Sovereign Immunity in a Nation Without Sovereigns

Investors who lost billions in the Ponzi scheme orchestrated by convicted Texas scammer R. Allen Stanford recently received some good news when a Miami federal judge ruled that a group of plaintiffs can continue their class-action lawsuit against the Securities and Exchange Commission for allegedly failing in its oversight of the former billionaire and his companies. The claim against the SEC is the brainchild of Boston attorney Gaytri Kachroo, who represents the lead class plaintiff.

Unlike earlier lawsuits that were dismissed on immunity grounds when the SEC was sued for its action/inaction concerning convicted Wall Street Ponzi architect Bernard Madoff, the claim filed by Kachroo includes allegations that the SEC failed its statutory duty by not telling the Securities Investor Protection Corp. that Stanford was in financial difficulty, which allowed his scheme to continue. The SEC claimed that its actions (or lack thereof) were protected under the discretionary function exception of the Federal Claims Act. A federal court in Miami disagreed, ruling that the agency’s duty to report Stanford was not discretionary.

Who’s right? Not sure, but that’s why we have courts – to apply the law to the facts and resolve this issue. But here’s something you probably haven’t thought about: what a great testament to our legal system that the government can lose in court to private citizens because of rulings made by judges who are, themselves, employees of that same government. What we take for granted is actually atypical in human history and in many parts of the globe today.

And without an independent judiciary and lawyers who aren’t afraid to take on powerful defendants, it would not be possible.

Posted: 9/28/2012 2:31:48 PM by Editor | with 0 comments

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Thanks for stopping by On the Merits, the first blog from the Texas Center for Legal Ethics. On the Merits will take a close look at significant legal stories with an eye toward addressing the legal myths and misconceptions that turn up in news stories, movies, TV programs, websites, anonymous emails and other forms of mass communications. Our goal at On the Merits is to provide readers with a thoughtful examination of what the media and others are saying about the legal profession and to apply the frequently-absent context of how the legal system actually works.

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