The United States Supreme Court Will Review the Scope of Federal Preclusion of State Securities Claims

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On January 18, 2013, the United States Supreme Court granted certiorari to resolve a circuit split concerning the extent to which the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) preempts state law claims that indirectly arise out of securities claims. The case could have important implications for investor suits against hedge funds and other investment funds that are not themselves covered by SLUSA, but that are set up for the purpose of investing in equities, options, and other covered securities.

The Supreme Court granted review in three consolidated cases that arose from the $7 billion dollar Ponzi scheme run by Allen Stanford and companies under his control. Stanford perpetrated the scheme by issuing certificates of deposit (“CDs”) from Stanford International Bank that the bank falsely claimed were backed by safe, liquid investments. But the investments did not exist. The bank used proceeds from new CD sales for interest and redemption payments on previously issued CDs.

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Topics:  Brokers, Equity Securities, Federal Preclusion, Fraud, Investors, Ponzi Scheme, Preemption, Private Equity, Private Securities Litigation Reform Act of 1995, SCOTUS, SLUSA, Split of Authority, State Securities Claims

Published In: Civil Procedure Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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