law period), cert. denied, 449
U.S. 1124 (1981), with Wood v. Combustion Eng'g, Inc., 643 F.2d 339
(5th Cir. 1981) (applying "substantive resemblance" test and selecting
state fraud period).

   /4/ See O'Hara v. Kovens, 625 F.2d at 18 (applying the one-year
Maryland blue sky law limitations period, Md. Corp. & Ass'ns Code Ann.
11-703(f));  Denny v. Performance Sys., Inc. (1971-1972) Fed. Sec. L.
Rep. (CCH) 93,387 (M.D. Tenn. 1971) (applying Tennessee's ten-year
limitations period governing fraud, Tenn. Code Ann. Section 28-310);
see generally American Bar Association, Report of the Task Force on
Statute of Limitations for Implied Actions, 41 Bus. Law. 645, 646
(1985).  See also Gov't Amicus Br. App. 1a-4a, Lebman v. Aktiebolaget
Electrolux, No. 88-1114, cert. denied, 109 S. Ct. 3214 (1989).  (We
have provided the parties here with a copy of our brief in Lebman.)

   /5/ The first case of which we are aware to consider the applicable
statute of limitations for Section 10(b) claims was Osborne v.
Mallory, 86 F. Supp. 869 (S.D.N.Y. 1949).  There, the court applied
New York's six-year statute of limitations governing fraud.  The first
appellate court to consider the issue also chose the New York six-year
statute of limitations.  Fischman v. Raytheon Mfg. Co., 188 F.2d 783
(2d Cir. 1951).

   /6/ Nesbit v. McNeil, 896 F.2d 380 (9th Cir. 1990);  Bath v.
Bushkin, Gaims, Gaines & Jonas, 913 F.2d 817 (10th Cir. 1990).

   /7/ See O'Hara v. Kovens, supra;  Morris v. Stifel, Nicolaus & Co.,
600 F.2d 139 (8th Cir. 1979);  Forrestal Village, Inc. v. Graham, 551
F.2d 411 (D.C. Cir. 1977);  see also Friedlander v. Troutman, Sanders,
Lockerman & Ashmore, 788 F.2d 1500 (11th Cir. 1986).

   /8/ Compare Herm v. Stafford, 663 F.2d 669 (6th Cir. 1981)
(applying Kentucky's three-year limitations period governing blue sky
law claims), with Gaudin v. KDI Corp., 576 F.2d 708 (6th Cir. 1978)
(applying a four-year limitations period from Ohio's general fraud
statute).  Compare Wood v. Combustion Eng'g, Inc., supra (applying a
two-year limitations period governing claims under the Texas
actionable fraud statute), with Jensen v. Snellings, 841 F.2d 600 (5th
Cir. 1988) (applying Louisiana's two-year blue sky law period).

   /9/ Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123 (1st Cir.
1987).

   /10/ See Special Project, Time Bars in Specialized Federal Common
Law:  Federal Rights of Action and State Statutes of Limitations, 65
Cornell L. Rev. 1011, 1084-1095 (1980).

   /11/ See In re Data Access Systems Securities Litigation, 843 F.2d
1537 (3d Cir.), cert. denied, 488 U.S. 849 (1988);  Short v.
Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir. 1990), petition for
cert. pending, No. 90-526;  Ceres Partners v. GEL Associates, No.
89-7666 (2d Cir. Nov. 8, 1990).

   /12/ Section 20A of the Exchange Act, 15 U.S.C. 78t-1, is
reproduced in the appendix to this brief.

   /13/ This inquiry is not one into actual "legislative intent";  as
this Court has recognized, in the usual case where Congress has failed
to supply a limitations period, there is no indication of
congressional intention on the issue at all.  DelCostello, 462 U.S. at
158-159 n.12.  Moreover, when an action is implied under a regulation,
as is the case with Rule 10b-5, there is even less likelihood that
Congress harbored an "intention" on a subsidiary procedural detail
such as a limitations period.  Thus, the issue does not turn on an
inquiry into what statute of limitations the 73d Congress would have
selected for Section 10(b);  that Congress could not, in reason, have
anticipated the current scope of Rule 10b-5.  See Blue Chip Stamps v.
Manor Drug Stores, 421 U.S. 721, 737 (1975) (recognizing that the
intent of the 73d Congress in 1934 does not afford insight into the
proper construction of Rule 10b-5);  cf. Huddleston, 459 U.S. at
385-386 (noting more recent congressional ratification of Rule 10b-5).
 See also Gov't Amicus Br. 9 n.14 in Lebman v. Aktiebolaget
Electrolux, No. 88-1114, cert. denied, 109 S. Ct. 3214 (1989).

