Amicus Curiae Signed by Congress Re: SLUSA

Case: 11-10932
Document: 00511681362
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Date Filed: 11/30/2011
UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT JAMES ROLAND, et al Plaintiffs-Appellants, v. JASON GREEN, et al Defendants-Appellees, ) ) ) ) Appeal No. 11-10932 ) ) ) ) ) ) ) ) ) Appeal No. 11-11031 ) ) ) ) ) ) ) ) ) Appeal No. 11-11048 ) ) ) )
SAMUEL TROICE, et al, Plaintiffs-Appellants, v. PROSKAUER ROSE LLP, et al Defendants-Appellees,
SAMUEL TROICE, et al, Plaintiffs-Appellants, v. WILLIS OF COLORADO, INC., et al Defendants-Appellees,
AMICUS CURIAE BRIEF OF CERTAIN MEMBERS OF CONGRESS IN SUPPORT OF APPELLANTS AND ADDRESSING THE SECURITIES LITIGATION UNIFORM STANDARDS ACT
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SUPPLEMENTAL CERTIFICATE OF INTERESTED PERSONS The Amici Curiae adopt and incorporate herein the Certificate of Interested Persons filed by the Troice Plaintiffs-Appellants. Troice Appellants Brief at iii xvi. The Amici Curiae certify that the following additional listed persons and entities as described in the fourth sentence of Rule 28.2.1 have an interest in the outcome of this case. These representations are made so that the judges of this Court may evaluate possible disqualification or recusal. John J. Little LITTLE PEDERSEN FANKHAUSER, LLP 901 Main Street, Suite 4110 Dallas, Texas 75202 214.573.2300 Phone 214.573.2323 Fax Peter D. Morgenstern BUTZEL LONG, P.C. 380 Madison Avenue New York, New York 10017 212-374-5379 Phone 212-818-0894 Fax Edward C. Snyder CASTILLO SNYDER, P.C. 300 Convent Street, Suite 1020 San Antonio, Texas 78205 210.630.4200 Phone 210.630.4210 Fax Court-appointed Examiner Chair, Official Stanford Investors Committee
Member, Official Stanford Investors Committee
Member, Official Stanford Investors Committee and counsel for the Plaintiffs-Appellants, Samuel Troice, et al.
AMICUS CURIAE Brief of Certain Members of Congress in Support of Appellants and Addressing the Securities Litigation Uniform Standards Acts
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Edward F. Valdespino STRASBURGER & PRICE, LLP 300 Convent Street, Suite 900 San Antonio, Texas 78205 210.250.6000 Phone 210.250.6100 Fax Jaime A. Pinto Estudio Pinto Abogados Av. Jorge Basadre 310, Suite 504 Lima 27, Peru (51-1) 442-1985 (phone - fax) Dr. John Wade New Orleans, Louisiana Angela Shaw Kogutt
Member, Official Stanford Investors Committee and counsel for the Plaintiffs-Appellants, Samuel Troice, et al.
Member, Official Stanford Investors Committee
Member, Official Stanford Investors Committee Member, Official Stanford Investors Committee
STATEMENT REGARDING ORAL ARGUMENT The Amici Curiae adopt and incorporate herein the Statement Regarding Oral Argument filed by the Troice Plaintiffs-Appellants. Troice Appellants Brief at xvii.
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TABLE OF CONTENTS
SUPPLEMENTAL CERTIFICATE OF INTERESTED PERSONS................ ii STATEMENT REGARDING ORAL ARGUMENT ......................................... iii TABLE OF CONTENTS ...................................................................................... iv TABLE OF AUTHORITIES ..................................................................................v I. RULE 29(C)(5) STATEMENT ........................................................................1
II. THE ROLES OF THE AMICI CURIAE ........................................................1 III. PRELIMINARY STATEMENT .....................................................................2 IV. ARGUMENT AND AUTHORITIES ..............................................................3 A. LEGISLATIVE HISTORY ..........................................................................3
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TABLE OF AUTHORITIES CASES Anwar v. Fairfield Greenwich Ltd., 728 F.Supp.2d 372 (S.D.N.Y.2010) .....................................................................10 Bates v. Dow Agrosciences LLC, 544 U.S. 431 (2005) ...............................................................................................3 Gavin, v. AT&T Corp., 464 F.3d 634 (7th Cir. 2006) ................................................................................10 Grippo v. Perazzo, 357 F. 3d 1218 (11th Cir. 2004) .............................................................................9 In re Kingate Management Litigation, 2011 WL 1362106 (S.D.N.Y. 2011) ....................................................................10 Instituto de Prevision Militar v. Merrill Lynch, 546 F.3d 1340 (11th Cir. 2008) ..............................................................................9
