On Monday the 5th U.S. Circuit Court of Appeals in New Orleans reversed a 2011 lower-court ruling, clearing the way for state court class actions against financial advisers, lawyers and other third parties accused of aiding convicted financial Allen Stanford’s $7 billion Ponzi scheme.
U.S. District Judge David Godbey in Dallas had ruled in 2011 that the federal Securities Litigation Uniform Standards Act, or SLUSA, barred the state cases in Louisiana and Texas because they were related to securities fraud.
But the federal three-judge appeals court panel said that law was only “tangentially related” to the fraud alleged by the plaintiffs, the sale of bogus CDs issued by Stanford’s Antigua-based Stanford International Bank Ltd.
Defendants include Stanford financial advisers, SEI Investments Co, which was accused of inducing investors to move retirement funds into the CDs, and the insurance brokerage Willis Group Holdings.
Phillip Preis, a lawyer for plaintiffs who has estimated total losses of $1 billion among some 1,000 Louisiana investors, said the ruling was the most significant for investors since Stanford’s fraud was uncovered in February 2009.
“It will allow us to assert negligence claims,” Preis told the Chicago Tribune. “It’s a big deal.” The plaintiffs in the Preis lawsuits affected by the appeals court’s decision claim that SEI Investments Co. and Stanford’s financial advisers, among them Tiffany Angelle and Hank Mills, both of whom worked out of the former Lafayette office in River Ranch, either knew or should have known that Stanford was stealing their money.
Preis also told Baton Rouge's Daily Report that the ruling is significant because state law only requires that plaintiffs prove negligence, not outright fraud, on the part of those entities. Preis said the appeals court's decision makes it more likely that those people will be made whole:
Preis filed the original class action suit in Baton Rouge’s 19th Judicial District against the Stanford Trust, trust administrator SEI, a major international firm, and the Louisiana Office of Financial Institutions. Defendants were able to move the suit to federal court, but the Fifth Circuit (Monday) remanded the suit back to Baton Rouge. Preis expects to meet with Judge R. Michael Caldwell during the next six weeks to set a new schedule for the suit. “All those big companies like SEI that supported Stanford,” Preis says, “we have a very viable claim against them."
A Houston federal jury found Stanford guilty March 6 on 13 criminal counts, including fraud, conspiracy and obstructing the SEC’s investigation. The 61-year-old could face more than 200 years in prison at his June 14 sentencing, or a maximum of about 20 years if he is sentenced to concurrent terms, the Tribune reported.
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