BigLaw defendants ask Supreme Court to scuttle class actions over Stanford CD sales
The U.S. Supreme Court on Monday considered whether state class actions can go forward against two law firms and other professionals accused of aiding convicted Ponzi schemer R. Allen Stanford.
At issue is whether the U.S. Securities Litigation Uniform Standards Act, passed to curtail state-law class actions alleging securities fraud, covered the sale of Stanford’s certificates of deposit, report the New York Times, the Washington Post and the Wall Street Journal (sub. req.). Stanford had claimed the CDs were backed by liquid investments in the stock market, but those securities were never purchased with the money.
The two law firm defendants are Proskauer Rose and Chadbourne & Parke. They deny wrongdoing.
SLUSA bars many state law claims against third parties when an alleged misrepresentation is made “in connection with the purchase or sale of a covered security.” The “covered” securities in this case were the liquid securities that were never purchased.
Lawyer Elaine Goldenberg argued in support of the defendants for the federal government, saying the justices should interpret the law broadly, the Times says. “A false promise to purchase covered securities using the fraud victims’ money in a way that they are told is going to benefit them,” she said, “is a classic securities fraud.”
But SCOTUSblog founder Tom Goldstein, arguing for investors, said the statute shouldn’t be interpreted so broadly. “Because, metaphysically, everything is connected with everything else, we’re going to have to draw a line,” he said.
According to the Post, “The justices asked tough questions of both sides, and it was hard to predict the outcome of the case.”
