Federal securities law doesn’t preclude state law class actions

5th Circuit deepens circuit split on the breadth of SLUSA's preclusion provision

The 5th Circuit recently addressed an issue of first impression concerning the breadth of the preclusion provision of the Securities Litigation Uniform Standards Act (SLUSA), which prevents plaintiffs from filing state law class action lawsuits alleging fraud tied to nationally traded securities. The court’s decision in Roland v. Green deepened a split among the circuits, signaling possible future Supreme Court review of the issue.

The case stems from when the Securities and Exchange Commission (SEC) accused financier R. Allen Stanford of masterminding a $7 billion Ponzi scheme for two decades in February 2009. The agency claimed Stanford defrauded 30,000 investors in 113 countries by selling them high-yield certificates of deposit (CDs) and promising high returns.

So in 1998, Congress passed SLUSA as an attempt to stop plaintiffs from circumventing the PSLRA. SLUSA’s preclusion provision stipulates that no state law class action can be maintained in either state or federal court by any private party alleging fraud in connection with the purchase or sale of a covered security [emphasis added]. SLUSA allows defendants to attempt to remove such class actions to federal court and then seek dismissal.

But courts have varied interpretations of the act’s language, particularly the preclusion provisions “in connection with” requirement, which the 5th Circuit  dissected in Roland v. Green.

Ashley Post

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