SCOTUS will allow fraud victims to sue all entities involved with Stanford Ponzi scheme

Find that financial and legal firms associated with case were not protected under previous rules

The Supreme Court has ruled that it will allow investors to sue entities bearing partial responsibility for the R. Allen Stanford’s Ponzi scheme. The scheme, which involved a number of legal firms, insurance companies and other facilitators, sapped investors of $7 billion.

Convicted in 2012, Stanford’s scheme duped victims into dropping money on fraudulent high interest saving accounts. The scheme had been going on for over 20 years, and because investors were unable to recoup earnings from the scheme, they sought opportunities to sue other parties involved with it. Those entities pushed back, citing a number of state and federal laws that they argued they were protected under.

The SCOTUS was tasked with determining whether the lawsuits were valid under the Securities Litigation Uniform Standards Act, which prevented suits under federal law on fraud “in connection with the purchase or sale of a covered security.”

In a 7-to-2 decision the Court ruled that the assets sold in that scheme were not considered covered securities, which are defined as items traded on the national exchange.

 “We concede that this means a bank, chartered in Antigua and whose sole product is a fixed-rate debt instrument not traded on a U.S. exchange, will not be able to claim the benefit of preclusion under the 1998 law,” Justice Stephen Breyer said in relation. “But it is difficult to see why the federal securities laws would be — or should be — concerned with shielding such entities from lawsuits.”

The ruling will allow lawsuits filed against connected entities to continue and could cost them billions. It may also have wide ranging implications on the way certain types of lawsuits are brought in the future.


For more on securities litigation check out these stories:

Morgan Stanley could pay $275 million financial crisis settlement to SEC

SEC to collect illegal proceeds from insider trading

Lululemon rejects U.S. lawsuit’s allegation that it misled shareholders

Executive Editor

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Chris DiMarco

Chris DiMarco, Executive Editor of InsideCounsel magazine, has a background in multimedia production with previous involvement in projects in which he developed and created content...

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