When the U.S. Supreme Court green-lighted investor claims over R. Allen Stanford’s Ponzi scheme back in February, many predicted that the ruling would also have implications for investors caught up in Bernie Madoff’s fraud. This week a judge proved that prediction correct when he reinstated claims against one of Madoff’s so-called feeder funds, Tremont Group Holdings Inc.
In a 10-page decision issued Monday, U.S. District Judge Thomas Griesa in Manhattan revived state law fraud claims in a batch of lawsuits brought against Tremont on behalf of Madoff victims. Citing the high court’s Feb. 26 decision in Chadbourne & Parke v. Troice, Griesa ruled that the fraud claims aren’t preempted by the Securities Litigation Uniform Standards Act (SLUSA).
The ruling wasn’t a total win for the Madoff investors. They also wanted Griesa, who is overseeing multidistrict litigation relating to Tremont, to undo a series of rulings that transferred the cases from Florida state court, where they were originally filled, to his MDL. He refused the request, writing that it’s more efficient at this point for him to hear the Florida state law claims.
Investors put hundreds of millions of dollars into hedge funds managed by Tremont, which in turn invested the money with Madoff. In 2012, with the statute of limitations ticking, roughly 100 Madoff victims living in Florida filed a series of complaints against Tremont in that state, alleging that it knowingly turned a blind eye to Madoff’s fraud. The investors, represented by Jeff Ross of Ross & Orenstein, only alleged state law fraud claims.
After much briefing, Tremont’s lawyers at Skadden, Arps, Slate, Meagher & Flom got the cases transferred to federal court and consolidated into the Tremont MDL in New York. In September 2013, Griesa dismissed all the state law claims, ruling that they are preempted by SLUSA. That statute precludes state law securities class actions in which the alleged misstatements were made “in connection with” the purchase or sale of “covered securities.”
Because of Griesa’s ruling, it looked like Ross & Orenstein’s only hope was to recast its claims under federal securities laws. But then the Supreme Court heard Troice, which involved claims that Chadbourne and other third parties facilitated Stanford’s fraud. The court ended up ruling that the Stanford victims’ claims aren’t barred by SLUSA, adopting a relatively plaintiffs-friendly interpretation of the statute’s “in connection with” requirement. (We named the winning appellate advocate, Thomas Goldstein of Goldstein & Russell, our Litigator of the Week.)
Skadden urged Griesa not to let the state law claims back in, arguing that the Tremont cases before him are distinguishable from the cases at issue in Troice. Griesa called that argument unpersuasive in Monday’s ruling, writing that Skadden was relying on pre-Troice court decisions.
Skadden’s Seth Schwartz, who serves as lead counsel for Tremont, declined to comment. Plaintiffs counsel Jeff Ross also declined to comment.