Can BigLaw firms be sued by investors for advising Ponzi schemer Stanford? SCOTUS to decide
The U.S. Supreme Court has agreed to consider securities fraud cases against two law firms accused of helping convicted Ponzi schemer R. Allen Stanford.
The court accepted three cert petitions Friday: by law firms Proskauer Rose and Chadbourne & Parke and by an insurance brokerage, report SCOTUSblog, Bloomberg News and Thomson Reuters News & Insight. At issue is whether the U.S. Securities Litigation Uniform Standards Act bars state-law class actions against the firms. Known as SLUSA, the federal law was intended to curb nuisance litigation in state courts over federal securities.
Proskauer and Chadbourne are accused of negligently employing lawyer Thomas Sjoblom, who advised Stanford and allegedly helped delay a Securities and Exchange Commission probe of Stanford’s conduct. Stanford was convicted last year in a $7 billion fraud case alleging he bilked investors who bought certificates of deposit at his offshore bank. The law firms say they have a variety of defenses and have denied wrongdoing.
SLUSA bars investor suits under state that are based on a misrepresentation made “in connection with the purchase or sale of a covered security,” according to the Bloomberg story. The Supreme Court is being asked to decide whether the certificates of deposit sold by Stanford were covered by the law. The law firms and the insurer claim the CDs were covered by the law because Stanford’s company promised to use the proceeds to buy covered securities.
The New Orleans-based 5th U.S. Circuit Court of Appeals ruled last March that the CDs weren’t covered by SLUSA and they weren’t sold “in connection with” covered securities.
The cases are Chadbourne & Park v. Troice, Willis v. Troice, and Proskauer Rose v. Troice.