Legal Memorandum: Advantages of Securities Fraud Statutes

Issue: What are the advantages of proceeding under the securities fraud statutes, which have shorter statutes of limitations, as compared with raising just FINRA and common law claims with longer limitations periods?

One possible advantage of bringing federal securities claims, which may have shorter limitations periods, is the broad scope of liability under the federal securities provisions.  The Exchange Act antifraud provision has been successfully waged against all kinds of broker/dealer misbehavior.  The breadth of Section 10(b) and Rule 10b-5 make 10b-5 suits very common.*FN1

There also may be procedural advantages in a particular case to litigating in federal court.  For instance, Fed. R. Civ. P. 26(a)(1)’s requirement of pre-discovery disclosures may help expedite a case, or there may be other “leverage” reasons for selecting federal court jurisdiction.  If federal-question jurisdiction is desired, for strategic reasons or otherwise, the claimant will most likely need to raise a § 10(b)/Rule 10b-5 claim. 

The availability of punitive damages does not appear to be an incentive for bringing the federal shorter-limit claims.  Punitive damages are generally not available under the federal securities laws, unless appended to a state statutory or common law claim.  See 5 Bromberg & Lowenfels on Securities Fraud § 8:12 (2d ed. 2011).  Under Minnesota law, punitive damages are available when a party acts with "deliberate disregard for the rights or safety of others." Minn. Stat. § 549.20 (2000).  Punitive damages are generally not permitted in breach of contract cases, of course, absent an independent tort.  See, e.g., Lickteig v. Alderson, Ondov, Leonard & Sween, P.A., 556 N.W.2d 557, 561 (Minn. 1996); Pillsbury Co. v. Nat’l Union Fire Ins. Co.,