New York Times

WASHINGTON — The Supreme Court on Wednesday allowed investors to pursue class-action suits against law firms, insurance brokers and financial services companies that the investors said bore partial responsibility for one of the most brazen frauds in recent history, the $7 billion Ponzi scheme orchestrated by R. Allen Stanford.

The question for the justices was whether the lawsuits, filed under state laws, were proper in light of the Securities Litigation Uniform Standards Act, a 1998 federal law that was meant to stop end runs around the protections offered to defendants under federal law. The 1998 law bars many state-law class actions based on asserted fraud “in connection with the purchase or sale of a covered security.”

In a 7-to-2 decision, the Supreme Court said Mr. Stanford’s scheme did not concern covered securities — those traded on a national exchange — meaning the suits could proceed under state laws. A contrary ruling would have basically barred the suits, which would not have been permitted under federal law.

Mr. Stanford was convicted in 2012 of running a Ponzi scheme for more than two decades, offering fraudulent high-interest certificates of deposit at the Stanford International Bank, which was based on the Caribbean island of Antigua.

Unable to get their money back from Mr. Stanford, investors sued firms they said had aided in the fraud, relying on Louisiana and Texas law. The firms responded that the suits could not be brought under state laws because they were barred by the 1998 federal law.

All concerned agreed that the C.D.s sold by Mr. Stanford’s companies were not covered securities as defined in the 1998 law. On the other hand, Mr. Stanford and his associates falsely told the buyers of the C.D.s that the proceeds would be invested in liquid securities, at least some of which would have been covered securities if they had existed. But they did not.

Writing for the majority, Justice Stephen G. Breyer said the connection to covered securities was too attenuated.

“We concede that this means a bank, chartered in Antigua and whose sole product is a fixed-rate debt instrument not traded on a U.S. exchange, will not be able to claim the benefit of preclusion under the” 1998 law, he wrote. “But it is difficult to see why the federal securities laws would be — or should be — concerned with shielding such entities from lawsuits.”

Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Clarence Thomas, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joined the majority opinion.

In dissent, Justice Anthony M. Kennedy, joined by Justice Samuel A. Alito Jr., wrote that “today’s decision, to a serious degree, narrows and constricts essential protection for our national securities markets, protection vital for their strength and integrity.”

“The result,” Justice Kennedy said, “will be a lessened confidence in the market, a force for instability that should otherwise be countered by the proper interpretation of federal securities laws and regulations.”

The decision will, he added, “subject many persons and entities whose profession it is to give advice, counsel, and assistance in investing in the securities markets to complex and costly state-law litigation.”

Justice Breyer responded that “the irony of the dissent’s position is that federal law would have precluded private recovery in these very suits.”

Justice Kennedy also said that “an investor’s confidence in the market, and willingness to participate in it, may be severely undermined if frauds like the one here are not within the reach of federal regulation.”

Justice Breyer responded that investors would continue to be protected by federal authorities like the Securities and Exchange Commission.

Justice Kennedy’s fears, Justice Breyer said, “would be news to Allen Stanford, who was sentenced to 110 years in federal prison after a successful federal prosecution, and to Stanford International Bank, which was ordered to pay billions in federal fines, after the same. Frauds like the one here — including this fraud itself — will continue to be within the reach of federal regulation because the authority of the S.E.C. and Department of Justice extends to all ‘securities,’ not just to those traded on national exchanges.”

The three consolidated cases decided Wednesday were Chadbourne & Parke v. Samuel Troice, No. 12-79; Willis of Colorado v. Troice, No. 12-86; and Proskauer Rose v. Troice, No. 12-88.