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Registered private investment fund SRM Global Master Fund LP lost its bid to revive would-be class securities fraud allegations against Bear Stearns Cos. Inc. stemming from the investment bank's 2008 collapse ( SRM Global Master Fund LP v. Bear Stearns Cos. Inc., 2d Cir., No. 14-507, 7/14/16 ).
SRM waited too long to file its lawsuit, Judge Raymond Lohier of the U.S. Court of Appeals for the Second Circuit said July 14. In addition, SRM failed to plead that it relied on misrepresentations in Bear Stearns' 2006 and 2007 filings with the Securities and Exchange Commission, the court said.
In 2013, the Second Circuit concluded that American Pipe tolling doesn't apply to statutes of repose—a question on which the circuits are divided. The U.S. Supreme Court agreed to tackle the issue, but the parties settled their differences two weeks before the case was to be argued (189 SLD, 9/30/14).
Following Bear Stearns' 2008 sale to JP Morgan Chase & Co., a series of class lawsuits were filed against the investment bank claiming that its management issued materially false statements that resulted in an artificially inflated stock price (54 SLD, 3/20/08).
At its request, SRM was excluded from the settlement class. However, in April 2013, SRM sued Bear Stearns, its officers and its auditor Deloitte & Touche LLP for similar allegations. SRM claimed that Bear Stearns overstated the value of its assets and the adequacy of its capital reserves and liquidity. SRM also claimed that Deloitte submitted falsely certified filings to the SEC in 2006 and 2007.
Judge Robert W. Sweet of the U.S. District Court for the Southern District of New York dismissed the case in 2014, concluding that SRM's claims were time-barred.
The appeals court agreed. Relying on the statute of repose, the Second Circuit determined that the investors filed their case too late. Statutes of repose—in this case, five years—are an absolute limit of the time in which a lawsuit must be brought. They create “a substantive right in defendants to be free from liability after five years,” the Second Circuit said.
Because SRM sued more than five years after the alleged misconduct, without tolling of some kind, their claims are barred by the applicable statute of repose, the appeals court said.
In addition, the Second Circuit dismissed SRM's New York state law fraud claims because SRM failed to show that it relied on Bear Stearns' alleged misrepresentations.
SRM was represented by Richard Bruce Drubel, Matthew J. Henken, Philip C. Korologos and Jonathan R. Voegele of Boies, Schiller & Flexner LLP, New York.
Bear Stearns was represented by Jessica S. Carey, Jonathan H. Hurwitz, Brad S. Karp and Elizabeth M. Sacksteder, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York.
Attorneys didn't immediately respond to an e-mailed request for comment.
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To view the court's opinion, visit: http://www.bloomberglaw.com/public/document/SRM_Global_Fund_Limited_Partne_v_Bear_Stearns_Companies_LLC_Docke.
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