In October 2013, the U.S. Supreme Court will hear oral arguments on three consolidated cases, Chadbourne Chadbourne & Parke LLP v. Troice, Willis of Colorado Inc. v. Troice and Proskauer Rose LLP v. Troice. Even though these cases have largely fallen below the general public’s radar, they are extremely important, as an incorrect decision by the Supreme Court could severely limit the ability of victims of financial fraud to seek justice.
These cases relate to two statutes passed in the 1990’s, the Private Securities Litigation Reform Act (PSLRA) and the Securities Litigation Uniform Standards Act (SLUSA). The financial lobby was able to convince Congress that the nation’s courts were flooded with frivolous securities fraud cases. To address that perceived problem, Congress passed the PSLRA, which placed several hurdles on securities fraud filings in federal court. Later, when it seemed that fraud victims had found a way to get around PSLRA, by filing securities fraud cases under state law (instead of federal securities law), Congress passed SLUSA. The SLUSA statute completely forbids class actions brought under state law if the case alleges fraud that is “in connection with” a federal securities transaction.
Since the passage of SLUSA, every circuit court and the Supreme Court have wrestled with what “in connection with” actually means. The Court is again addressing the issue in the Troice cases.
The financial lobby has filed briefs arguing the Court should define “in connection with” broadly. Occupy the SEC (“OSEC”) has filed an amicus brief opposing the lobby. OSEC’s brief explains that an overly broad definition of “in connection with” would significantly hamper the ability of victims of financial fraud to file civil claims. Many transactions that have little to do with securities fraud (e.g., loan fraud or mortgage fraud) would no longer be eligible for review under state law. Federal court filings are generally more burdensome and expensive. The bottom line is that a broad definition of “in connection with” would mean fewer lawsuits against financial fraudsters. That outcome would embolden other fraudsters, and would leave fraud victims with fewer civil court options.
OSEC’s amicus brief is available at: http://occupythesec.org/files/OSEC-Troice-Amicus.pdf