ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS

September 7, 2012
By Dr. Gaytri D. Kachroo

THIS MATTER is before the Court on the Defendant's Motion to Dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) (ECF No. 12). For the reasons explained in this Order, the Motion to Dismiss is granted in part and denied in part.

A. The Plaintiffs Have Adequately Alleged That The Securities and Exchange Commission Failed To Comply With a Nondiscretionary Duty to Report Stanford's Company To The Securities Investor Protection Corporation, Pursuant to 15 U.S.C. § 78eee(a)(1).

B. The Plaintiffs Have Not Adequately Alleged That The Securities and Exchange Commission Failed To Comply With a Nondiscretionary Duty Regarding Stanford's Company Re-Registration As an Investment Advisor, Pursuant to 15 U.S.C. § 80b-3(c).

While the determination of whether a broker/dealer is in or approaching financial difficulty is inherently discretionary, once the SEC concludes that a broker/dealer is in or approaching financial difficulty a nondiscretionay duty to report this information to the SIPC arises. However, the SEC's treatment of an investment advisor's amendment to its Section 80b-3 registration application involves an element of judgment grounded in policy considerations, and thus falls under the discretionary function exception of the FTCA.

For the reasons detailed in this Order, the Defendant's Motion to Dismiss (ECF No. 25) is DENIED in part with regard to the Plaintiffs' claims relating to the SEC's alleged breach of its duty under 15 U.S.C. § 78eee(a)(1). The Motion to Dismiss is GRANTED in part regarding the Plaintiffs' claims relating to the SEC's alleged breach of its duty under 15 U.S.C. § 80b-3(c). The Plaintiffs shall file an Amended Complaint on or before September 21, 2012, consistent with this Order. The Defendant's answer is due fourteen days after the Plaintiffs' Amended Complaint is filed.

Source.

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KLS complaint against the U.S. Government/SEC

December 21, 2011
By Dr. Gaytri D. Kachroo

Ft. Lauderdale, FLA - A class action lawsuit was filed against the United States on December 13, 2011, for the billions in losses suffered by investors in the Allen Stanford international Ponzi scheme.

The case, filed in the United States District Court for the Southern District of Florida seeks to hold the SEC responsible for its failure to stop Stanford and his registered investment advisor and broker/dealer company Stanford Group Company ("SGC"), who the SEC investigated several times between 1997 and 2004. The suit claims that the SEC was grossly negligent in its actions following each investigation in failing to take any action to stop Stanford, whom SEC official had determined was operating a Ponzi scheme. The class action against the SEC was filed the day after the SEC filed suit against the Securities Investor Protection Corporation ("SIPC") for its refusal to reimburse investors for their losses.

"This case is unique because the SEC knew all along that this was a fraud and did nothing," said lead attorney Dr. Gaytri Kachroo of Kachroo Legal Services, P.C. (KLS), who is representing investors in the class action. "If the SEC had simply refused to register SGC for any of its various securities laws violations or reported to SIPC that SBC was a Ponzi scheme and insolvent, the SEC could have stopped this scheme over a decade ago."

In government investigations in 1997, 1998, 2002, and 2004, the SEC determined that Stanford was operating a Ponzi Scheme, but failed to take action to prevent his fraud. After increasing pressure from the Madoff collapse, the SEC finally acted in 2009, filing a case in federal court against Stanford and his companies, but only after investors had been defrauded of over $7 billion. The suit also alleges that the court-appointed SEC receiver has only been able to recover $100 million, net of expenses, out of the $7 billion investors lost because of the SEC's negligence.

The case is Zelaya et al. v. United States of America, Case No. 11-CV-62644-RNS (S. D. Fla. 2011).

CLASS ACTION AND INDIVIDUAL COMPLAINT.

Related article:
Stanford Investors Sue SEC for Losses in Alleged Swindle (Edward Gonzales)

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