On the first day of its new term on Monday, the U.S. Supreme Court appeared divided over whether lawyers, insurance brokers and others who worked with convicted swindler Allen Stanford could avoid lawsuits by investors seeking to recoup losses incurred in his $7 billion Ponzi scheme.
New York-based law firms Chadbourne & Parke and Proskauer Rose and insurance brokerage Willis Group Holdings Plc were all sued by former Stanford investors.
They are part of a consolidated case along with two other defendants, financial services firm SEI Investments and insurance company Bowen, Miclette & Brittin, for which the Supreme Court heard a one-hour argument on Monday.
The defendants sought Supreme Court review after the New Orleans-based 5th U.S. Circuit Court of Appeals in March 2012 said the lawsuits brought under state laws by the former Stanford clients could go ahead.
The former Stanford clients are keen to pursue state law claims because the Supreme Court has previously held that similar so-called "aiding and abetting" claims cannot be made under federal law.
The defendants have argued that under the Securities Litigation Uniform Standards Act (SLUSA), the claims cannot be heard under state law either.
The class action lawsuits filed by the former investors accused Thomas Sjoblom, a lawyer who worked at both law firms, of obstructing a Securities and Exchange Commission probe into Stanford, and sought to hold the other defendants responsible as well.
Stanford's fraud involved the sale of certificates of deposit by his Antigua-based Stanford International Bank. Much of the litigation centers on whether these qualified as securities under applicable laws.
Stanford is serving a 110-year prison sentence.
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