By Law360,
New York
A Louisiana
judge Friday threw out a putative class action alleging the U.S. Securities and
Exchange Commission facilitated Robert Allen Stanford's $7 billion Ponzi
scheme, finding the agency was shielded by a law barring suits over federal
officials' discretionary choices.
U.S. District
Shelly D. Dick said the discretionary function exception of the Federal Tort
Claims Act applied to the case brought by victims of Stanford in part because
the alleged refusal of former official Spencer Barasch in the SEC's Fort Worth,
Texas, office to investigate the Ponzi scheme was a matter of choice.
"While
the Court sympathizes with the losses suffered by the plaintiffs in this
matter, plaintiffs have failed to identify any mandatory obligations violated
by SEC employees in the performance of their discretionary duties," Judge
Dick concluded in granting the government's motion to dismiss.
"Plaintiff[s]
have also failed to allege facts demonstrating that the challenged actions are
not grounded in public policy considerations," she said.
The
plaintiffs argued that Barasch's alleged conduct did not fall under the discretionary
function exception because the SEC has a policy of making enforcement referrals
to the National Association of Securities Dealers and the Texas State
Securities Board. Therefore, if a decision was made to refer Stanford, and then
not followed, that decision falls outside the discretionary function exception.
But Judge
Dick rejected that argument, saying that while "the alleged conduct of
Barasch is disturbing... the FTCA clearly states that the discretionary
function exception applies 'whether or not the discretion involved be abused.'"
The suit,
which was filed in July under the FTCA, alleged that SEC employees in Fort
Worth knew as early as 1997 - only two years after Stanford Group Co. registered
with the agency - that the company was likely operating a Ponzi scheme and did
nothing about it.
Former SEC
regional enforcement director Barasch, now an attorney with Andrews Kurth LLP,
was singled out in the complaint for failing in his duties.
"In 1998
[to NASD] and again in 2002 [to TSSB] the SEC - through enforcement director
Barasch and others - reached the conclusion that referrals should be made. Barasch
himself was designated to perform these tasks," the complaint said. "But,
in fact, these referrals were not made, with the effect that Stanford escaped
scrutiny by other agencies for years, thus facilitating Stanford's scheme to
defraud."
In
dismissing the case, Judge Dick cited a similar decision by a Texas federal
judge in another case brought against the SEC over Stanford's scheme. The plaintiffs
in Dartez v. U.S. had argued that Barasch's decisions and the negligent
supervision of his superiors were not protected policy considerations.
"While
the [Dartez] decision is not binding on this Court, the Court can find no flaw
in [its] reasoning," Judge Dick said.
The
plaintiffs are represented by C. Frank Holthaus, Scott H. Fruge, Michael C. Palmintier
and John W. DeGravelles of DeGravelles Palmintier Holthaus & Fruge and
Edward J. Gonzales III.
The case is
Anderson et al. v. United States of America 3:12 -cv-00398,
in
the U.S. District Court for the Middle District of Louisiana.
Read more: http://sivg.org/article/2013_SEC_Escapes_Stanford_Victims_Suit_Over_7B_Ponzi_Scheme.html