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I.
RULE 29(C)(5) STATEMENT
This Amicus Curiae was primarily drafted by Ed Snyder, a member of the Official Stanford Investors Committee and one of the counsel for the Troice Appellants, along with other counsel for the Official Stanford Investors Committee. No money was contributed by any party or by any partys counsel to fund the preparation of this Brief. II. THE ROLES OF THE AMICI CURIAE
The undersigned are all members of the United States Congress whose constituents were harmed by the massive Stanford Ponzi scheme. Sadly, Louisiana in particular has a large number of Stanford victims, most of whom are retired former Exxon employees who reside in the Baton Rouge area. Texas, of course, was the center of the Stanford fraud and also has a large number of victims. There are victims from virtually every state in the United States, but a disproportionate share resides in the Southern United States, including Florida, Mississippi, Alabama and Tennessee. As members of Congress representing constituents residing in their districts who are victims of the Stanford fraud, the undersigned are concerned about the instant appeal and its impact on the victims. Moreover, given that this appeal arises from what the undersigned believe was a judicial misinterpretation of a law
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passed by Congress, the undersigned have a direct interest in ensuring that Congressional intent is followed in future interpretations of this law. The undersigned file this brief as members of the United States Congress. III. PRELIMINARY STATEMENT
The undersigned Members of the United States Congress submit this Amicus Brief in support of the Appellants. It is the view of the undersigned that the United States District Court misinterpreted Securities Litigation Uniform Standards (SLUSA) and expanded it well beyond its intended scope. SLUSA was only intended to apply to cases where fraud was alleged to have induced either the purchase or sale of covered securities by the buyer or seller alleging the fraud; in other words, that the fraud directly coincided with the purchase or sale of the covered securities by or to the buyer or seller. SLUSA was not intended to apply to cases where the alleged fraud induced the purchase of non-covered securities such as the fraudulent Certificates of Deposit (CDs) issued by Stanford International Bank, Ltd. (SIBL), an offshore bank chartered in the Eastern Caribbean nation of Antigua and Barbuda. The undersigned are concerned about judicial expansion of this particular federal law, which was created to address so-called strike suits against the issuers of publicly traded securities, not to help alleged aiders and abettors of Ponzi schemes evade liability under state law. In particular, the undersigned are
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concerned that the judicial expansion of SLUSA will usurp and displace statutory and common law remedies that have long been available to investors under state law. 1 In a case like Stanford, such an application will have devastating results, particularly for smaller investors whose claims are too small to prosecute except via the class action mechanism. SLUSA was intended to limit meritless strike suits against issuers of nationally traded securities, not to take away the rights of redress for thousands of victims of a Ponzi scheme whose money wasquite simply stolen. IV. A. ARGUMENT AND AUTHORITIES
Legislative History The goal of SLUSA was to require that all nationwide securities class
actions involving allegations of fraud in the purchase or sale of nationally traded securities be litigated in the federal courts via federal securities 10b causes of action under the aegis of rules adopted by the Private Securities Litigation Reform Act (PSLRA). The conference committee explained the purpose of SLUSA:
The purpose of this title is to prevent plaintiffs from seeking to evade the protections that Federal law provides against abusive litigation by filing suit in State, rather than in Federal, court. The legislation is
1
Bates v. Dow Agrosciences LLC, 544 U.S. 431, 449 (2005)(observing that a long history of state-law tort remedy add[ed] force to the presumption against pre-emption).
