U.S. District Court Rules on Statute of Limitations Issues in Civil Insider Trading Action against Prominent Hedge Fund Managers Sam and Charles Wyly, and Their Advisers
Hedge Fund Law Report
In July 2010, the Securities and Exchange Commission (SEC) commenced a civil enforcement action against investor-entrepreneurs Samuel Wyly and Charles J. Wyly, Jr., their attorney Michael C. French, and one of their brokers, Louis J. Schaufele III. The SEC alleges that the defendants committed various securities laws violations, including insider trading, through “a labyrinth of offshore trusts and subsidiary entities” that enabled them to conceal their true holdings and trading in various public companies. The defendants moved to dismiss certain of the SEC’s causes of action for insider trading and securities fraud on the grounds that those claims were barred by the applicable statutes of limitations and that they failed to state claims upon which relief could be granted. The U.S. District Court for the Southern District of New York has denied the defendants’ motion in its entirety and ruled that equitable tolling principles apply to the statute of limitations governing the civil penalty provisions of the Securities Exchange Act. As a result, the applicable limitations period did not begin to run until the SEC had reason to know of the alleged fraud. We provide a detailed summary of the Court’s decision, with an emphasis on the statute of limitations ruling.