The US Court of Appeals for the Fifth Circuit [official website] ruled [opinion, PDF] Monday that victims of the $7 million Ponzi scheme orchestrated by Allen Stanford [BBC profile, JURIST news archive] may pursue a class action lawsuit. Stanford was convicted of defrauding victims in America and in Latin America. Monday's decision overturned a lower court decision that found the lawsuits violated the Securities Litigation Uniform Standards Act (SLUSA) [materials]. District Judge David Godbey had ruled against the suits because they related to securities fraud and therefore could not be brought in state court. The appeals court overturned that decision citing that the possible defendants misrepresented the security of CDs as well as the soundness of Stanford's bank:
Our conclusion that the allegations do not amount to being "in connection with" transactions in covered securities is bolstered by the distinction between the present cases and the Madoff feeder fund cases. Therefore, we find that the fraudulent schemes ... are not more than tangentially related to the purchase or sale of covered securities and are therefore not sufficiently connected to such purchases or sales to trigger SLUSA preclusion.As these class action suits push forward, Stanford is awaiting sentencing after being found guilty [JURIST report] earlier this month. He could receive more than 20 years in prison for his crimes.
Stanford's trial began in January after a judge ruled in December that he was mentally competent [JURIST report] to stand trial. His lawyers were unsuccessful in arguing that he suffered from retrograde amnesia and diminished mental capacity as a result of head injuries sustained during a 2009 assault while in prison. Last year Stanford filed a lawsuit [JURIST report] accusing federal agents of violating his constitutional rights. The suit named 12 defendants, including members of the FBI, the SEC and the Department of Justice. Stanford alleged that the defendants used "abusive law-enforcement methods" to pursue a frivolous civil suit [JURIST report] against him in order to gather evidence for his criminal prosecution. In June 2009 Stanford pleaded not guilty [JURIST report] to 21 charges of fraud, conspiracy and obstruction.