Winston & Strawn partner Neal Marder was quoted in Inside Counsel on May 30, 2012. The article, "Federal Securities Law Doesn't Preclude State Law Class Actions," discussed Roland v. Green and its significance concerning the interpretation of the Securities Litigation Uniform Standards Act (SLUSA).
Roland v. Green is a class action lawsuit against the company of R. Allen Stanford, who was accused of defrauding 30,000 investors in a $7 million Ponzi scheme through the sale of high-yield certificates of deposit backed by national securities.
According to SLUSA's preclusion provision, no state law class action can be maintained in state or federal court by any private party claiming fraud in connection with the purchase or sale of covered securities. However, courts have differing interpretations of SLUSA's language.
On appeal, the 5th Circuit considered how other circuits have construed SLUSA's "in connection with" requirement. "The 11th Circuit has adopted what I would call the most stringent requirement and has found that in order for SLUSA to bar a state law claim, a fraudulent scheme must have depended on the purchase or sale of covered securities," explains Mr. Marder. "The 9th Circuit's test, compared to that, is much more watered down. It says SLUSA would apply if the fraud and the purchase or sales of securities were more than tangentially related."
The 5th Circuit in Roland v. Green agreed with the interpretation of the 9th Circuit. "The result of adopting this test should mean that it's easier to find that SLUSA applies and bars state law claims, but when the 5th Circuit applied that test to the facts, it concluded that in this particular case, that test wasn't met," explains Mr. Marder. "The misrepresentations were simply tangentially related to the fraud—they weren't more than tangentially related. So it reversed the district court."
According to experts, the outcome of Roland v. Green could lead to a review of SLUSA's preclusion provision by the Supreme Court.
"The Supreme Court in the past few terms has been much more active in getting involved in securities cases and class actions," Mr. Marder says. "This may very well provide the opportunity for the Supreme Court to intervene and decide in a more uniform way what 'in connection with' is intended to mean under SLUSA."