This week, New York’s Attorney General, Eric Schneiderman, filed a massive fraud case against mortgage-backed securities. Notably, these are not criminal prosecutions and the question was answered in news reports today why not. Writes AP, "The felony statute of limitations under New York's Martin Act against securities fraud is five years, so it's too late to bring a criminal case.” Instead, Schneiderman filed a civil suit alleging misconduct by Bear Stearns & Co. (successor, JP Morgan Chase) in 2006-2007, which “cost investors $22.5 billion in losses and left them holding an additional $30 billion in bad loans." But interestingly, even in civil fraud cases, the statute of limitations is six years i.e., he's about to run out of time for any other case.
Not to worry. Turns out that the AG’s office may have struck some kind of deal with a bunch of banks so that the statute of limitations has been tolled, whereby the defendants have “waived their right to dismiss otherwise time-barred matters.” Explains Bloomberg,
The tolling agreements, reached this year, stop the clock on the six-year statute of limitations and ensure Schneiderman can bring civil fraud claims against banks for conduct going as far back as 2006, said the person. The agreements don’t necessarily mean that suits will be filed, the person said.
Indeed, observe some critics,
Actually, they create a strong possibility that other cases won’t be filed, or that they will be filed in a very narrow fashion.
A financial firm or any other defendant doesn’t allow a tolling agreement out of the goodness of their heart. It comes out of a negotiated process. The prosecutor gets to stop the clock on the statute of limitations, but must give up something in return. Maybe they’re given the opportunity to stop Schneiderman from filing a case at all, or maybe they’ve moved immediately to the settlement phase. Or maybe Schneiderman got the tolling agreement in exchange for agreeing not to prosecute or name any individuals in the cases. A tolling agreement isn’t free, in other words. And it would be good to know the cost of this.