SLUSA Doesn't Preclude Stanford Ponzi Victims' State Law Claims.
On February 26th, the U.S. Supreme Court held that the state law fraud claims against the third parties who allegedly assisted R. Allen Stanford's Ponzi scheme can proceed. Defendants sought dismissal of the suits by arguing that the Securities Litigation Uniform Standards Act ("SLUSA") precluded the claims of Stanford's victims. Defendants reasoned that the plaintiffs' investments in certificates of deposit ("CD") sold by Stanford's entities were SLUSA covered securities because they were supposedly backed by "marketable securities." The Court, however, disagreed holding that the connection between the CDs and SLUSA covered securities was insufficient to invoke SLUSA preclusion. A fraudulent misrepresentation or omission is not made "in connection with" a "purchase or sale of a covered security" for purposes of SLUSA unless it is material to a decision to buy or to sell a "covered security." And the CDs at issue here were not covered securities. Chadbourne & Parke LLP v. Troice.
Supreme Court Denies Cert. in Hotel Condo Suit.
On February 24th, the Supreme Court denied certiorari in Salameh v. Tarsadia Hotel, 13-763. See Supreme Court Orders. The action lets stand a Ninth Circuit action which held that the sale of condominium units was not a sale of securities. The Ninth Circuit found that plaintiffs did not adequately allege facts showing that they were offered real-estate and rental management contracts as a package. Therefore, plaintiffs failed to allege the sale of a security based on their purchase of condominiums. Plaintiffs also did not allege facts showing that they were induced to buy the condominiums by the rental-management agreement.
Rebutting the General Partnership Presumption.
On February 24th, the Tenth Circuit addressed how the presumption that an interest in a general partnership is not a security can be rebutted. In this SEC enforcement action, the agency alleges the defendants sold investment interests in oil and gas general partnerships in violation of the securities laws. The district court dismissed the suit because, it found, the SEC had failed to adequately plead that the joint venture interests were securities. The Tenth Circuit reversed and in doing so adopted the Fifth Circuit's test for rebutting the presumption that an interest in a general partnership is not a security. Applying that three-part test, the Tenth Circuit found that the SEC raised a fact issue concerning whether the instant investors were relying on defendants' efforts to significantly affect the success or failure of the ventures. The allegations also raise a fact issue as to whether the investors actually had the type of control reserved under the agreements to obtain access to information necessary to protect, manage, and control their investments at the time they purchased their interests. SEC v. Shields.