WASHINGTON--The U.S. Supreme Court on Friday agreed to decide
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.
Multiple investor groups brought lawsuits based on state law in
Louisiana and Texas, but the defendant companies and firms 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 will review that ruling.
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 allege Mr. Stanford's lawyers lied
to the Securities and Exchange Commission 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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