In MLSMK Investment Co. v. JP Morgan Chase & Co., No. 10-3040-cv, 2011 WL 2640579 (2d Cir. July 7, 2011), the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims brought under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962 and 1964, seeking to hold defendants liable for allegedly conspiring with Bernard L. Madoff (“Madoff”) to perpetrate his now-infamous Ponzi scheme. The Court held that plaintiff’s RICO claims were precluded by Section 107 of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), codified at 18 U.S.C. § 1964(c), which bars civil RICO claims based upon predicate acts of securities fraud. In so holding, the Court resolved in the affirmative the unsettled question whether the Reform Act bars civil RICO claims predicated on acts of securities fraud, even where a plaintiff cannot otherwise pursue a securities fraud action against the defendant.
Plaintiff MLSMK Investment Company (“MLSMK”), a trading partner for Madoff’s market-making business, lost its $12.8 million investment when Madoff was arrested and his assets seized on December 11, 2008. Thereafter, MLSMK brought suit in the United States District Court for the Southern District of New York asserting several state law claims against defendants JP Morgan Chase & Co. and JP Morgan Chase Bank, N.A. MLSMK also brought a federal RICO claim alleging that the defendants had conspired with Madoff to defraud his victims. MLSMK contended that, prior to Madoff’s arrest, defendants had undertaken a due diligence investigation into Madoff’s business activities and learned that his investment business was a fraud, but nonetheless continued to trade with and provide business services to him. MLSMK thus asserted that the defendants were liable for conspiracy to violate RICO by aiding and abetting Madoff’s fraudulent enterprise.
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