Supreme Court Narrows the Scope of SLUSA Preemption, Green-Lighting State Law Class Action Claims Alleging Ponzi Scheme

On February 26, 2014, the U. S. Supreme Court (“the Court”) held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not preclude Stanford Ponzi scheme plaintiffs’ state-law class action claims because the claims did not involve covered securities.  The 7-2 majority opinion in Chadbourne & Parke, LLC v. Troice was written by Justice Breyer, joined by Justices Kagan, Sotomayor, Ginsburg, Scalia and Chief Justice Roberts.  Justice Thomas concurred, and Justices Kennedy and Alito dissented.

The Court’s decision is significant because it resolves a long-standing circuit split over the interpretation of the “in connection with” requirement in SLUSA.  As a result of the decision, plaintiffs may increasingly bring state law claims based on investment vehicles that are not covered securities themselves but whose performance implicates or is backed by covered securities.  Investment managers and entities that market such investments, as well as lawyers and accountants, may face an increased risk of liability as a result of this decision. Read More

Rare Securities Trial Over Credit Crises Claims Results in Defense Verdict

On May 28, 2013, in Delshah Group LLC v. Javeri, a rare securities trial regarding credit-crisis related claims, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York issued an order directing a complete defense judgment following a two-week bench trial. The decision includes a noteworthy discussion and analysis of loss causation in the context of credit crisis litigation—directly applicable to pending cases under Sections 10, 11 and 12—and highlights a tension between the Private Securities Litigation Reform Act and longstanding securities law when it comes to proving culpable intent.

Factual Background

The case arose from a real estate investment gone bad. In March of 2007, plaintiff purchased interests in a venture called 40 Broad Street Project. That project sought to make a return on converting commercial real estate space into condominiums and thus take advantage of the rapidly rising value of condos in New York City. Plaintiffs claimed that defendant misrepresented how far along the building project was, whether it was under budget, and how much “skin in the game” defendants had in the project. When the credit crisis hit and the real estate market collapsed, plaintiff lost substantial sums on its investment and claimed the above misstatements were its cause. Read More