Claiming Uncovered Securities Are Backed By Covered Securities Does Not Prevent State Law Claims Under Litigation Act.

Plaintiffs filed civil actions under state law contending defendants helped perpetrate a fraud, a Ponzi scheme, by falsely representing that uncovered securities were backed by covered securities. The federal district court dismissed an action pursuant to the Securities Litigation Uniform Standards Act of 1998 [Litigation Act; 15 U.S.C. § 87bb(f)(1)] because the Act forbids bringing securities class actions based upon violations of state law. When the case reached the United States Supreme Court, the high court held the Litigation Act does not preclude the plaintiff’s state law class actions, stating: “There is not the necessary ‘connection’ between the materiality of the misstatements and the statutorily required ‘purchase or sale of a covered security.”  (Chadbourne & Parke LLP v. Troice ( U.S. Sup. Ct.; February 26, 2014)134 S.Ct. 1058, [188 L.Ed.2d 88].)