MLSMK Investment Co. v. JP Morgan Chase & Co.
651 F.3d 268
2d Cir.2011Background
- MLSMK Investment Company invested $12.8 million with Bernard L. Madoff Investment Securities in 2008, funds later lost when Madoff was arrested.
- JPMorgan Chase & Co. and Chase Bank were Madoff’s market-maker partner and BMIS’s banking custodian, respectively.
- MLSMK alleged Madoff’s investment advisory business was a sham Ponzi scheme and that defendants knowingly continued dealings after due diligence in 2008.
- MLSMK asserted a federal RICO conspiracy claim and four related state-law claims; district court dismissed all claims, including the RICO count, and this court partly affirmed.
- The RICO claim was stayed for consideration of PSLRA section 107 preclusion, with this court addressing only the RICO viability.
- The court held that PSLRA § 1964(c) bars civil RICO claims premised on conduct that would be securities fraud, even when the plaintiff cannot sue the defendant for securities fraud.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does PSLRA § 1964(c) bar RICO conspiracy claims based on securities fraud predicates? | MLSMK contends the bar applies only where a securities claim could be brought against the defendant. | JPMC and Chase Bank argue the bar applies to any conduct actionable as securities fraud against the defendant. | Yes, § 1964(c) bars such RICO claims. |
| Does the PSLRA RICO Amendment require the plaintiff to have a securities claim against the defendant for the bar to apply? | MLSMK argues the ban should depend on whether the particular defendant could be sued for securities fraud. | Defendants contend the bar is triggered if the conduct could be actionable as securities fraud, regardless of the plaintiff’s ability to sue the defendant. | No; the bar applies irrespective of the plaintiff’s ability to sue under securities laws. |
Key Cases Cited
- Bald Eagle Area Sch. Dist. v. Keystone Fin., Inc., 189 F.3d 327 (3d Cir. 1999) (PSLRA § 107 bars RICO claims predicated on securities fraud)
- Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267 (S.D.N.Y. 2009) (interpretation of PSLRA RICO Amendment barring aiders and abettors of securities fraud)
- In re Enron Corp. Sec., Derivative & ERISA Litig., 284 F. Supp. 2d 511 (S.D. Tex. 2003) (statutory interpretation of RICO Amendment's scope)