Antitrust Law Daily Wrap Up, RICO—11th Cir.: PSLRA barred RICO claims of Ponzi scheme victims, (Aug 12, 2016)

By Mark Engstrom, J.D.

Victims of Bernie Madoff’s colossal Ponzi scheme could not sue JP Morgan Chase for RICO violations because the alleged activities were actionable as fraud in the purchase or sale of securities, and thus were barred by the Private Securities Litigation Reform Act (PSLRA), the U.S. Court of Appeals in Atlanta has ruled. The ruling of the district court, which dismissed the claim with prejudice, was affirmed (Dusek v. JPMorgan Chase & Co., August 10, 2016, Titus, R.).

The plaintiffs’ RICO claim was based on JPMorgan’s investments in Madoff’s feeder funds and on its failure to report suspicious banking activities to the Securities and Exchange Commission. The plaintiffs sought recovery of the value of the securities that were listed on account statements for Madoff’s investment advisory business—Bernie L. Madoff Investment Securities LLC (BLMIS)—on November 30, 2008. On that date, the account statements reflected net investments and related fictitious gains of nearly $64.8 billion.

The court noted that the PSLRA amended the RICO statute to prohibit a plaintiff’s reliance on "any conduct that would have been actionable as fraud in the purchase or sale of securities" to establish a RICO violation. In this case, the pleaded predicate acts—mail and wire fraud—were clearly based on the fraudulent conduct of Madoff and BLMIS, and thus were related to securities investments. For that reason, the RICO claim was barred the PSLRA. The plaintiffs could not avoid the PSLRA bar by pleading mail and wire fraud rather than securities fraud, the court explained. The district court thus properly dismissed the RICO claim as barred by the PSLRA.

The case is No. 15-14463.

Attorneys: Helen Davis Chaitman (Becker & Poliakoff) for Russell Dusek. John Ford Savarese (Wachtell, Lipton, Rosen & Katz) and Carlos Juan Canino (Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson) for JPMorgan Chase & Co., JPMorgan Chase Bank N.A., and J.P. Morgan Securities LLC.

Companies: JPMorgan Chase & Co.; JPMorgan Chase Bank N.A.; J.P. Morgan Securities LLC

Cases: RICO AlabamaNews FloridaNews GeorgiaNews