US Supreme Court Considers Hearing Stanford Ponzi Lawsuits

The Supreme Court’s justices are looking to the Obama administration for advice about an appeal made to a ruling allowing the victims of R. Allen Stanford’s $7 billion Ponzi fraud can pursue law firms, insurance brokers, and outside parties for damages. The defendants, third party firms, want the court to stop the securities lawsuits, which are based on Texas and Louisiana law. If the court were to hear the appeals, it would put to test the Securities Litigation Uniform Standards Act, which was enacted so that if a class action lawsuit comes from a misrepresentation issued “in connection” with a covered security’s sale or purchase, investors cannot go to state courts to get around federal limits placed on such claims. The appeals is asking how close that connection has to be for a state lawsuit to be barred.

Investors have been trying to get back the money they lost in Stanford’s Ponzi fraud, which involved the sale of CDs from his Antigua bank. Numerous securities lawsuits have been filed, and at Shepherd Smith Edwards and Kantas, LTD, LLP, our Texas securities fraud lawyers represent victims of the Stanford Ponzi scam and other financial schemes.

Our Texas securities fraud law firm also continues to provide updates on the different Stanford-related securities litigation on our blog sites:

Last month, investor plaintiffs won the first victory against the SEC involving the Federal Tort Claims Act when their lawsuit, Zelaya v. United States, survived a motion to dismiss in the U.S. District Court for the Southern District of Florida. The plaintiffs contend that the Commission was negligent in the way it dealt with the Stanford Ponzi scam, and upon finding out about the fraud should have told the Securities Investor Protection Corporation right away. The government had submitted a motion to dismiss claiming lack of subject matter jurisdiction. Judge Robert Scola Jr., however, agreed with the plaintiffs.

In other Stanford Ponzi fraud news, the Securities and Exchange Commission recently told the U.S. District Court for the District of Columbia that it would appeal a ruling that denied its application to make SIPC protect Stanford investors. The securities case is SEC v. SIPC. While Judge Robert Wilkins rejected the SEC’s application, finding that the Ponzi victims that bought the CDs from Stanford’s Antigua-based bank are not, within the Securities Investor Protection Act’s meaning, clients of US-based broker-dealer Stanford Group Co., the SEC told BNA that it doesn’t agree with this ruling.

SIPC maintains that although it sympathizes with Stanford’s victims, the SEC’s theory clearly conflicts with the duties SIPC was tasked with by Congress. Per SIPA, SIPC must provide reimbursement to clients of brokerage firms that failed. The compensation is for cash or securities that have gone missing from their accounts.

Also related to SEC v. SIPC, the DC district court has denied one investor’s intervention motion to the lawsuit. The court said that not only is investor Richard Cheatham’s motion untimely but also, the SEC has done an adequate job of representing the interest of investors.

Cheatham contends that Stanford Group Co. stole his brokerage funds. He claims his facts are dissimilar from what SEC and SIPC had stipulated in the securities case, and for him to get back his SIPC insurance claim that is his by right, his intervention must be allowed.

Meantime, the SEC continues to go after former Stanford executives. It recently set up administrative proceedings against former Stanford Group president Daniel Bogar, ex-Stanford Group Holdings compliance head Bernard Young, and Stanford Group’s most recent private client group head, Jason Green. The Commission contends that the three of them often went to Antigua to conduct banking due diligence and therefore must have known that certain key misrepresentations about the CD program were being made. However, rather than protect investors, the three of them allegedly encouraged Stanford Group representatives to keep marketing the CDs without the key disclosures, and they received significant compensation following the increase in sales. All three men have denied any wrongdoing.

High Court Seeks Views on Stanford Fraud Lawsuits, NASDAQ, October 3, 2012

Securities Litigation Uniform Standards Act (PDF)

Zelaya v. United States (PDF)


Read the SEC’s appeal to the DC District Court’s Ruling in SEC v. SIPC (PDF)

SEC Order Names Ex-Stanford Execs, Alleges They Had Role in Ponzi Scheme, Bloomberg/BNA, September 5, 2012

More Blog Posts:
Texas Securities Fraud: Investor Sues Behringer Harvard REIT I, Stockbroker Fraud Blog, September 26, 2012

Texas Securities Fraud: Ex-Stanford Chief Investment Officer Gets 3-Year Prison Term for Her Part in $7 Billion Ponzi Scam, Stockbroker Fraud Blog, September 18, 2012

Institutional Investment Fraud Roundup: Ex-Hedge Fund Managers’ Guilty Plea Over Bilking Investors of Almost $1M Get 3-Year Prison Term, SEC Sues Investment Adviser Over Alleged $37M Ponzi, and SEC Files Lawsuit Over Purported “Fund of Funds” Scam, Institutional Investor Securities Blog, September 26, 2012