In a reversal of a district court’s decision, the U.S. Court of Appeals for the Fifth Circuit ruled that the Securities Litigation Uniform Standards Act does not bar the investor state law class action lawsuit that was filed by victims of R. Allen Stanford’s Ponzi scheme. The case is Roland v. Green.
The appeals court said that the state court securities lawsuits, which are claiming common law and statutory violations, could go forward because the alleged fraud is only tangentially related to the buying and selling of covered securities under SLUSA. Four complaints are on appeal. In each case, investors submitted state court actions that charged a number of defendants with misleading them into using their individual retirement accounts to invest in Stanford International Bank-issued certificate of deposits that have since proved worthless. Investors have lost $7 billion in Stanford’s Ponzi scam.
The defendants had the lawsuits moved to the U.S. District Court for the Northern District of Texas, which found that SLUSA precluded the claims because of their connection to a covered security. Under SLUSA, state class actions claiming fraud related to the sale or purchase of a covered security are barred. The district court judge in Dallas had dismissed the cases because Stanford marketed the CDs as regulated and securities-backed and because certain investors had sold securities to finance their purchase of the CDs, this, placed the CD-related suits under SLUSA.
However, In Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, the US Supreme Court determined that seeing as Congress meant for “in connection with” to have the same meaning in both the 1934 Securities Exchange Act Section 10(b) and SLUSA, then it is sufficient for the fraud to allegedly “coincide” with a securities transaction. The fifth circuit, in its decision, adopted the Ninth Circuit’s test for when a security’s purchase or sale and the alleged fraud “coincide” in that a misrepresentation is ‘in connection with’ the selling or buying of securities if there is a relationship wherein the stock sale and fraud are/or “more than tangentially” connected. The court saw no connection between the sale of the covered securities and the alleged fraud. The appeals panel said that the fact that some plaintiffs sold a number of ‘covered securities’ to invest in CDs was only tangentially connected to the Ponzi scam.
Our Texas securities fraud law firm is continuing to cover the developments regarding the efforts by those defrauded by Stanford’s Ponzi scheme to recover their losses. If you are one of those investors you should contact our Houston stockbroker fraud lawyers right away. We represent Ponzi fraud victims throughout the US.
Stanford, who was found guilty of wire fraud and mail fraud by a federal court jury in Houston earlier this month, is scheduled for sentencing on June 14.
Stanford Investor Class Actions Restored by Appeals Court, Bloomberg/Businessweek, March 19, 2012
5th Cir. Rules SLUSA No Barrier To Suits by Stanford Ponzi Investors, Bloomberg/BNA, March 21, 2012
More Blog Posts:
Texas Financier Allen Stanford’s Ponzi Scam: SIPC Asks District Court to Toss Out SEC Lawsuit Seeking to Reimburse Fraud Victims, Stockbroker Fraud Blog, March 5, 2012
SEC and SIPC Go to Court Over Whether SIPA Protects Stanford Ponzi Fraud Investors, Stockbroker Fraud Blog, February 6, 2012
SEC Gets Initial Victory in Lawsuit Against SIPC Over Payments Owed to Stanford Ponzi Scam Investors, Institutional Investor Securities Blog, February 10, 2012