Two-Year Statute of Limitations for Federal Securities Fraud Claims Begins to Run When a Reasonably Diligent Plaintiff Would Have Discovered the Violations

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In Strategic Diversity, Inc. v. Alchemix Corp., an opinion marked for publication, the United States Court of Appeals for the Ninth Circuit held that for federal securities fraud claims, the statute of limitations begins to run when a reasonably diligent plaintiff would have discovered the underlying violations, and not from when a reasonably diligent plaintiff should have begun investigating the potential violations.

Federal law provides that a securities fraud claim "may be brought not later than the earlier of (1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation." In Strategic Diversity, the lawsuit had been filed within the five-year limitation period; the dispute was whether the May 2007 lawsuit was time-barred because it had been filed outside the two-year "discovery" limitation period.

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