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AARP Urges U.S. Supreme Court Not to Extend Securities Law Exemptions to CDs

The Supreme Court is considering the reach of federal securities protections.

Background

Chadbourne & Parke LLP v. Troice is one of three cases consolidated in the now-captioned Roland v. Green litigation. The three suits involve a multi-billion dollar Ponzi scheme perpetrated by R. Allen Stanford through various corporate entities. The scheme involved the sale of fraudulently marketed Certificates of Deposit (CDs) that were rife with misrepresentations.

The question was whether these CDs met the definition of securities under the federal Securities Litigation Uniform Standards Act (SLUSA) – if so, they were exempt from fraud claims brought under state anti-fraud laws seeking recourse for misrepresentations, omissions, and fraud.  A trial court found that while they were not technically covered securities, the CDs walked and talked like securities and thus were SLUSA covered. The U.S. Court of Appeals for the Fifth Circuit disagreed, ruling that the trial court had too broadly extended SLUSA’s coverage.

AARP’s friend-of-the-court brief, filed by AARP Foundation Litigation attorneys in conjunction with two investor advocacy organizations, urges the Court to uphold the appellate court’s ruling. Allowing issuers of private investment vehicles like these CDs to invoke the protection of SLUSA would not advance the purposes of SLUSA (which is to provide uniformity in securities market enforcement), would only create additional obstacles for defrauded investors, and undermine the role of state-based private securities laws in protecting investors from ever-changing fraudulent investment schemes.

What’s at Stake

With the increase in private offerings anticipated in the coming years, following federal law encouraging business startups, investors need all the tools at their disposal to enforce their rights against fraud and misrepresentation. Extending SLUSA to CDs would create a tremendous loophole and leave private individuals without important state law protections.

Case Status

Chadbourne & Parke LLP v. Troice is before the U.S. Supreme Court,