Stanford Investor Class Actions Restored by Appeals Court

By Andrew Harris on March 19, 2012
(Bloomberg)

R. Allen Stanford’s aggrieved investors can press state court class-action lawsuits they filed seeking to recover losses in his $7 billion international fraud scheme, a U.S. appeals court ruled.

The New Orleans based panel today reversed a lower-court decision that the claims were barred by a federal law preventing plaintiffs from pursuing state-law claims arising from the purchase or sale of federally regulated securities.

A federal court jury in Houston on March 6 found Stanford guilty of mail and wire fraud in the sale of certificates of deposit issued by his Antigua-based Stanford International Bank Ltd. He is to be sentenced June 14.

The purchase or sale of securities is only “tangentially related” to Stanford’s scheme, the unanimous three-judge panel said, reviving four lawsuits filed against those who sold the CDs and lawyers and an insurer for the Stanford bank.

The U.S. Securities and Exchange Commission sued Stanford and two other top executives in his organization in February 2009, alleging they misled investors about the nature and oversight of the Antiguan bank and the CDs it issued.

He and other executives were indicted on federal charges four months later. Finance chief James Davis pleaded guilty to fraud in August 2009 and testified against Stanford in his six- week trial.

U.S. District Judge David Godbey in Dallas, who has been overseeing the SEC case and related litigation, took jurisdiction over the investor claims removed from state to federal court.

Lower-Court Ruling

He dismissed them because Stanford advertised the CDs as being backed by regulated securities and some investors sold securities to finance their CD purchases. Those facts put the CD-related suits in the ambit of the Securities Litigation Uniform Standards Act, the judge ruled.

The appeals court disagreed.

“We find that the fact that some of the plaintiffs sold some ‘covered securities’ in order to put their money in the CDs was not more than tangentially related to the fraudulent scheme,” the New Orleans panel said.

The case is Roland v. Green, 11-10932, U.S. Court of Appeals for the Fifth Circuit (New Orleans).