   /14/ See also Wilson v. Garcia, 471 U.S. 261 (1985) (selecting a
uniform state personal injury analogy for all claims arising under 42
U.S.C. 1983);  Owens v. Okure, 488 U.S. 235 (1989) (clarifying that
the general or residual personal injury statute, rather than the
intentional torts statute, should apply in actions under Section
1983).

   /15/ A principal purpose of this provision was "to overturn court
cases which (had) precluded recovery for plaintiffs where the
defendant's violation is premised upon the misappropriation theory (of
insider trading)." H.R. Rep. No. 910, 100th Cong., 2d Sess. 26 (1988),
citing Moss v. Morgan Stanley, 719 F.2d 5(2d Cir. 1983), cert. denied,
465 U.S. 1025 (1984).

   /16/ Section 20A also imposes certain additional requirements (such
as that the defendant and plaintiff have purchased or sold the same
class of securities contemporaneously), but those differences from the
requirements of other Rule 10b-5 actions are relatively minor.

   /17/ Congress enacted Section 20A knowing that insider trading
violations involving Rule 10b-5 form a particular category of the
general right of action under Rule 10b-5.  See H.R. Rep. No. 910,
100th Cong., 2d Sess. 8 (1988).

   /18/ Nor does Congress's choice of a five-year period for Section
20A imply that other types of Rule 10b-5 claims should be subject to a
different limitations period.  In the statute itself, Congress
signaled its intent that courts should continue to develop the
incidents of the law governing the implied rights of action such as
that recognized under Rule 10b-5.  See 15 U.S.C. 78t-1(d).  The
legislative history, in discussing the substantive law, explained that
Congress intended to "avoid * * * freezing the law or in any way
restricting the potential rights of action which have been implied by
the courts in this area," but instead to give "the courts leeway to
develop such private rights of action in an expansive fashion in the
future." H.R. Rep. No. 910, supra, at 27.  See also 134 Cong. Rec.
H7470 (daily ed. Sept. 13, 1988) (remarks of Rep. Lent);  id. at
S17,220 (daily ed. Oct. 21, 1988) (remarks of Sen. Garn).

   /19/ For example, frauds based on "Ponzi" schemes can easily be
concealed for several years -- enough to ensure the running of a short
statute of limitations for many claims.  And "(a) similar situation
often occurs in connection with defaulted municipal bond issues, an
area of Rule 10b-5 securities fraud that may well involve more damages
to investors on a national level than any other." Guin & Donaldson,
The Insider Trading and Securities Fraud Enforcement Act:  Has
Congress Supplied A Limitations Period Appropriate For Use In Private
10b-5 Actions?, 47 Wash. & Lee L. Rev. 541, 569 (1990).

   /20/ Congress chose the same five-year limitations period for
Commission penalty actions for insider trading violations.  See 15
U.S.C. 78u-1(2) (authorizing penalty of up to three time profit gained
or loss avoided), 78u-1(d)(5) (barring action "more than 5 years after
the date of purchase or sale").  See H.R. Rep. No. 355, 98th Cong., 2d
Sess. 12 (1984).

   /21/ See, e.g., In re Clinton Oil Co. Securities Litigation,
(1977-1978) Fed. Sec. L. Rep. (CCH) Paragraph 96,015 (D. Kan. 1977)
(transferee court in multidistrict litigation was forced to select
different limitations periods for each of several consolidated actions
involving the identical violation).  See also Pinney v. Edward D.
Jones & Co., 735 F. Supp. 915 (W.D. Ark. 1990) (discussing five
options available to courts attempting to set limitations periods
applicable to non-resident class claims);  Kronfeld v. Advest, Inc.,
675 F. Supp. 1449, 1457-1458 & n.21 (S.D.N.Y. 1987) (borrowing statute
resulted in application of at least 26 separate statutes of
limitations).

