As the U.S. Supreme Court begins its October term, a securities litigator’s thoughts turn to what cases the court might take next. A leading indicator (although far from a guarantee) is a cert petition where the Court asks the government to provide its input. On Monday, the Court made this request in three related cases arising out of an alleged Ponzi scheme.
The Securities Litigation Uniform Standards Act (“SLUSA”) precludes certain class actions based upon state law that allege a misrepresentation in connection with the purchase or sale of nationally traded securities. In determining what is meant by “in connection with,” the Supreme Court has held that it is sufficient that the alleged misrepresentation “coincide” with a covered securities transaction. The circuit courts have had difficulty, however, in expanding upon this requirement to form a consistent standard (see, e.g., decisions from the Second Circuit, Sixth Circuit, and Seventh Circuit).
In the Ponzi scheme cases, the Fifth Circuit held that the “best articulation of the ‘coincide’ requirement” is that the fraud allegations must be “more than tangentially related to (real or purported) transactions in covered securities.” The court concluded that the relationship between the alleged Ponzi scheme, which centered around the sale of certificates of deposit, and any transactions in covered securities was too attenuated to trigger SLUSA preclusion.
Will the Supreme Court revisit SLUSA? Stay tuned.
Addition: Bloomberg has an article on the Supreme Court’s request.
The 10b-5 Daily 