Stanford Ponzi Scheme Victims Can’t Recover Under SIPA

On July 18th, the D.C. Circuit affirmed the district court’s order finding that the SEC cannot compel the Securities Investor Protection Corporation to liquidate the Stanford Group Company (“SGC”), a SIPC-member broker-dealer. The SEC sought liquidation in order to compensate the victims of R. Allen Stanford’s Ponzi scheme who purchased Stanford CDs recommended by SGC. The D.C. Circuit, however, held that investors in Stanford’s CDs deposited funds in an Antiguan bank, not with SGC and SGC never held the CDs on behalf of these investors. Moreover, the investors were lenders to the bank; they invested “in” not through the bank and SGC. Therefore, even if the bank and SGC were considered the same firm, the investors would not be considered customers within the meaning of the Securities Investor Protection Act. SEC v. SIPC.

Claims Made During Analyst Calls Were Non-Actionable Forward-Looking Statements

On July 16th, the Ninth Circuit affirmed the dismissal of a securities fraud suit in which plaintiffs alleged the issuer and its executives knowingly made false and misleading statements regarding the company’s growth and financial health, which artificially inflated the company’s share price. The Court held that the company’s statements made during analyst calls were non-actionable forward-looking statements or garden variety corporate optimism. The complaint also failed to adequately allege that defendants knowingly or recklessly made false statements concerning the company’s economic circumstances. Police Retirement System of St. Louis v. Intuitive Surgical, Inc.

Misusing Industry Specific Terms Can Constitute Securities Fraud

On July 15th, the Fifth Circuit reinstated a securities fraud lawsuit. Investors in an oil and gas company doing business in Columbia allege defendants made material misstatements concerning the company’s prospects in Columbia. Finding that plaintiffs adequately alleged scienter, the Court found that defendants’ use of the term “reserves” and similar language communicated to investors that certain testing had been successfully conducted

when in fact it had not. Plaintiffs therefore adequately pleaded circumstances which constituted at least severe recklessness. Addressing loss causation, the Court further found that at the pleadings stage, plaintiffs do not need to deny affirmatively that other factors affected the stock price in order to defeat a motion to dismiss. Spitzberg v. Houston American Energy Corp.