(Reuters) – The Supreme Court on Wednesday ruled that lawyers, insurance brokers and others who worked with convicted swindler Allen Stanford cannot avoid lawsuits by investors seeking to recoup losses incurred in his $7 billion Ponzi scheme.
On a 7-2 vote the court held that lawsuits filed in state court can go forward. New York-based law firms Chadbourne & Parke and Proskauer Rose and insurance brokerage Willis Group Holdings Plc were all sued by former Stanford investors. The investors also sued financial services firm SEI Investments and insurance company Bowen, Miclette & Britt.
Writing for the majority, Justice Stephen Breyer said the Securities Litigation Uniform Standards Act did not prevent the state lawsuits from proceeding. The law says that state lawsuits are barred when the alleged misrepresentations are “in connection with” the purchase or sale of a covered security.
As the defendants in the case were not selling securities traded on U.S. exchanges, “it is difficult to see why the federal securities laws would be – or should be – concerned with shielding such entities from lawsuits,” he wrote.
The defendants sought Supreme Court review after the New Orleans-based 5th U.S. Circuit Court of Appeals in March 2012 said the lawsuits brought under state laws by the former Stanford clients could go ahead.
The former Stanford clients are keen to pursue state law claims because the Supreme Court has previously held that similar so-called “aiding and abetting” claims cannot be made under federal law.
The class action lawsuits filed by the former investors accused Thomas Sjoblom, a lawyer who worked at both law firms, of obstructing a Securities and Exchange Commission probe into Stanford, and sought to hold the other defendants responsible as well.
The Obama administration, representing the SEC, sided with the defendants over the interpretation of the state law in an avowed effort to protect the agency’s own authority to pursue wide-ranging investigations.
The administration pointed out that the “in connection with” language in SLUSA that limits state court lawsuits mirrors language in federal law that gives broad authority of the SEC to pursue such misrepresentations. Therefore, the administration urged the court to give the phrase a broad interpretation.
Stanford’s fraud involved the sale of certificates of deposit by his Antigua-based Stanford International Bank. Much of the litigation centers on whether these qualified as securities under applicable laws.
The cases are Chadbourne & Parke LLP v. Troice et al, U.S. Supreme Court. No. 12-79; Willis of Colorado Inc et al v. Troice et al, U.S. Supreme Court, No. 12-86; and Proskauer Rose LLP v. Troice et al, U.S. Supreme Court, No. 12-88.
To join the debate click here.
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum http://sivg.org.ag/