U.S. justices say Allen Stanford victims can sue lawyers, brokers

WASHINGTON Wed Feb 26, 2014 4:09pm EST

Convicted financier Allen Stanford, who is serving 110 years in prison for his $7 billion Ponzi scheme, arrives at Federal Court in Houston for sentencing June 14, 2012. REUTERS/RICHARD CARSON

Convicted financier Allen Stanford, who is serving 110 years in prison for his $7 billion Ponzi scheme, arrives at Federal Court in Houston for sentencing June 14, 2012.

Credit: Reuters/RICHARD CARSON

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WASHINGTON (Reuters) - Investors in Allen Stanford's $7 billion Ponzi scheme can sue to recoup losses from lawyers, insurance brokers and others who worked with the convicted swindler, the U.S. Supreme Court ruled on Wednesday.

On a 7-2 vote, the court held that lawsuits filed in state courts can go forward. The majority said the ruling would not affect the U.S. Securities and Exchange Commission's (SEC) ability to enforce securities law as some had feared.

Stanford's fraud involved the sale of bogus certificates of deposit by his Antigua-based Stanford International Bank. He is serving a 110-year prison sentence.

New York-based law firms Chadbourne & Parke LLP and Proskauer Rose LLP and insurance brokerage Willis Group Holdings Plc were sued by former Stanford investors. The investors also sued financial services firm SEI Investments Co and insurance company Bowen, Miclette & Britt.

"It's clear the justices understood that ruling for the defendants would create an immunity that Congress never imagined," said Tom Goldstein, a lawyer representing the former Stanford clients.

Representatives from the two law firms said that when the case returns to the lower court the defendants would move to dismiss the suit on other grounds.

Writing for the majority, Justice Stephen Breyer said the Securities Litigation Uniform Standards Act (SLUSA) 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, which is defined as a security listed on a national exchange at the time the alleged unlawful conduct occurred.

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," Breyer wrote.

IMPACT ON SEC

The Obama administration, representing the SEC, had sided with the defendants to try to protect the agency's authority to pursue wide-ranging investigations.

The administration said 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.

Justice Anthony Kennedy wrote in a dissenting opinion that the ruling would have a negative impact on the SEC because it "casts doubt on the applicability of federal securities law to cases of serious securities fraud." Kennedy was joined in dissent by Justice Samuel Alito.

Securities law experts backed the majority's view that the ruling was relatively narrow.

Donald Langevoort, a professor of law at Georgetown University, said he was "very surprised" the SEC tried to argue that a ruling in favor of the plaintiffs could diminish the government's enforcement powers.

"The opinion is imminently correct as a matter of common sense and legal policy," Langevoort said.

Charles Smith, of the law firm Skadden, Arps, Slate, Meagher & Flom LLP who represents clients before the SEC, said the agency would be comforted by the limited scope of the ruling.

"The decision is crafted in a way that is intended not to interfere with the SEC's enforcement authority," he said.

The SEC, via a spokesman, declined to comment.

The defendants had 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 previously held that similar "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 SEC probe into Stanford, and sought to hold the other defendants responsible as well.

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.

(Reporting by Lawrence Hurley, additional reporting by Sarah N. Lynch; editing by Howard Goller, G Crosse and Amanda Kwan)

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Comments (10)
Reuters1945 wrote:
Allen Stanford, just as Bernard Madoff, was/is a truly evil individual for whom rampant insatiable greed and endless intoxication with the acquisition of wealth knew no bounds.

Much like the physical and psychological addiction to mind altering drugs, such people become oblivious to the fact that their actions have the potential to eventually bring disaster upon and ruin the lives of others.

Consider the drug addict who steals his own Mother’s life savings to fuel his drug habit even at the risk/cost of throwing her into the street.

But there are other elements at work in these almost Shakespearean tragedies- assuming tragedy is the operative term here.

One element is the fact and/or rational in the mind of the fraudster that he is in general taking money not from some defenseless elderly widow in her twilight years but on the contrary taking money from people who in general are quite affluent and desire to become even more affluent without need to take on any work more challenging and/or backbreaking than signing a personal check and then licking a postage stamp.

And the flip side of the above is that the victims of the fraudsters evil deeds are themselves equally desirous to increase their assets whilst at the same time never considering and/or accepting that there are no free rides in life and that such actions as turning over large quantities of assets to someone whose investments promise the “Moon” and whose off-shore Bank is located in a place like Antigua- a red flag indeed- may entail extremely high and even astronomical degrees of absolute risk.

The average working man is rarely exposed to such risks and potential losses because he, ipso facto, possesses so little to wager and lose in the first place.

But those who get involved with types such as Bernard Madoff and Allen Stanford, should hardly yell, scream and complain from the rooftops when they are defrauded of their assets- especially when clearly the promised returns were really clearly “too good to be true” and all the tell tale signs of SHELL GAME were written all over the place and even widely reported on in some instances.

Those who are always on the prowl for a quick and easy buck should also we willing to accept all the inherent risks without later whining how they were taken in and “victimized”.

Perhaps tattooing the words “Caveat Emptor” on their foreheads where they will be readily observed each time they gaze in the mirror, might help protect them from future losses. At least it is a start on the path to gaining Wisdom.

Feb 26, 2014 12:29pm EST  --  Report as abuse
NewEnglandBob wrote:
You just know that whichever side Alito votes on is the wrong side.

Feb 26, 2014 12:54pm EST  --  Report as abuse
AnnonReuters wrote:
There is an episode of American Greed about this guy’s scam. You can probably find it on CNBC. It’s pretty good. Also, victims exposed themselves to risk by using offshore investments to get an extra point or two on their CDs.

Feb 26, 2014 1:03pm EST  --  Report as abuse
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