Pillsbury Winthrop Shaw Pittman

High Court limits application of phrase ‘in connection with’ for federal securities laws

By David M Furbush

On 26 February 2014, the US Supreme Court ruled in Chadbourne & Parke LLP v Troice et al that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does not preclude class action lawsuits asserting state law claims in connection with the notorious Ponzi scheme perpetrated by Allen Stanford and the Stanford International Bank. The decision turns on an interpretation of the meaning of the phrase ‘in connection with’ as used in SLUSA and other federal securities laws.

SLUSA forbids securities class actions asserting claims under state law that allege a misrepresentation or omission of a material fact ‘in connection with’ the purchase or sale of a covered security, where ‘covered security’ means securities traded on a national exchange.

Investors in ‘uncovered’ securities — CDs issued by Stanford International Bank — filed class action lawsuits asserting state law claims against various parties, including insurance brokers and law firms, alleging that they assisted Stanford International Bank in conducting or concealing its Ponzi scheme…

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