by Christopher Graham and Joseph Kelly

The United States Supreme Court is set to hear arguments on three consolidated class action suits relating to Latin American investors’ purchases of fraudster Alan Stanford’s certificates of deposit. The investors sued Stanford’s law firms (Proskauer Rose and Chadbourne & Parke), insurance broker (Willis) alleging that they aided and abetted Stanford in his fraudulent conduct.

The suits were filed in United State District Court but were based on Texas securities law. The defendants moved to dismiss citing the federal Securities Litigation Uniform Standards Act (SLUSA) which was designed to discourage state law claims “in connection with the purchase or sale of a covered security.” The District Court granted the motion to dismiss, but the 5th Circuit reversed finding that suits didn’t involve “covered securities” and that there were other claims unrelated to securities that placed the suits outside the scope of SLUSA. See Roland, et al v. Green, Case No. 11-10932 (5th Cir. March 19, 2012). Defendants appealed, The Supreme Court granted defendants’ petition for certiorari, and argument is set for October 7.

If the Supreme Court agrees with the investors that SLUSA doesn’t apply, law firms and other professionals that represent or are associated with fraudsters will likely face liability in securities cases in the future. Fraudsters often don’t have sufficient funds to satisfy a judgment. Plaintiffs will then look for “deep pockets” – namely, fraudster’s lawyers, brokers, and other professionals.