Stanford Trust Class Action

Lillie, et. al. v. Stanford Trust Company, SEI Investments Company, Inc., SEI Private Trust Company, et. al.;

AFFIRMED by United States Court of Appeal for the Fifth Circuit, No. 19-30705;

DISMISSED by No. 3:13-cv-00150, United States District Court for the Middle District of Louisiana

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            On May 14, 2021, the United States Fifth Circuit Court of Appeals affirmed the decision of the Honorable Brian Jackson, District Court Judge for United States District Court for the Middle District of Louisiana, and dismissed the claim of all 900 of the IRA account holders of the Stanford Trust had against SEI Investments in connection with the Stanford Ponzi scheme. The Stanford Trust was located in Baton Rouge, La. The cases was initially filed as a class action in state court in the

          19th Judicial District and transferred to federal court after the United States Supreme court allowed it to proceed as a class action under the Louisiana Securities law.

          The Class Action alleged that SEI was the “back office” operation for Stanford Trust for the duration of its ten years of operation and that it regularly reported the value of the SIB CDs to each IRA account holder from inception to Stanford’s closing in 2009. It was the contention of the investors that SEI knew no independent valuation existed on the SIB CDs but continued for a period of ten years to distribute the valuation information to the IRA investors. In order to establish SEI’s liability, the claims of the investors alleged that SEI was a “control person” of Stanford Trust based upon the expertise that SEI possessed and the duration of the

          In July of 2019, Judge Jackson dismissed the class action. In his ruling he held that “The minimum proof control-person liability requires is proof of an ability to control; proof of “enabling” conduct is insufficient.” After the ruling by Judge Jackson, the investors appealed the action to the United States Fifth Circuit Court of Appeal.  In the ruling dated May 14, 2021, the Fifth Circuit ruled that despite the fact that “SEI did not perform due diligence on how STC valued the CDs”, the contract between SEI and Stanford Trust allowed SEI to send monthly reports on the value of the SIB CDs to the investor without regard to their accuracy. The court further held that based upon the terms of the contract between SEI and Stanford Trust,   SEI did not possess the power to indirectly cause “the direction of the management and policies”. The court held that “SEI's longstanding ties to STC [do not] create a dispute over whether SEI had control.”  The court further held that, despite the arguments of the investors, it is was premature to make a finding as to whether SEI had knowledge of the fraudulent valuations of the SIB CDs by Stanford before dismissing the control person claim.


         The investors argued that SEI had the ability to stop the violation since it controlled the distribution of information on the SIB CDs to investors. The court disagreed with the argument that SEI’s power to stop the fraud, by not sending out the monthly reports, was sufficient to make SEI a “control person.”    But even if “[t]he rationale behind control person liability is that a control person is in a position to prevent the securities violation at issue,” TIG Specialty Ins. Co. v. Pinkmonkey.com Inc., 375 F.3d 365, 372 (5th Cir. 2004), the ability to stop a violation is not the same as the power to control it.


      Phillip Preis, counsel for the investors, stated that “I am obviously disappointed with the ruling given the long twelve year fight to have the class action certified. In my world, the power to stop a violation when an entity like SEI controls the communication process with the investors, is the same as the power to control the violation.” The facts were clear that SEI “enabled” the Ponzi scheme at Stanford Trust from the inception of Stanford Trust to its closing with the monthly reporting of values that it provided to investors, but the court concluded that SEI’s ten year “enabling” role did not rise to the level of creating control person liability under the securities act.”


                 BACKGROUND

          The class action lawsuit ("Action") is premised upon Louisiana Securities Law against SEI Investments Company and SEI Private Trust Company (SEI Investments Company and SEI Private Trust Company are collectively referred to as “SEI”), and insurers of SEI, based upon services that SEI provided to Stanford Trust Company (“Stanford Trust”). The Action has been certified by Louisiana State Court and again by the United States District Court of the Northern District of Texas against the Defendants.​

          The “Class,” as certified by the Court, consisted of:    All persons for whom Stanford Trust Company (“Stanford Trust”) purchased or renewed Stanford International Bank Certificates of Deposit (“SIBL CDs”) in Louisiana between January 1, 2007 and February 13, 2009 (the “Class Period”). See May 2, 2016 Class Certification Order; August 2, 2016 Supplemental Class Certification Order.

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SEI Insurers named as Defendants in this Action are Continental Casualty Company, Certain Underwriters at Lloyd’s, London, Indian Harbor Insurance Company, Nutmeg Insurance Company, Allied World Assurance Company (U.S.) Inc., and Arch Insurance Company (the “Insurance Company Defendants,” who along with SEI are referred to herein as “Defendants”)