Advertisement

You will be redirected to the page you want to view in  seconds.

R. Allen Stanford in custody at the federal courthouse in Houston in 2010. / David J. Phillip, AP

WASHINGTON - Investors who lost billions in a notorious Ponzi scheme run by Texas financier Allen Stanford are lucky, it turns out, that the CDs they purchased were not "covered securities."

That's because the Supreme Court ruled 7-2 Wednesday that a law intended to assert federal jurisdiction over most securities fraud class-action claims - which would deny investors relief under state laws - refers specifically to real, and not imagined, investments.

The long-awaited decision in a case that was heard on the first day of the court's term in October was a victory for investors in Stanford International Bank, the Antigua-based institution that sold about $7 billion in mostly worthless certificates of deposit to more than 25,000 people over 15 years.

In a version of a Ponzi scheme later made more infamous by Bernard Madoff, Stanford and his colleagues forged financial statements and lied to regulators about their financial condition. As a result, thousands of investors, including retirees and small-business owners, lost their life savings.

Stanford was arrested in 2009 and convicted in 2012. He is serving a 110-year federal prison sentence in Florida.

The scheme not only defrauded customers; its reliance on investments that were not secured turned out to be key to its latest loss in court. Had the CDs been viewed as covered securities, they would have been included in the federal law, and state-law actions would have been moot.

But after more than four months of deliberations, the justices ruled against financial institutions, law firms and insurance companies accused of aiding Stanford. They had argued that since the fraud included misrepresentations about covered security transactions, the federal law applied.

"Those words 'covered security' are important here," Justice Stephen Breyer, who wrote the opinion, said. "Defrauded investors will be able to obtain damages under state law."

Justices Anthony Kennedy and Samuel Alito dissented, arguing the decision would limit the authority of the Securities & Exchange Commission to prosecute similar frauds. That's the position the Justice Department took in opposing the fleeced investors.

But Breyer said the majority of justices believe the ruling will not limit the federal government's prosecution power "in any way."

Follow @richardjwolf on Twitter.



Copyright 2014 USATODAY.com

Read the original story: Ponzi scheme investors can sue in state courts

More In

test

Real Deals

Flip, shop and save on specials from your favorite retailers in central Ohio.

GET DEALS | COUPONS

Things To Do

THU
31
FRI
1
SAT
2
SUN
3
MON
4
TUE
5
WED
6

CLASSIFIEDS

Classifieds from across Central Ohio
Lancaster
Chillicothe
Newark
Marion
Bucyrus
Mansfield
Zanesville
Coshocton

Weeklies & Shoppers

10TV Headlines

Dispatch Headlines

METROMIX