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Supreme Court Allows Stanford Ponzi Scheme Suits To Go Forward

The U.S. Supreme Court ruled today that investor lawsuits may go forward against investment advisors and others for allegedly helping Texas tycoon Allen Stanford in a massive fraud.

Stanford was sentenced to 110 years in prison for bilking investors in a $7 billion Ponzi scheme. The investors who lost money are suing others involved in the scheme, contending that they also engaged in misleading conduct.

The targets of the suit include investment companies, insurance brokers, law firms, and others. They were sued by investors in state court and tried to have the suits thrown out. The investment advisors pointed to a federal law that says class action suits related to securities fraud cannot be brought under state law.

The investors, however, claimed that their case was different because it involved certificates of deposit — not stocks — that Stanford sold as covered by federal insurance, when in fact they were not.

By a 7-to-2 vote the Supreme Court agreed with the investors, allowing the state lawsuits to go forward.

Justices Anthony Kennedy and Samuel Alito dissented, contending that the decision would subject professional investment advisors and counselors to complex and expensive state law claims that instead are under the exclusive authority of federal regulators.

Moreover, they said that the court's ruling would limit the federal government's ability to "police frauds and abuses that undermine the confidence in the national securities markets."

Justice Stephen Breyer, writing for the seven-justice majority, replied directly in the opening pages of his opinion: "We specify at the outset that this holding does NOT limit the Federal Government's authority to prosecute frauds like the one here."

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