For years federal law enforcers ignored warnings about R. Allen Stanford's $7 billion fraud, but don't expect government officials to suffer any penalty. Instead, plaintiffs lawyers are seeking to use Stanford's crimes as a pretext to launch class-action lawsuits against other people and businesses.
Now the Supreme Court will decide whether to let them. The question at oral argument this week in Chadbourne & Parke LLP v. Troice was whether state class-action lawsuits filed against various vendors to Stanford's operation should be allowed to proceed.
Last year Stanford was convicted and sentenced to 110 years in prison for defrauding thousands of investors around the world. Because the enforcement division of the Securities and Exchange Commission spent more than a decade ignoring recommendations to investigate from both inside and outside the SEC, victims will likely recover very little of the billions they sent to Stanford.
So plaintiffs lawyers want to take it out on others who did business with Stanford, even if they didn't have anything to do with his bogus offering of certificates of deposit from his bank in Antigua. Stanford told investors that the money backing their CDs was invested in safe, liquid securities that trade in U.S. public markets, when in fact investors were funding a Ponzi scheme.
The trial lawyers want to sue under state law because previous Supreme Court decisions—especially Central Bank of Denver v. First Interstate Bank of Denver and Stoneridge v. Scientific Atlanta—make it difficult under federal law to sue companies that merely did business with fraudsters, unless these vendors directly participated in misleading investors.
Moreover, a 1998 reform prevents securities class-action cases from being brought under state law. The Securities Litigation Uniform Standards Act says that such cases must be filed under federal law if "the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security."
Covered securities include stocks and bonds issued by firms that trade on U.S. exchanges. At Monday's oral argument, Justice Antonin Scalia noted that Stanford didn't fulfill his promise to put investors' money in these securities, and therefore such a case "can't be in connection with a purchase or sale that has never occurred."
As usual, Justice Scalia is doing a public service by focusing on the text of the law the court is asked to interpret. But a fraudulent claim of buying securities sure sounds to us like a "deceptive device" that's "in connection with" a purchase of securities. Otherwise, could Bernie Madoff argue that he didn't commit securities fraud because he pocketed the cash from victims instead of investing it?
The Justices also wrestled with the significance of Stanford's various deceptions. The U.S. Court of Appeals for the Fifth Circuit had overturned a district court and ruled in favor of the plaintiffs in part because Stanford made other significant misrepresentations unrelated to securities.
But on Monday Paul Clement, attorney for the defendants, rightly noted that without the promise of these liquid assets, "nobody's going to give their money to a bank in Antigua. The reason you give your money to a bank in Antigua is because you think it's backed by something more than a piece of paper, and the something more was purchases of covered securities on the market."
Even if the Supreme Court rules against them, Stanford's victims can still pursue justice via federal class-action suits, or via individual suits in both state and federal court. But overriding federal law to allow suits against defendants who may have done nothing wrong is anything but just.
Read More: http://sivg.org.ag/topic203.html
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group – SIVG official forum http://sivg.org.ag/
Showing posts with label goldstein. Show all posts
Showing posts with label goldstein. Show all posts
Saturday, 12 October 2013
Monday, 7 October 2013
SLUSA – decision being heard today!!
Stanford Ponzi Scheme Opens Supreme Court Term
Dispute Over Whether Law and Insurance Firms Can Be Sued Is Among Spate of Business Cases on Docket.
By BRENT KENDALLCONNECT
Victims of his Ponzi scheme want to be able to sue third parties.
When Supreme Court justices return to the bench Monday after a three-month summer break, R. Allen Stanford's $7 billion Ponzi scheme will await them.
The court will hear oral arguments on the first day of its 2013-14 term to decide whether Mr. Stanford's victims should be allowed to sue third parties such as law firms and insurance brokers on allegations that they aided Mr. Stanford's scheme.
Advocates for the defendants warn that allowing such lawsuits could compromise congressional efforts to curb unwarranted litigation that affects securities markets.
Supporters of Mr. Stanford's victims say Congress never intended to shield wrongdoers in cases where people were tricked into investing in bogus private offerings.
The case is among more than two dozen on the court's docket that could have implications for businesses. "These aren't the sexiest cases but they're incredibly important," says Thomas C. Goldstein of Goldstein & Russell PC, a veteran attorney before the high court who will argue for victims of the Stanford Ponzi scheme.
