By JB Clark
Daily Journal and Associated Press
WASHINGTON – The U.S. Supreme Court ruled Wednesday that victims of the Allen Stanford ponzi scheme can bring class-action lawsuits against third-party firms that aided in the $7.2 billion deception.
Individual investors in Mississippi will most likely not see a change in the way their lawsuits proceed.
Tupelo attorney Claude Clayton represents multiple plaintiffs who brought suit against individuals who sold bad Stanford certificates of deposit. Stanford was caught in 2009. Clayton said his clients’ cases are on hold while the assets of the Stanford empire are totaled, and the Supreme Court ruling will not change anything immediately.
Canton attorney John Martin, who represents a client suing an individual involved in selling Stanford CDs, said suits against Stanford and any financial advisers representing Stanford still are held up in the Northern District of Texas while receiver Ralph Janvey totals all Stanford assets.
Third-party firms previously argued federal securities law protected them from state class-action lawsuits, but the new Supreme Court ruling said the suits are viable since the main part of the fraud involved CDs and not stocks and securities.
The high court agreed in a 7-2 decision, with the two dissenting justices warning that the ruling would lead to an explosion of state class-action lawsuits.
Stanford was sentenced in 2009 to 110 years in prison after being convicted of bilking investors in a $7.2 billion 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 who were blocked under federal law from seeking damages from the firms that worked with Stanford filed suit under state law in Louisiana and Texas. But the defendants claimed those suits also were blocked by the Securities Litigation Uniform Standards Act, a federal law aimed at limiting private lawsuits that allege securities fraud.
Writing for the court, Justice Stephen Breyer said the law does not preclude the class-action lawsuits because the fraud at the center of the scheme does not involve a “covered security.” Breyer said the fraud involving certificates of deposit “bears so remote a connection to the national securities market that no person actually believed he was taking an ownership position in that market.”
The Obama administration also had argued against allowing the cases to move forward, saying it could interfere with the Securities and Exchange Commission’s ability to go after fraud and could weaken investor confidence.
But Breyer said the government failed to show any example of past SEC enforcement actions that would have been prevented by the court’s decision. He pointed to the government’s successful prosecution of Stanford as proof that similar frauds will continue to be within the reach of federal authorities.
Prosecutors say Stanford persuaded investors to buy certificates of deposit from his bank on the Caribbean island of Antigua. He then used the money to fund a string of failed businesses, bribe regulators and pay for his lavish lifestyle.
Many victims have been disappointed so far that they have recovered only a pittance of their initial investments during a recovery process that has dragged on for more than five years. A court-appointed receiver began distributing part of $55 million in recovered assets to investors last year, just a tiny fraction of what they lost.
The receiver and other court-appointed liquidators have recovered more than $500 million of Stanford’s remaining assets so far, but that amount is reduced by millions in attorney fees, expenses and other costs.