The massive Ponzi scheme masterminded by former Texas tycoon R. Allen Stanford has lead to ramfications everywhere, but now the US Supreme Court has sanctioned class action lawsuits from investors in Stanford’s scam.
Class action law suits relating to securities law must be filed at federal level, bu the federal appeals court has held that this scheme could proceed as it involved certificates of deposit rather than stocks and other securities.
PBS report that the decision is a loss for individuals, law firms and investment companies that allegedly aided Stanford’s fraud and wanted the lawsuits thrown out.
The high court agreed in a 7-2 decision.
Stanford was sentenced to 110 years in prison after being convicted of bilking investors in a scheme that involved the sale of fraudulent certificates of deposits from the Stanford International Bank. They supposedly were backed by safe investments in securities issued by governments, multinational companies and international banks, but those investments did not exist.
Former investors hoped to win damages from the firms that worked with Stanford, but could not bring those claims under federal law. So they filed suit under state law in Louisiana and Texas. But the defendants claimed those suits are blocked by the Securities Litigation Uniform Standards Act, a federal law aimed at limiting private lawsuits that allege securities fraud.
A federal judge initially threw the lawsuits out, but the 5th U.S. Circuit Court of Appeals in New Orleans said they could move forward. The appeals court found that the investment scheme is not covered by Securities Litigation law because the main part of the fraud involved the certificates of deposit, not stocks or other securities.
Writing for the court, Justice Stephen Breyer agreed that the law does not preclude the class-action lawsuits because the fraudulent investments at the center of the scheme are not covered by the law.
Justices Anthony Kennedy and Samuel Alito dissented, warning that the majority opinion “narrows and constricts essential protection for our national securities markets.”