Mr. Stanford, once known for his jets, yachts and passion for cricket, was convicted last year and sentenced to 110 years in prison. U.S. authorities said the financier bilked investors by selling them certificates of deposit that he falsely claimed were backed by safe investments. Instead, he used new sales of CDs to pay other investors while funneling money into risky real-estate assets and his own businesses, prosecutors said.
Investors now are going after law and financial-services firms with ties to Mr. Stanford's operations. Victims allege in class-action lawsuits filed under Louisiana and Texas laws that SEI Investments Co. SEIC -1.14%and insurance brokers, including subsidiaries of Willis Group Holdings misrepresented the CDs as safe investments. The plaintiffs also allege that law firms Proskauer Rose LLP and Chadbourne & Parke LLP knowingly helped Mr. Stanford's Antigua-based bank evade regulatory oversight.
The defendants say that defrauded investors are targeting deep-pocketed third parties with remote connections to the Stanford enterprise because Mr. Stanford and his companies are insolvent.
Pennsylvania-based SEI declines to comment beyond its court papers, which say it merely provided a Stanford affiliate with back-office services. Willis Group says in briefs that it helped Mr. Stanford's bank purchase ordinary insurance policies. A spokeswoman says the company looks forward to the Supreme Court's review.
The law firms say in briefs that they didn't make misrepresentations to investors, calling the suits baseless. Representatives for the law firms didn't respond to requests for comment.
The defendants will be represented Monday by prominent Supreme Court lawyer Paul Clement of Bancroft PLLC, who will argue that the lawsuits are barred under the 1998 federal Securities Litigation Uniform Standards Act, which largely prohibits state-law class-action claims for securities fraud.
Mr. Clement says in briefs that Congress was concerned about abusive litigation and wrote the law broadly to stop "enterprising lawyers" from using state law to evade federal limits imposed by Congress and the Supreme Court.
The defendants received a boost from the Obama administration, which filed a brief, signed by the Securities and Exchange Commission, urging the Supreme Court to rule against the investor suits in Chadbourne & Parke v. Troice.
The Fifth U.S. Circuit Court of Appeals ruled last year that the cases against the third parties could move forward. The appellate court, which is based in New Orleans, held that the fraudulent CDs weren't securities traded on national markets, meaning that the federal restrictions on securities-fraud lawsuits didn't apply in the same way.
"We don't think Congress wanted to snuff out really the only effective remedy for fraud in these state-regulated CDs," says Mr. Goldstein, the plaintiffs' lawyer.
Read More: http://sivg.org.ag/topic203.html
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/
Dispute Over Whether Law and Insurance Firms Can Be Sued Is Among Spate of Business Cases on Docket.
By BRENT KENDALLCONNECT
Victims of his Ponzi scheme want to be able to sue third parties.
When Supreme Court justices return to the bench Monday after a three-month summer break, R. Allen Stanford's $7 billion Ponzi scheme will await them.
The court will hear oral arguments on the first day of its 2013-14 term to decide whether Mr. Stanford's victims should be allowed to sue third parties such as law firms and insurance brokers on allegations that they aided Mr. Stanford's scheme.
Advocates for the defendants warn that allowing such lawsuits could compromise congressional efforts to curb unwarranted litigation that affects securities markets.
Supporters of Mr. Stanford's victims say Congress never intended to shield wrongdoers in cases where people were tricked into investing in bogus private offerings.
The case is among more than two dozen on the court's docket that could have implications for businesses. "These aren't the sexiest cases but they're incredibly important," says Thomas C. Goldstein of Goldstein & Russell PC, a veteran attorney before the high court who will argue for victims of the Stanford Ponzi scheme.
Mr. Stanford, once known for his jets, yachts and passion for cricket, was convicted last year and sentenced to 110 years in prison. U.S. authorities said the financier bilked investors by selling them certificates of deposit that he falsely claimed were backed by safe investments. Instead, he used new sales of CDs to pay other investors while funneling money into risky real-estate assets and his own businesses, prosecutors said.
Investors now are going after law and financial-services firms with ties to Mr. Stanford's operations. Victims allege in class-action lawsuits filed under Louisiana and Texas laws that SEI Investments Co. SEIC -1.14%and insurance brokers, including subsidiaries of Willis Group Holdings misrepresented the CDs as safe investments. The plaintiffs also allege that law firms Proskauer Rose LLP and Chadbourne & Parke LLP knowingly helped Mr. Stanford's Antigua-based bank evade regulatory oversight.