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designed to protect the interests of shareholders and employees of public companies that are the target of meritless strike suits. . . . The solution to this problem is to make Federal court the exclusive venue for most securities fraud class action litigation involving nationally traded securities. Joint Explanatory Statement of the Committee of Conference, H.R. REP. NO. 105-803, at 13 (1998) (Conf. Rep.) (emphasis added). See also Remarks of Representative Boehner, 144 CONG. REC. E1384-85 (Jul. 22, 1998) (If the stock went down, even briefly, the trial lawyers sued the companies and harassed them. . . . This bill would prevent strike suit lawyers from abusing convenient state law. . . .); Remarks of Representative Oxley, 144 CONG. REC. H10779-80 (Oct. 13, 1998) (Publicly traded companies, their shareholders, and their employees lose every time a company has to pay off and their lawyers have to settle a lawsuit that is based on one fact only, that the company stock dropped in value. . . . [SLUSA] closes this loophole by assuring that lawsuits involving nationally traded securities remain in Federal courts where they have always been heard.); Remarks of Senator Reid, 144 CONG. REC. S4799 (May 13, 1998) (The State court litigation is a loophole around the PSLRA); Remarks of Senator Grams, 144 CONG. REC. S4802 (May 13, 1998) (This bipartisan legislation is narrowly drafted to correct an unexpected consequence of the [PSLRA] and is supported by the White House and the Securities and Exchange Commission).
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The Acts legislative history also demonstrates that Congress sought to eliminate this loophole because meritless strike suits had a chilling effect on the flow of public information in national securities markets, including the forwardlooking statements that Congress sought to protect under the PSLRAs safe harbor provisions, as demonstrated by the legislative history: [T]he increased risk of state court class actions has had a chilling effect on the use of the safe harbor and other important provisions of [PSLRA]. The safe harbor was intended to help get valuable financial forecasts and forward-looking information to investors, so that these investors could make decisions with as much information as possible. Report of the Senate Committee on Banking, Housing and Urban Affairs, S. REP. NO. 105-182, at 4 (1998). In addition, these lawsuits have a chilling, a chilling effect on one of the most important provisions in [the PSLRA] and that is called the safe harbor provision. Until this loophole is closed, no company can safely risk issuing any forecast, even though the market desperately wants it. . . . If someone makes a prediction and he is off by a little bit, he is sued. Remarks of Senator DAmato, 144 CONG. REC. S478182 (May 13, 1998); In recent years, the Securities and Exchange Commission . . . sought to find ways to encourage companies to put such forward-looking statements into the marketplace. Congress too sought to encourage this and this effort ultimately culminated in the creation of a statutory safe harbor, so that companies did not fear a lawsuit if they did not meet their good-faith projections about future performance. Unfortunately, the simple fact is that the fear of State court litigation is preventing companies from effectively using the safe harbor. Remarks of Senator Dodd, 144 CONG. REC. S4790 (May 13, 1998);
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The State court litigation is a loophole around the PSLRA. This is undermining the bipartisan efforts we made in passing the PSLRA to give companies the ability to disclose more information to investors without the fear of being sued. But the threat of being sued in 50 states chills the disclosure of company information to investors. People are understandably reluctant to make disclosures under the Federal laws safe harbor provision when their statements can be used against them in state court. According to the SEC, fear of state court liability for forward looking statements was inhibiting the use of the PSLRAs safe harbor. Remarks of Senator Reid, 144 CONG. REC. S4799 (May 13, 1998); The legislative history demonstrates SLUSA was never intended to apply to securities that were not nationally traded, such as the Stanford CDs, nor to lawsuits involving securities that were not nationally traded: This legislation is narrowly focused. It will apply only to national securities that are traded on National exchanges and on NASDAQs National Market System. Prepared Statement of U.S. Senator Alfonse M. DAmato Regarding the Mark-Up of S. 1260, The Securities Litigation Uniform Standards Act (April 29, 1998); The Committee strongly notes that this legislation only covers precisely those securities defined in the NSMIA [National Securities Markets Improvement Act of 1996], principally those securities that are traded on national exchanges. Report of the Senate Committee on Banking, Housing and Urban Affairs, S. REP. NO. 105-182, at 5 (1998); This is important legislation, and it is narrowly drawn to address a specific and serious problem. Remarks of Senator DAmato, 144 CONG. REC. S4782 (May 13, 1998); It applies only to class-action suits. It applies only to stocks that are traded nationally. Remarks of Senator Gramm, 144 CONG. REC.
