By Patsy R. Brumfield/NEMS Daily Journal
A federal judge said a lawsuit claiming negligence by U.S. regulators can go forward on claims it failed to respond early to warnings about Allen Stanford’s $7.2 billion Ponzi scheme.
U.S. District Judge Robert Scola on Friday rejected the government’s motion to dismiss the case, according Reuters. The government claimed the court did not have jurisdiction over the U.S. Securities and Exchange Commission’s handling of the Stanford case.
Two investors filed the class action complaint claiming they lost a combined $1.65 million when Stanford’s scheme collapsed in early 2009.
They insist the SEC knew as early as 1997 that Stanford likely operated a Ponzi scheme but did nothing for 12 years. The SEC had a duty to notify the Securities Investor Protection Corp. of Stanford’s fraud, Reuters said the lawsuit asserts.
The SIPC, funded by the brokerage industry, handles investors’ claims when brokers fail and has overseen liquidation proceedings for Bernard Madoff’s Ponzi scheme and the collapse of MF Global. Scola found that the SEC was required to act if it concluded that Stanford was running a Ponzi scheme.
However, he dismissed a second claim faulting the SEC for not considering whether to deny Stanford’s company’s annual registration as an investment advisor.
The judge agreed with the government’s argument that such decisions are entirely within the SEC’s discretion. The government’s argument that the SEC did not know Stanford was running a Ponzi scheme will be addressed if and when it moves for summary judgment, the judge said.
A similar $18.7 million lawsuit against the U.S. was tossed by a Texas federal judge last year for lack of jurisdiction.
Stanford was sentenced in June to 110 years in prison for bilking investors with fraudulent CDs issued by Stanford International Bank, his bank in Antigua.
The plaintiffs are seeking unspecified damages and certification of the class action.