Supreme Court Allows State Law-Based Class Actions against Service Providers
The Supreme Court has ruled that securities class action plaintiffs may bring state law claims against law firms, administrators, insurance brokers, and other service providers. The case involves the Stanford Ponzi scheme whereby Stanford International Bank sold certificates of deposit purported to be backed by securities. The Supreme Court opines that the Securities Litigation Uniform Standards Act of 1998 does not preempt this type of state law claim because a certificate of deposit it not a “covered security” as defined by the statute because a CD is not traded on an exchange or a registered investment company.
OUR TAKE: The whole point of the SLUSA is to limit class actions and protect issuers. By reading the statute narrowly, the Court opens up the possibility of more class actions under state law so long as a plaintiff can make a link to a security not traded on an exchange. It also potentially exposes service providers like law firms and administrators.