   /22/ See Data Access, 843 F.2d at 1549 ("A broker in New York, an
issuer in Delaware, a purchaser in San Francisco, an accountant in New
Jersey, and a lawyer in Pennsylvania should be subject to the same
statute of limitations for actions based on Section 10(b) or Rule
10b-5.");  Short, 908 F.2d at 1389 ("From the perspective of
practitioners litigating cases originating in many states * * *, the
situation is a nightmare.");  Norris, 818 F.2d at 1332 (describing
approaches to subsidiary limitations issues created by reference to
state law as a "tottering parapet of a ramshackle edifice").

   /23/ ABA Report, supra, at 656;  L. Loss, supra, at 994-996;  Ruder
& Cross, Limitations on Civil Liability Under Rule 10b-5, 1972 Duke
L.J. 1125, 1142-1150;  2 T. Hazen, The Law of Securities Regulation
Section 13.8, at 127-128, 133 (2d ed. 1990);  Schulman, Statutes of
Limitation in 10b-5 Actions:  Complication Added to Confusion, 13
Wayne L. Rev. 635 (1967);  Block & Barton, Statute of Limitations in
Private Actions Under Section 10(b) -- A Proposal for Achieving
Uniformity, 7 Sec. Reg. L.J. 374 (1980).

   /24/ Data Access, which initiated the move to a federal period, was
decided before Congress enacted Section 20A.  Both the Second Circuit
in Ceres and the Seventh Circuit in Short chose a one-and-three-year
format over Section 20A.  But the Seventh Circuit acknowledged that
"(c)hoosing between these statutes is difficult," Short, 908 F.2d at
1390, and one of the primary reasons supporting that court's decision
-- the desire to avoid creating a conflict with the Third Circuit (id.
at 1390-1391) -- does not apply to this Court, and indeed was not even
accomplished by the Seventh Circuit's holding, see pp. 22-23, infra.

   /25/ The 1933 Act contains one-and-three-year statutes of
limitations for the express rights of action brought under Sections 11
and 12 of the 1933 Act, 15 U.S.C. 77k, 77l.  Section 11 creates a
private right of action for false registration statements.  Section
12(1) creates a private right of action predicated on the unlawful
sale of unregistered securities.  Section 12(2) creates a private
right of action for the sale of securities through false or misleading
statements.  Section 13, 15 U.S.C. 77m, sets forth the applicable
limitations periods.

   The 1934 Act contains one-and-three-year statutes of limitations
for the express rights of action created under Sections 9, 18, and 29.
 Section 9(e), 15 U.S.C. 78i, creates a private right of action for
certain proscribed types of manipulation of security prices on
national securities exchanges.  Section 18(a), 15 U.S.C. 78r(a),
creates a private right of action for misleading statements in
applications, reports, or documents filed with the Commission.
Section 29(b), 15 U.S.C. 78cc(b) (added by the Act of June 25, 1938,
ch. 677, Section 3, 52 Stat. 1076), permits rescission of certain
purchases or sales of a security in violation of the Exchange Act or
rules thereunder, and provides a one-and-three-year limitations period
for private rescission actions based on violations of any regulation
under 15 U.S.C. 78o(c)(1).

   /26/ As this Court has recognized, Section 11 is "limited in
scope", "places a relatively minimal burden on a plaintiff," and
"address(es) different types of wrongdoing" than Section 10(b).
Huddleston, 459 U.S. at 382;  see ibid. ("a Section 10(b) plaintiff
carries a heavier burden than a Section 11 plaintiff").  Section 12(1)
is virtually a strict liability provision for violation of the
registration provision of the 1933 Act, 15 U.S.C. 77e.  And, for the
reasons noted in the text, the Seventh Circuit's observation in Short
that Section 12(2) "describes the offense to which Rule 10b-5 is
applied," 908 F.2d at 1390, is inaccurate.  In fact, the Rule 10b-5
analogue in the 1933 Act is Section 17(a), 15 U.S.C. 77q(a), for which
Congress provided no express private right of action.

