Second Circuit Holds That the Private Securities Litigation Reform Act of 1995 Bars All RICO Claims Based Upon Alleged Acts of Securities Fraud

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.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »


Sheppard Mullin is a full service AmLaw 100 firm with more than 600 attorneys in 16 offices located... View Profile »

Follow Sheppard Mullin Richter & Hampton LLP:

Reporters on Deadline

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.