Supreme Court to Hear SLUSA Case

On January 18, 2013, the U.S. Supreme Court granted certiorari in Chadbourne & Parke LLP v. Troice, No. 12-79. The case arises from the Stanford Ponzi scheme. The Court of Appeals for the Fifth Circuit had held that the Securities Litigation Uniform Standards Act (“SLUSA”) did not preclude the plaintiffs from proceeding with their action. SLUSA precludes certain class actions that sound in state law and allege “a misrepresentation … in connection with the purchase or sale of a covered security.” 15 U.S.C. Section 78bb(f)(1). At issue before the Supreme Court is the meaning of SLUSA’s “in connection with” language.

The question presented is as follows:

“Whether SLUSA precludes a state-law class action alleging a scheme of fraud that involves misrepresentations about transactions in SLUSA-covered securities.”

In their Petition, Chadbourne & Parke argued that “the circuits … are divided over the standard for determining whether an alleged misrepresentation is sufficiently related to the purchase or sale of a covered security to satisfy the ‘in connection with’ requirement.”

This case provides the Supreme Court with an opportunity to clarify the SLUSA standard it articulated in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (2006), and the decision likely will have a significant impact on the viability of state-law class actions that involve securities.

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