   /27/ Although Section 9, like Section 10(b), requires proof of
scienter and causation, Section 9, as this Court has recognized,
focuses narrowly "upon the amount actually paid by an investor for
stock that had been the subject of manipulative activity." Piper v.
Chris-Craft Indus., Inc., 430 U.S. 1, 46 (1977);  see H.R. Rep. No.
1383, 73d Cong., 2d Sess. 11 (1934).  Moreover, a shorter statute of
limitations for that provision may be explained by its application
exclusively to securities registered on a national securities
exchange, which generally have wide distribution and are closely
watched by the exchanges, investors, and the media.  The owner of such
securities may not need an extended period of time to discover the
manipulation.  In any event, as commentators have recognized, the
private right under Section 9(e) "has been a dead letter so far as
producing recoveries is concerned." L. Loss, supra, at 920.

   /28/ Section 18 has the "narrow and particularized objective of
encouraging use of and reliance upon records" filed with the
Commission, Ross v. A.H. Robins Co., 607 F.2d 545, 556 (2d Cir. 1979),
cert. denied, 446 U.S. 946 (1980), and therefore extends liability
only to persons who make a misstatement in a report or other document
filed with the Commission.

   /29/ As Senator Austin explained in the course of debate:

      I inquire of the Senator * * * whether he does not recognize
      another exceptional circumstance in that the burden of proof is
      shifted around on the question of knowledge or willfulness in a
      misrepresentation.  The committee have put the burden on the
      defendant, so that in this case the plaintiff does not have to
      spend any time going out and seeking his evidence.  All he has
      to prove is the fact of misrepresentation.

78 Cong. Rec. 8201 (1934).  Other statements made in the debate focus
on the possibility that "technical" defects in a registration
statement might create liability far into the future -- a concern that
is inapplicable to Rule 10b-5, which requires proof of intentional
fraud and applies to much more than the initial offering of
securities.  See id. at 8199 (remarks of Sen. Kean) (expressing
concern that persons might wait before suing over a "technical mistake
in a (registration) statement");  id. at 8200 (remarks of Sen. Byrnes)
(expressing concern that distant suits based on a misstatement in a
registration statement might deter persons from serving on boards of
directors).  Some Senators focused on the desirability of requiring
action to be brought within a defined period after discovery of a
violation.  See id. at 8198 (remarks of Sen. Fletcher) ("(T)he thought
was that a man ought not to delay suit more than 1 year after he
discovers the fraud.").  It is noteworthy that this one-year period,
established in 1934 before Congress had gained experience with the
operation of the securities laws, has not proved persuasive in the
contemporary financial environment, as is evidenced by Congress's
adoption in 1988 of a straightforward five-year provision in Section
20A.

   /30/ The date of a Rule 10b-5 "violation" need not coicide with the
"accrual" of a cause of action.  In Basic Inc. v. Levinson, for
example, the Rule 10b-5 violation was a company's issuance of false or
misleading public statements denying it was engaged in merger talks.
A class action was brought on behalf of shareholders who sold their
stock in the company between October 1977 (the time of the first false
statement) and December 1978 (when a merger was announced).  485 U.S.
at 227-228.  The "violation" occurred when false statements were made;
 the cause of action could not have "accrued" until each shareholder
actually sold his stock.  The results of applying the limitations
periods of Sections 9(e) and 18(c) would therefore diverge.  In
contrast, Section 20A(b)(4)'s test ("date of the last transaction that
is the subject of the violation") would provide far greater certainty
and ease of application.

   /31/ A Section 12(1) claim must be brought within one year "after
the violation upon which it is based," but no more than three years
"after the security was bona fide offered to the public".

   /32/ The 1933 Act limitations periods were originally two years and
ten years, Act of May 27, 1933, ch. 38, Section 13, 48 Stat. 84, but
Congress shortened those periods when it amended the Securities Act in
1934.  48 Stat. 908.  See Ernst & Ernst v. Hochfelder, 425 U.S. at
210.

