Business

Stanford fraud suits by investors allowed by Supreme Court

WASHINGTON — Victims of R. Allen Stanford’s $7 billion Ponzi scheme can sue outside companies and law firms alleged to have played a role in the fraud, the US Supreme Court ruled Wednesday, dealing a setback to the securities industry.

The court, voting 7 to 2, said the suits weren’t barred by a 1998 federal law that limits the ability of investors to press litigation under plaintiff-friendly state laws.

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Writing for the court, Justice Stephen Breyer said the law doesn’t ‘‘interfere with state efforts to provide remedies for victims of ordinary state-law frauds.’’

The two dissenting justices said the ruling would dilute investor protections under federal law and limit the Securities and Exchange Commission’s authority. Breyer rejected that characterization, saying the federal government ‘‘will have the full scope of its usual powers to act.’’

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Under the 1998 law, known as the Securities Litigation Uniform Standards Act, investors can’t invoke state law if the misrepresentation is made ‘‘in connection with the purchase or sale of a covered security.’’ Covered securities include publicly traded stocks and bonds.

Stanford sold certificates of deposit that he falsely said were backed by safe, liquid investments. The CDs themselves weren’t covered by federal securities law, and the majority said it wasn’t enough that Stanford had promised to make investments that were covered.

Bloomberg News

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