On February 26, 2014, the United States Supreme Court decided Chadbourne & Parke LLP v. Troice, No. 12-79, holding that the Securities Litigation Uniform Standards Act of 1998 does not preclude state-law class actions where the alleged misrepresentations concerned uncovered securities that defendants claimed were backed by covered securities. Covered securities are those that are listed or authorized for listing on a national securities exchange. The Act, by its text, precludes only state-law class actions of more than 50 people that allege "a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." The claims in the state-law class actions before the Court did not concern the sale of covered securities, and thus the Act did not preclude the actions.

Private investors bought certificates of deposit from Allen Stanford and several of his companies, including Stanford International Bank. The investors expected that the Bank would use the money it received to buy lucrative assets, including securities listed on a national securities exchange. Instead, Stanford and his associates used the money in a Ponzi scheme, paying older investors with newer investors' money, as well as supporting an extravagant lifestyle and real estate speculation. Stanford was convicted of various crimes related to the fraud and sentenced to 110 years in prison, and the Securities and Exchange Commission conducted an investigation that resulted in large civil penalties.

Four groups of private investors sued firms and individuals affiliated with Stanford, including insurance brokers and two law firms, alleging state-law fraud claims. The district court granted the defendants' motions to dismiss, holding that the Act barred the claims. The Fifth Circuit reversed, holding that the misrepresentations regarding covered securities were too tangentially related to the fraud to trigger the Act's preclusion provision.

The Supreme Court affirmed, holding that under the circumstances of these cases—where the plaintiffs purchased uncovered securities and it was only the fraudsters who might have purchased covered securities—the Act does not preclude the state-law class actions. The Court noted five reasons the Act did not prevent the plaintiffs' class actions. First, the Act's basic focus is on covered securities, not uncovered securities like those purchased by the plaintiffs. Second, "a natural reading of the Act's language" indicates that the connection with the sale of covered securities matters, and someone other than the fraudster must be the purchaser of the covered security. Third, the Court's previous cases involving the Act all concerned victims who purchased, or tried to purchase, covered securities. Fourth, the Act must be read consistently with other securities regulatory statutes, which are designed "to insure honest securities markets and thereby promote investor confidence." These investors' connection to the securities markets was too remote to fall within the Act. Finally, to interpret the Act so broadly as to include the facts of these cases "would interfere with state efforts to provide remedies for victims of ordinary state-law frauds."

Justice Breyer delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Thomas, Ginsburg, Sotomayor, and Kagan joined. Justice Thomas filed a concurring opinion. Justice Kennedy filed a dissenting opinion, in which Justice Alito joined.

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