Co-authored by Allison Wuertz.

The US District Court for the Middle District of Louisiana granted the United States’ motion to dismiss a putative class action law suit against the Securities Exchange Commission. Plaintiffs brought the suit under the Federal Tort Claims Act (FTCA) on behalf of victims who lost their investments in the Stanford International Bank, Ltd. (SIBL) Ponzi scheme. 

Plaintiffs alleged that the SEC failed to investigate the SIBL scheme and thereby contributed to plaintiffs’ loss. The United States moved to dismiss for lack of subject matter jurisdiction, arguing that the SEC’s actions fell within the “discretionary function” exception to the FTCA. Pursuant to the FTCA, a plaintiff can sue a government agency or employee who commits negligent or wrongful acts where the suit would otherwise be barred by sovereign immunity. The “discretionary function” exception removes from the ambit of the FTCA situations in which agencies or employees exercise discretionary authority. 

The District Court found that the SEC has discretion over when and how to conduct its investigations, including the investigation of SIBL. Plaintiffs argued that even if the decision regarding the investigation was discretionary, the SEC abused its discretion when it stated, among other things, that the SIBL investigation had been referred to the National Association of Securities Dealers and the Texas State Securities Board when, in fact, it had not been. The court rejected this argument, finding that the FTCA clearly provides that the discretionary function exception applies even if the discretion involved is abused. 

Anderson v. United States of America, Civil Action No. 12-398-SDD-RLB (M.D. La. June 21, 2013).