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S4792 (May 13, 1998); [T]he securities governed by this bill and it is important to emphasize this point are by definition trading on national exchanges. As we all know, securities traded on national exchanges are bought and sold by investors in every State, and those investors rely on information distributed on a national basis. Remarks of Senator Lieberman, 144 CONG. REC. S4799 (May 13, 1998); Make no mistake about it, Mr. Speaker, this bill only applies to national lawsuits. It only applies to securities that are traded on the three national exchanges in our country. Remarks of Representative White, 144 CONG. REC. H6057 (July 21, 1998); and This legislation is limited in scope and only affects class action lawsuits involving nationally traded securities. Remarks of Representative Oxley, 144 CONG. REC. H10780 (Oct. 13, 1998). The offshore bank CDs sold by Stanford were never intended to be covered securities, as that term is defined by SLUSA. The CDs were never traded on any national exchange, they were not issued by a registered investment company, and they were not sold pursuant to a registration statement filed under the Investment Company Act of 1940. SLUSA was never intended to preclude state law claims concerning uncovered securities, particularly claims like those asserted by Stanfords investor victims who were fraudulently induced into purchasing bogus CDs. Moreover, the entities who are being sued in the pending litigation are not being sued because of anything they did (or failed to do) with respect to a covered security. We are not talking about preventing legitimate litigation. Real plaintiffs with legitimate claims deserve their day in court. And we
AMICUS CURIAE Brief of Certain Members of Congress in Support of Appellants and Addressing the Securities Litigation Uniform Standards Acts PAGE 7
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preserve that in this bill. . . . It will not prevent shareholder derivative actions or individual lawsuits or lawsuits by school districts or municipalities or State securities regulator enforcement actions or lawsuits relating to microcap or penny stock fraud. Those actions will still be permitted. Remarks of Senator DAmato, 144 CONG. REC. S4781-82 (May 13, 1998); It will not affect the ability of any individual, or even a small group of individuals, to bring a suit in state court against any security, nationally traded or not. It will not affect any suit, class action or otherwise, against penny stocks or any stock that is not traded on a national exchange. Remarks of Senator Dodd, 144 CONG. REC. S4791 (May 13, 1998) (emphasis added); [SLUSA] will permit meritorious claims to continue to be filed while preventing the migration of baseless class actions to state court. Remarks of Representative Bliley, 144 CONG. REC. H6055 (July 21, 1998) If there is intentional fraud, there is nothing in this legislation or in the [PSLRA] to prevent those cases from proceeding. Remarks of Representative Bliley, 144 CONG. REC. H10771 (Oct. 13, 1998); [T]he bill is carefully designed to make sure that other actions, indeed, can still be brought in State courts . . . . Remarks of Representative Tauzin, 144 CONG. REC. H10786 (Oct. 13, 1998). With this legislative purpose in mind, it is evident that SLUSAs in connection requirement asks courts to resolve only one simple question: Did the alleged tortfeasor make false statements or omissions about a covered security that fraudulently induced plaintiffs into purchasing, selling, or holding that same covered security? If so, then SLUSA applies to close the PSLRA loophole and
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protect the issuer of that covered security. If not, then SLUSA does not apply because these circumstances do not trigger litigation against issuers of covered securities much less meritless strike suits which is precisely the harm that SLUSA was narrowly tailored to remedy. Many federal courts have reached this conclusion, including the Eleventh Circuit, which held that the controlling consideration for SLUSAs in connection analysis is the product that was marketed to the investor, not what the defendant actually did with the investor's money. Instituto de Prevision
