WASHINGTON--The U.S. Supreme Court on Monday asked the Obama administration for its views on whether victims of financier R. Allen Stanford's $7 billion Ponzi scheme can sue insurance brokers, law firms and other third parties on allegations they assisted the fraud.
The defendant third-party firms have petitioned the Supreme Court to stop the lawsuits, which were brought by multiple investor groups based on state law in Louisiana and Texas. The defendants argue the suits are barred by the federal Securities Litigation Uniform Standards Act, which largely prohibits state-law class action lawsuits for securities fraud.
The New Orleans-based 5th U.S. Circuit Court of Appeals ruled in March that the lawsuits could proceed. The appeals court said the fraudulent certificates of deposit that Mr. Stanford sold to investors weren't securities covered by the act. The court also said the alleged actions of the third parties were only tangentially connected to the sale of securities.
The Supreme Court, in a short written order, asked the U.S. solicitor general to file a brief expressing the federal government's views on whether the court should hear the case or leave the lower court ruling in place.
Plaintiffs allege that insurance brokers, including subsidiaries of Willis Group Holdings PLC, aided and abetted Mr. Stanford's scheme by representing that the Antigua-based bank he controlled was regulated and insured. They alleged Mr. Stanford's lawyers lied to the SEC and helped the financier evade regulatory oversight. Investors also sued SEI Investments Co., alleging the financial firm represented that the fraudulent CDs were a low-risk investment.
The defendants said the plaintiffs were seeking to lay blame on deep-pocketed third parties because the Stanford operation was insolvent.
Mr. Stanford attracted investors by offering CDs with above-average rates of return, which he touted as safe and secure. Prosecutors said he diverted the investment proceeds to fund his own businesses, risky real estate assets and lavish lifestyle. He was convicted in March of masterminding the Ponzi scheme, a fraud that prosecutors said was one of the largest in history. He was sentenced in June to 110 years in prison.
-Write to Brent Kendall at brent.kendall@dowjones.com
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