The Supreme Court agreed Friday to hear an appeal that seeks to shut down class-action lawsuits from investors who lost billions in a massive Ponzi scheme orchestrated by former Texas tycoon R. Allen Stanford.
The justices said they would review appeals court rulings allowing the suits to proceed against individuals, law firms and investment companies that the investors claim aided Stanford's fraud.
At issue is whether a federal law aimed at limiting private lawsuits that allege securities fraud can be used to block the suits investors filed in Louisiana and Texas. A federal judge initially threw them out, but the 5th U.S. Circuit Court of Appeals in New Orleans said the suits could go forward.
Last year, a judge sentenced Stanford to 110 years in prison.
The lawsuits before the Supreme Court claim that insurance brokers and law firms working on behalf of Stanford's businesses misled investors and regulators about the value and risks of investing with Stanford.
The fraud stemmed from the sale of certificates of deposits from the Stanford International Bank that supposedly were backed by safe investments in securities issued by governments, multinational companies and international banks. But those investments did not exist.
Still, the defendants in the class-action suits said that the legal claims were blocked by the federal Securities Litigation Uniform Standards Act, or SLUSA. The law says class-action suits related to securities fraud cannot be filed under state law, as these suits were.
But the appeals court found that the investment scheme is not covered by the law because the main part of the fraud involved the certificates of deposit, not stocks and other securities.
The Obama administration agreed with the defendants that the appeals court got it wrong, but still urged the justices to reject the appeal because of the peculiar set of facts in the cases. "Wrongdoers made misrepresentations about their own purchases of SLUSA-covered securities in order to induce plaintiffs to purchase uncovered investment vehicles.
The court combined the three cases and scheduled one hour of argument, which will take place either in April or after the new term begins in October.
The cases are Chadbourne & Parke v. Troice, 12-79, Willis of Colorado v. Troice, 12-86, and Proskauer, Rose v. Troice, 12-88.