   /33/ The court did not explain why it chose the Section 9
formulation.  If the theory behind borrowing the one-and-three-year
periods is that Section 10(b) and Rule 10b-5 are analogous to the
cumulative scope of Sections 9, 18, and 29 of the 1934 Act, and
Sections 11 and 12 of the 1933 Act, it is inconsistent with that
rationale to conclude that the Section 9 limitations period in
particular should be applied to all Section 10(b) claims.

   /34/ In the Third Circuit, the one-year period is not subject to a
constructive discovery limitation.  See Gruber v. Price Waterhouse,
911 F.2d 960, 964 n.4 (1990).

   /35/ The Court has noted that policy considerations are relevant in
delineating the contours of Rule 10b-5.  See Blue Chip Stamps, 421
U.S. at 737, 749.

   /36/ Section 10(b) actions can be brought against the issuer of
securities for false or misleading material public statements, see
Basic Inc. v. Levinson, supra;  against accountants, lawyers, or
others involved in an offering of securities, see Huddleston, 459 U.S.
at 378;  against broker-dealers by customers fraudulently induced to
purchase securities, see Bateman Eichler, Hill Richards, Inc. v.
Berner, 472 U.S. 299, 301-303 (1985);  against persons who trade in
the securities market while in possession of non-public information in
breach of a duty, cf. Dirks v. SEC, 463 U.S. 646, 653-654 (1983);
against persons who manipulate the market for securities, cf. Santa Fe
Indus., Inc. v. Green, 430 U.S. 462, 476-477 (1977);  and in many
other situations.

   /37/ Indeed, even the SEC with all its investigative resources and
statutory powers, including compulsory investigative processes, does
not complete its investigations, on average, in less than 2.25 years.

   /38/ Congress recognized these developments in recent amendments to
the securities laws that provide the Commission additional enforcement
remedies.  See The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990, Pub. L. No. 101-429, 104 Stat. 931;  S. Rep. No.
337, 101st Cong., 2d Sess. 6 (1990) ("As the markets * * * have grown
dramatically in size and complexity, particularly in the last decade,
the SEC's law enforcement task has become increasingly difficult.
Investigations involve more complex issues of fact and law.");  136
Cong. Rec. S10,011 (daily ed. July 18, 1990) (remarks of Sen. Dodd).

   /39/ The Seventh Circuit erroneously downplayed that confusion,
however, because it incorrectly assumed (908 F.2d at 1391) that only
an individual "insider," not the issuer itself, can be liable under
Section 20A (in fact, both can be liable), and because it noted that
persons suing under Section 20A "must accept the limitations of that
statute, including the restriction of damages to the defendants'
profit (as opposed to the plaintiff's loss)." Ibid.  To a plaintiff
who misses the three-year deadline, however, it is Section 20A or
nothing;  hence, the availability of damages, notwithstanding the
measure, will provide ample incentive to sue.  Moreover, the court of
appeals was incorrect in believing that damages under Section 20A are
unique in being fixed soon after the violation (908 F.2d at 1392);
that is ordinarily the case in an action under Rule 10b-5 where the
general measure of damages is "out-of-pocket" loss.  See Randall v.
Loftsgaarden, 478 U.S. 647, 661-662 (1986) (noting that damages are
ordinarily "the difference between the fair value of all that the
(plaintiff) received and the fair value of what he would have received
had there been no fraudulent conduct";  leaving open the question
whether rescissionary recovery may be appropriate in some cases).  An
out-of-pocket measure of damages does not allow the plaintiff, by
"delay(ing) in bringing suit(,) to speculate on the firm's future
prosperity," 908 F.2d at 1392.  Where rescission is permitted, that
measure fulfills a necessary role in deterring intentional fraud.  Cf.
Randall, 478 U.S. at 659;  Pinter v. Dahl, 486 U.S. at 637 n.13
(discussing Section 12(2) of the 1933 Act).

   /40/ L. Loss, Fundamentals of Securities Regulation 218 (2d ed.
Supp. 1990).  The Second Circuit's impression to the contrary in Ceres
Partners, slip op. 7272, overlooked the fact that borrowed state
periods are subject to federal equitable tolling.

