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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