Consumer protection laws can change tremendously over the course of 78 years.
Two Depression-era laws designed to protect investors from scam artists were significantly altered in the 1990s by Republicans, with notable Democratic assistance. Now, however, the newer laws are being used to block some of the investors who lost an estimated $7.2 billion to Texas entrepreneur Robert Allen Stanford from pursuing claims in state courts against Stanford’s sales force.
The Securities Act of 1933, known as the “truth in securities” law, was enacted to “prohibit deceit, misrepresentations and other fraud in the sale of securities,” according to the website of the U.S. Securities and Exchange Commission.
The Securities Exchange Act of 1934 created the SEC to regulate the interstate marketing and sale of securities.
Stanford, 61, was shut down in February 2009 by the SEC, which had rejected previous calls for action by commission examiners since 1997. Stanford pleaded not guilty to fraud charges after he was indicted in June 2009. He remains in federal custody pending trial in Houston.
Stanford’s former chief financial officer, James M. Davis, of Baldwyn, Miss., pleaded guilty to felony charges, however. And Davis claimed that Stanford’s investment scheme was fraudulent from the beginning.
About $1 billion of Stanford’s alleged loot once belonged to investors in the Baton Rouge, Lafayette and Covington areas, according to estimates by state Rep. Bodi White, R-Central, and Baton Rouge attorney Phillip W. Preis.
On Aug. 31, U.S. District Judge David C. Godbey, of Dallas, dismissed two civil suits by dozens of desperate Stanford investors against scores of in-house Stanford financial advisers who allegedly enabled their boss’ alleged plundering ways. None of those financial advisers faces any criminal charges.
Godbey used two Republican rewrites of the 1933 and 1934 securities laws to rule that Stanford investors cannot sue Stanford brokers in either state or federal courts.
A Republican-majority Congress overrode a veto by President Bill Clinton to pass the Private Securities Litigation Reform Act of 1995.
Clinton later signed into law the Republican-written Securities Litigation Uniform Standards Act of 1998.
Godbey noted in his decision that Congress enacted the first rewrite “to combat ‘perceived abuses of the class-action vehicle in (federal court) litigation involving nationally traded securities.’ ” The law’s restrictions reduced nuisance securities suits in federal courts, he said.
Godbey added that the 1998 law prohibits investors from filing suits in state courts in numbers that eventually could form a class-action.
If you’re interested, the 1995 rewrite was sponsored by U.S. Rep. Tom Bliley, R-Va. The House vote in favor of the change totaled 325 and included 226 Republicans and 99 Democrats.
For Louisiana, House Republicans Richard Baker, Jimmy Hayes, Bob Livingston, Jim McCrery and Billy Tauzin were joined by Democrat Cleo Fields in the majority vote. Democrat William J. Jefferson voted against the change.
Both of Louisiana’s senators at that time, John Breaux and J. Bennett Johnston, were among 19 Democrats who joined 50 Republicans for the winning 1995 vote.
U.S. Sen. Phil Gramm, R-Texas, sponsored the 1998 rewrite of the two Depression-era laws. Louisiana’s senators, Mary Landrieu and John Breaux, were among 27 Democrats who joined 52 Republicans in the 79-21 final vote.
In the House at that time, Louisiana Republicans Richard Baker and Billy Tauzin were joined by Democrats William J. Jefferson and Christopher John in altering the 1933 and 1934 laws. Louisiana Republicans Bob Livingston, Jim McCrery and John Cooksey did not vote.
The 319 House members who voted for the rewrite included 213 Republicans and 106 Democrats.
Bill Lodge covers federal courts for The Advocate. He can be reached at email@example.com.