   /41/ That factor may have influenced the American Law Institute's
proposed Federal Securities Code Section 1727(b) (1980), which would
have provided a statute of limitations of one year from constructive
discovery and five years from the violation for violations of the
antifraud provision.  The ABA Task Force proposed "a compromise of two
years from the date of discovery, with a four-year cutoff." ABA
Report, supra, at 658.

   /42/ The three-year period is not subject to equitable tolling.
See, e.g., Data Access, 843 F.2d at 1550;  Norris v. Wirtz, 818 F.2d
at 1332;  Zola v. Gordon, 685 F. Supp. 354, 361 (S.D.N.Y. 1988)
(citing cases).  A unique limitations principle applies to Section
16(b) (two-year statute of limitations governing claims for recovery
of profits realized by certain insiders in transactions involving a
purchase and sale, or sale and purchase, within less than six months).
 15 U.S.C. 78p(b).  Those claims are subject to a quite distinct form
of tolling flowing from the related requirement in Section 16(a) that
an insider must report his securities transactions to the Commission.
See Whittaker v. Whittaker Corp., 639 F.2d 516, 528 (9th Cir.)
(two-year period is tolled until the insider has filed a required
report disclosing his transactions), cert. denied, 454 U.S. 1031
(1981).

   /43/ See 78 Cong. Rec. 8198-8203 (1934);  see also ABA Report,
supra, at 655 (finding it "inescapable * * * that Congress did not
intend equitable tolling to apply in actions under the securities
laws");  Bloomenthal, The Statute of Limitations and Rule 10b-5
Claims:  A Study in Judicial Lassitude, 60 U. Colo. L. Rev. 235,
257-264, 287-289 (1989) (same).

   /44/ See, e.g., Bailey v. Glover, 88 U.S. (21 Wall.) 342, 344
(1874) (equitable tolling of bankruptcy claim).

   /45/ In the rare instance in which Congress has used language
indicating a similarly exact starting point, one court has found the
limitations period not subject to tolling.  See Hill v. Texaco, 825
F.2d 333, 334-335 (11th Cir. 1987).  We recognize that this Court
recently rejected a rule that would have made the availability of
equitable tolling against the government turn on the particular
"phraseology" of a statutory time limit.  Irwin v. Veterans
Administration, No. 89-5867 (Dec. 3, 1990), slip op. 5.  But this case
is distinguishable, because even if Section 20(A)(b)(4)'s language,
standing alone, were not sufficient, it certainly points to the
rejection of tolling and the surrounding legislative scheme makes that
the most plausible reading of the statute.

   /46/ See, e.g., United States v. Lovknit Mfg. Co., 189 F.2d 454,
457 (5th Cir.) ("Actions for fraud do not ordinarily accrue till the
fraud is discovered or should with diligence have been discovered."),
cert. denied, 342 U.S. 896 (1951).

   /47/ If the Court agrees with our view, the case should be remanded
to the court of appeals for application of Section 20A(b)(4).
Although it appears that most of respondents' claims would be
time-barred, the ultimate conclusion is not clear.  The complaints
(but for respondent Catalan's) were filed on November 3, 1986,
alleging fraud in connection with limited partnerships formed in 1979,
1980, and 1981.  Claims relating to transactions prior to November 3,
1981, would be time-barred.  However, to the extent that installment
payments were made after that date (see Resp. C.A. Joint Br. 7),
certain claims may survive under the "investment decision" doctrine
(an issue on which we take no position).  Cf. Note, Defenses to the
Statute of Limitations In Federal Securities Cases:  The Fraudulent
Concealment Doctrine and the Investment Decision Doctrine, 38 S. C. L.
Rev. 789, 815 (1987).

   In addition, the retroactive application of shorter statutes of
limitations raises questions under Chevron Oil Co. v. Huson, 404 U.S.
97, 106-107 (1971).  Although Section 20A does not by its terms apply
retroactively, see 102 Stat. 4684 (set forth at 15 U.S.C. 78o note),
the question whether Section 20A(b)(4) should apply retroactively when
borrowed for Rule 10b-5 actions is a matter for the courts to
determine.  Cf. DelCostello, 462 U.S. at 169-170 n.21.  The court of
appeals should initially determine whether such application is
warranted here.  Cf. Short, 908 F.2d at 1389-1390 (citing cases).

   APPENDIX