WASHINGTON -- The First Humanics nursing home bond case last week became the latest victim of the Supreme Court's recent decision to limit the time investors have to bring federal fraud cases.

Judge Carl Rubin of the U.S. District Court for the Southern District of Ohio granted a motion by developer Lee F. Sutliffe and and other defendants in the $80 million lawsuit to dismiss most of the federal claims on the grounds that they were filed more than three years after the fraud alleged by bondholders occurred.

Judge Rubin said that time frame violates limits spelled out in June by the High Court in Lampf v. Gilbertson. That decision sttaes that any litigation brought by private investors under the antifraud provisions of the federal securities laws must be initiated within one year of the discovery of the violation and no more than three years after the violation occurred.

The ruling has drawn a hue and cry from investors' lawyers, who warn the decision gives buyers too little time to discover and take action in securities fraud cases. That is particularly the case in municipal fraud cases, say plinatiffs' lawyers, since deals are frequently structured in a way that buyers would not begin to detect fraud for years after bond issuance.

The effects of the High Court decision first surfaced last month in the municipal arena as a federal judge in Colorado cited it in dismissing a $4.5 million class action lawsuit by the Bank of Denver in troubled Will-O-Wisp special district bonds. U.S. District Court Judge Lewis Babcock said the buyers filed too late to meet the Lampf timetable.

In his actions last week, Judge Rubin threw out most of the federal fraud claims brought by investors in bonds for 20 nursing homes developed by the First Humanics nonprofit corporation based in Kansas City, Mo., that have gone into default.

Judge Rubin did not dismiss fraud claims involving a 21st home -- the Medicos Recovery Care Center in Detroit -- saying it is the only one of the cases investors filed within three years of bond issuance.

The judge provided one exemption in his order last week, said investors attorney David Guin, a partner with Ritchie & Rediker in Alabama. Those who bought some of the 20 nursing home bonds in the secondary market from a dealer that also was an underwriter of the offerings could still bring a federal fraud claim regardless of the time frame, he said.

Mr. Guin said the firm will proceed with antifraud claims, where permitted. In addition, it will bring its cases under state law and under the federal Backeteer Influenced and Corrupt Organizations Act -- the the federal law that allows lawyers to seek harsh penalties against detfendants who demonstrate patterns of serious crimes.

"This is a great RICO case," Mr. Guin said. "The essence of RICO is a pattern, which is what we have here in the 21 First Humanics deals."

The bondholders' suit charges that Mr. Sutliffe orchestrated a "Ponzi" scheme, generating fees and proceeds from new bond issues that were used to prop up failing issues elsewhere in his nursing home empire.

"The recurring theme was that Sutliffe chose the same people, over and over, to put these deals together and market them and (despite the ample evidence of Sutliffe's bad track record, lackof integrity, and trail of failed or problem prior projects) such people continued to show up and hand each new deal as it came along," the complaint charged.

Among other defendants in the lawsuit are feasibility study consultants Price Waterhouse and Touche Ross & Co: Swink & Co., a Little Rock securities firm that served as underwriter for many of the 21 defaulted issues; and Pfeifer & Kelty, an Illinois law firm that served as bond counsel on all but six of the deals.

Meanwhile, a total of three federal appeals courts have now ruled that the Supreme Court's decision in Lampf is retroacdtive. The U.S. Court of Appeals for the Second Circuit last week joined the Eighth and Tenth appeals panels in that finding.

The Senate Banking Committee has approved legislation to overturn the Lampf decision, and legislation was also introduced by the chairman of the House Energy and Commerce Committee's subcommittee on telecommunications and finance. No hearing has been scheduled yet by that panel, which is struggling with a heavy hearing schedule.

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