Tuesday, October 8, 2013
Last year, R. Allen Stanford was convicted for running a two-decade $7 billion Ponzi scheme which offered fraudulent high-interest certificates of deposit at the Antigua-based Stanford International Bank. Investors have since filed class-action suits under state law against the law firms, insurance brokers, and financial services companies involved in the fraud.
On the first day of the new term, the Supreme Court heard arguments on whether these state class-action lawsuits are proper in light of the 1998 Securities Litigation Uniform Standards Act. This federal law was meant to stop plaintiffs from getting around the protections offered to defendants under federal law by barring many state-law class actions based on asserted fraud. The law applies to asserted fraud “in connection with the purchase or sale of a covered security.” The justices spent about an hour trying to determine whether the “phantom securities” involved in the Stanford scheme would qualify as "covered securities."
See Adam Liptak, Supreme Court Ponders Suits in Stanford Fraud Over Securities That Never Existed, The New York Times, Oct. 7, 2013.