Chadbourne & Parke LLP v. Troice

The Securities Litigation Uniform Standards Act of 1998 does not preclude the Respondents' state-law class actions alleging that the Petitioners assisted in carrying out a Ponzi scheme by alleging that the uncovered securities that plaintiffs purchased were protected by covered securities.

Respondents allege that several companies ran a multibillion dollar Ponzi scheme, using Respondents’ money. The Respondents sued in four separate civil class actions. Two groups filed their actions in Louisiana and the other two groups filed their actions in Texas. The Petitioners moved to dismiss the complaints. The District Court held that the Litigation Act required dismissal of the claims. Respondents appealed, and the Fifth Circuit reversed. Petitioners appealed and the United States Supreme Court granted certiorari.

The Supreme Court affirmed and held that the Securities Litigation Uniform Standards Act of 1998 does not preclude the Respondents' state-law class actions. The Securities Litigation Uniform Standards Act of 1998 forbids the bringing of large securities class actions based upon violations of state law that is connected with the "purchase and sale of covered securities." The issue before the United States Supreme Court was whether the Litigation Act encompassed a class action where the plaintiffs allege (1) that they purchased uncovered securities, and (2) that the defendants falsely told the plaintiffs that the uncovered securities were backed by covered securities.

The Supreme Court found support in (1) the Act’s focus on transactions in covered securities; (2) a natural reading of the Act; (3) prior case law; (4) a reading of the underlying regulatory statutes, the Securities Exchange Act of 1934 and the Securities Act of 1933; and (5) a narrow interpretation of the statutory connection.