The defendants say that defrauded investors are targeting deep-pocketed third parties with remote connections to the Stanford enterprise because Mr. Stanford and his companies are insolvent.
Pennsylvania-based SEI declines to comment beyond its court papers, which say it merely provided a Stanford affiliate with back-office services. Willis Group says in briefs that it helped Mr. Stanford's bank purchase ordinary insurance policies. A spokeswoman says the company looks forward to the Supreme Court's review.
The law firms say in briefs that they didn't make misrepresentations to investors, calling the suits baseless. Representatives for the law firms didn't respond to requests for comment.
The defendants will be represented Monday by prominent Supreme Court lawyer Paul Clement of Bancroft PLLC, who will argue that the lawsuits are barred under the 1998 federal Securities Litigation Uniform Standards Act, which largely prohibits state-law class-action claims for securities fraud.
Mr. Clement says in briefs that Congress was concerned about abusive litigation and wrote the law broadly to stop "enterprising lawyers" from using state law to evade federal limits imposed by Congress and the Supreme Court.
The defendants received a boost from the Obama administration, which filed a brief, signed by the Securities and Exchange Commission, urging the Supreme Court to rule against the investor suits in Chadbourne & Parke v. Troice.
The Fifth U.S. Circuit Court of Appeals ruled last year that the cases against the third parties could move forward. The appellate court, which is based in New Orleans, held that the fraudulent CDs weren't securities traded on national markets, meaning that the federal restrictions on securities-fraud lawsuits didn't apply in the same way.
"We don't think Congress wanted to snuff out really the only effective remedy for fraud in these state-regulated CDs," says Mr. Goldstein, the plaintiffs' lawyer.
Read More: http://sivg.org.ag/topic203.html
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/
Wednesday, 2 October 2013
The final decision
Stanford Group sold the CDs while claiming that they were backed, at least in part, by SLUSA-covered securities.
Therefore, the government's lawyers say, the bogus investments were in fact sold "in connection with" covered securities. And for SLUSA to work, it must be interpreted broadly, and the SEC's views (as the SLUSA watchdog) must be given deference.
"Congress intended the phrase 'in connection with' to sweep widely enough to ensure achievement of 'a high standard of business ethics in the securities industry,'" while reining in excessive class actions, the government argues.
But Preis says the SEC is backing what Goldstein calls a "newfound interpretation of the securities laws" to broaden its enforcement power "at the expense of backing the Stanford victims." Since the Stanford products that local investors bought were not sold on the New York Stock Exchange, state law should apply, he says.
Regardless, it's an intriguing turn in the SEC's complicated role in the Stanford fiasco. Many victims blame the regulators for not catching on to Allen Stanford's scheme early. But the SEC backed investors' controversial bid for relief from the Securities Investor Protection Corp., even though the Stanford International Bank in Antigua, which issued the worthless CDs, was never a SIPC member.
Read More: http://sivg.org.ag/topic198.html
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/
Therefore, the government's lawyers say, the bogus investments were in fact sold "in connection with" covered securities. And for SLUSA to work, it must be interpreted broadly, and the SEC's views (as the SLUSA watchdog) must be given deference.
"Congress intended the phrase 'in connection with' to sweep widely enough to ensure achievement of 'a high standard of business ethics in the securities industry,'" while reining in excessive class actions, the government argues.
But Preis says the SEC is backing what Goldstein calls a "newfound interpretation of the securities laws" to broaden its enforcement power "at the expense of backing the Stanford victims." Since the Stanford products that local investors bought were not sold on the New York Stock Exchange, state law should apply, he says.
Regardless, it's an intriguing turn in the SEC's complicated role in the Stanford fiasco. Many victims blame the regulators for not catching on to Allen Stanford's scheme early. But the SEC backed investors' controversial bid for relief from the Securities Investor Protection Corp., even though the Stanford International Bank in Antigua, which issued the worthless CDs, was never a SIPC member.
Read More: http://sivg.org.ag/topic198.html
For a full and open debate on the Stanford Receivership visit the Stanford International Victims Group - SIVG official forum http://sivg.org.ag/