Militar v. Merrill Lynch, 546 F.3d 1340, 1352 (11th Cir. 2008) (Militar) (citing Grippo v. Perazzo, 357 F. 3d 1218, 1224 (11th Cir. 2004) (emphasis in original). This product marketed or sold approach also helps to explain the split in the decisions emerging in the Southern District of New York from the Madoff debacle. Those decisions hinge on whether the investors knew about or intended to invest with Madoff in covered securities, or whether they had no idea their money was going to Madoff and from there into covered securities. Compare In re Kingate Management Litigation, 2011 WL 1362106 (S.D.N.Y. 2011) (investment in feeder fund was a cursory pass-through vehicles by which the investors could place their assets with Madoff) with Anwar v. Fairfield Greenwich Ltd., 728 F.Supp.2d 372 (S.D.N.Y.2010) (holding that an investment in a Madoff feeder fund was too attenuated to be considered a direct investment in a covered
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security for purposes of SLUSA). The undersigned submit that, based on the plain text of SLUSA and the clearly expressed intent of Congress in passing SLUSA, SLUSA should only preclude class action claims that are based on fraud directly related to the purchase or sale of covered securities; i.e., that the plaintiffs claims depend on both alleged fraud and covered securities, and, perhaps most importantly, that the alleged fraud be directed at the covered securities. The interpretation of SLUSA and the in connection with requirement adopted by the District Court stretches the statute beyond its plain meaning and if affirmed, could potentially subsume any consumer claims involving the exchange of money or alleging fraud against a bank, without regard to the product that was being peddled. 2 Unlike Madoff, covered securities just arent at the heart of the Stanford case the fraudulent Stanford International Bank CDs are at the heart of this case. These fraudulent CDs are not, and never were, covered securities.
Gavin, v. AT&T Corp., 464 F.3d 634, 639-40 (7th Cir. 2006)(the connection requirement must be taken seriously. [O]f course there is a literal sense in which anything that happens that would not have happened but for some prior event is connected to that event in the same sense the fraud is connected to the Big Bang.).
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CERTIFICATE OF SERVICE I hereby certify that on this 30th day of November, 2011, I electronically filed the foregoing AMICUS CURIAE BRIEF OF CERTAIN MEMBERS OF CONGRESS ADDRESSING THE SECURITIES LITIGATION UNIFORM STANDARDS ACT with the clerk of the court for the Court of Appeals, Fifth Circuit, using the electronic case filing system of the Court. The electronic case files system sent a Notice of Docket Activity/Electronic Filing to all counsel of records, each of whom have consented to accept this Notice as service of this document by Electronic means. /s/ Edward C. Snyder Edward C. Snyder
CERTIFICATE OF COMPLIANCE 1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) and Fifth Circuit Rule 32 (5)(A) and (B), because: X this brief contained 2496 words, excluding the parts of the brief exempted by Fed R. App. P. 32(a)(&)(B)(iii)
2. This brief complies with the typeface requirements of Fed R. App. P. 32(a)(5) and the type style requirements of Fed R. App. P. 32 (a)(6) because: X this brief has been prepared in a proportionally spaced typeface (14 point) using Microsoft Office Word 2003 in Times New Roman.
/s/ Edward C. Snyder Edward C. Snyder
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Amicus Curiae Signed by Congress Re: SLUSA

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Amicus Curiae Signed by Congress Re: SLUSA

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Case: 11-10932

Date Filed: 11/30/2011

SAMUEL TROICE, et al, Plaintiffs-Appellants, v. PROSKAUER ROSE LLP, et al Defendants-Appellees,

SAMUEL TROICE, et al, Plaintiffs-Appellants, v. WILLIS OF COLORADO, INC., et al Defendants-Appellees,

Date Filed: 11/30/2011

Member, Official Stanford Investors Committee

Date Filed: 11/30/2011

Member, Official Stanford Investors Committee

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

RULE 29(C)(5) STATEMENT

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

Date Filed: 11/30/2011

/s/ Edward C. Snyder Edward C. Snyder

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