The US Supreme Court ruled today that class action suits can be filed against third parties linked to Allen Stanford's vast financial swindle, a decision that could have a major impact on victim compensation.
In a seven to two decision, the high court ruled in favor of victims in Louisiana and Texas, who want to sue the legal firms, insurance companies and financial companies that they say enabled Stanford's Ponzi.
Stanford was convicted in June 2012 to 110 years in prison for the USD 7 billion scheme, marking a stunning fall from grace for the flamboyant Texas financier and cricket mogul.
His conviction brought little financial relief to some 30,000 investors from more than 100 countries who were bilked by bogus investments with Stanford International Bank.
An appellate court in New Orleans, Louisiana had held that a group of local investors could bring a class-action lawsuit against third-party intermediaries on the grounds that, even if the companies were not aware of a fraud, they had ignored a number of warning signs.
But two insurance companies, one law firm and one financial firm brought the case to the Supreme Court, under a 1998 federal law meant to prevent the proliferation of class-action lawsuits.
The law blocks any class action suit "in connection with the purchase or sale of covered securities," meaning stocks traded on a national exchange.
But the top US court held up the New Orleans decision, ruling that Stanford's scam was mainly related to the buying and selling of certificates of deposit -- which are not "covered securities."
These certificates of deposit were falsely represented as being backed by covered securities, which may have encouraged the buyers to buy them, but "the plaintiffs do not allege that the defendants' misrepresentations led anyone to buy or to sell (or to maintain positions in) covered securities," Justice Stephen Breyer wrote in the majority opinion.
