On Tuesday, April 27, 2010, the United States Supreme Court established that the statute of limitations in a securities fraud action does not begin to run until plaintiffs discover the facts establishing all the elements of the violation, including scienter (i.e., a fraudulent state of mind). In Merck & Co., Inc. v. Reynolds, the Court rejected the argument that the limitations period begins to run when plaintiffs are put on “inquiry notice” that a violation has occurred. Although the Court asserted that the limitations period begins to run when a reasonably diligent plaintiff could have discovered the facts establishing the violation, the probable effect of the ruling is that courts will not start the clock on the limitations period until the facts of an alleged violation actually have been discovered. Thus, there likely will be an increase in securities fraud filings as plaintiffs pursue claims that previously would have been time barred under the “inquiry notice” rule.
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