Kaplan v. S.A.C. Capital Advisors, L.P.
104 F. Supp. 3d 384
S.D.N.Y.2015Background
- Plaintiffs are putative class investors in Elan and Wyeth who traded opposite SAC during periods when SAC allegedly traded on inside information from SAC employee Mathew Martoma about clinical trials for drug bapi.
- Plaintiffs added RICO claims (Sections 1962(c), 1962(d), 1964(c)) against SAC entities and sought damages based on alleged securities-fraud predicate acts (insider trading).
- Defendants moved to dismiss, arguing the PSLRA bars RICO claims predicated on securities fraud unless the defendant was criminally convicted of defrauding those specific plaintiffs.
- The government indicted SAC on a broad insider‑trading scheme; SAC entities later entered guilty pleas but the plea allocution and plea agreement did not specify Elan, Wyeth, or Martoma-related conduct.
- The district court held that under a narrow construction of the PSLRA criminal‑conviction exception plaintiffs must be specifically named or encompassed in the defendant’s conviction/allocution; here the pleas did not admit to defrauding these plaintiffs, so RICO claims are barred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RICO claims predicated on securities fraud are barred by PSLRA §107 | RICO allowed because defendants were criminally convicted in connection with the fraud, invoking the criminal‑conviction exception | PSLRA bars securities‑fraud predicates for RICO; exception applies only if conviction specifically covers the plaintiffs and conduct at issue | Bar applies; plaintiffs cannot rely on RICO because convictions did not specifically cover them |
| Scope of the criminal‑conviction exception to §1964(c) | Exception covers victims of the same scheme charged in the indictment | Exception must be construed narrowly to avoid nullifying PSLRA’s limitation on RICO in securities cases | Exception is narrow: only plaintiffs specifically shown to be criminally defrauded may use it |
| Whether the indictment or plea allocution determines scope of conviction | Indictment charging a unified scheme is sufficient to bring plaintiffs within the conviction exception | The plea allocution, not the indictment, fixes the conduct to which defendants admitted guilt for collateral purposes | Plea allocution controls; here it omitted Elan, Wyeth, and Martoma conduct |
| Whether sentencing materials/PSR showing conduct (Wyeth/Elan) can substitute for allocution | Plaintiffs point to sentencing statements and guideline calculations referencing Wyeth/Elan as evidence defendants were convicted for those trades | Sentencing can consider uncharged or unproven conduct; sentencing materials do not alter the limited scope of a guilty plea for this purpose | Sentencing references do not establish a criminal conviction as to these plaintiffs or trades |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: plausibility required)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (complaint must state a plausible claim)
- United States v. Watts, 519 U.S. 148 (sentencing court may consider uncharged or acquitted conduct)
- Krear v. Malek, 961 F. Supp. 1065 (E.D. Mich. 1997) (criminal‑conviction exception to PSLRA must be narrowly construed)
- In re Enron Corp. Sec., Deriv. & ERISA Litig., 284 F. Supp. 2d 511 (S.D. Tex. 2003) (agreeing with narrow construction of the exception)
- MLSMK Inv. Co. v. J.P. Morgan Chase & Co., 651 F.3d 268 (2d Cir. 2011) (PSLRA’s goal to limit RICO in securities litigation)
- Estate of Gottdiener v. Sater, 35 F. Supp. 3d 386 (S.D.N.Y. 2014) (same interpretation of narrow exception)