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Firms can be sued over work with Stanford; Tesla weighs 4 states for battery factory

February 27, 2014



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 Supreme Court ruled Wednesday.

On a 7 to 2 vote, the court held that lawsuits filed in state courts can go forward. The majority said the ruling would not affect the Securities and Exchange Commission's 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 and Proskauer Rose and insurance brokerage Willis Group Holdings were sued by former Stanford investors. They also sued financial services firm SEI Investments and insurance company Bowen, Miclette & Britt.

Writing for the majority, Justice Stephen G. Breyer said the Securities Litigation Uniform Standards Act did not prevent the state lawsuits from proceeding. The law says 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.

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

Justice Anthony M. 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 A. Alito Jr.


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Source: Legal Monitor Worldwide


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