10-3040-cv MLSMK Investment Co. v. JP Morgan Chase & Co.
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2 August Term, 2010 3 (Argued: May 25, 2011 Final Submission: June 10, 2011 4 Decided: July 7, 2011) 5 Docket No. 10-3040-cv 6

------------------------------------- 7 MLSMK INVESTMENT COMPANY, 8 Plaintiff-Appellant , 9

- v - 10 JP MORGAN CHASE & CO., JP MORGAN CHASE BANK, NA, 11 Defendants-Appellees

. 12

------------------------------------- 13 Before: McLAUGHLIN, POOLER, and SACK, Circuit Judges

. 14 Appeal from a judgment of the United States District 15 Court for the Southern District of New York (Barbara S. Jones, 16 Judge ) dismissing the plaintiff's complaint in its entirety 17 pursuant to Rule 12(b)(6) of the Federal Rules of Civil 18 Procedure. By summary order dated June 6, 2011, we affirmed the 19 dismissal of the plaintiff's New York state-law claims. We did 20 not, however, resolve the plaintiff's appeal from the dismissal 21 of its remaining, federal claim that the defendants had conspired 22 with Bernard L. Madoff in violation of the Racketeer Influenced 23 and Corrupt Organizations Act, 18 U.S.C. §§ 1962(d) and 1964(c), 24 thereby injuring the plaintiff. We now conclude that the 25 heretofore unresolved claim is precluded by section 107 of the 261A "Ponzi scheme" is one "in which earlier investors' returns are generated by the influx of fresh capital from unwitting newcomers rather than through legitimate investment activity." SEC v. Credit Bancorp, Ltd. , 290 F.3d 80, 89 (2d Cir. 2002) (internal quotation marks omitted). For a description of the operations of the eponymous Charles Ponzi himself, see Cunningham v. Brown , 265 U.S. 1, 7-9 (1924).

2 Private Securities Litigation Reform Act, 18 U.S.C. § 1964(c). 1 We therefore affirm the district court's dismissal of that claim. 2

AFFIRMED. 3 HOWARD KLEINHENDLER, Wachtel & Masyr, 4 LLP (Julian D. Schreibman, Sara G. 5 Spiegelman, of counsel), New York, NY, 6 forPlaintiff-Appellant

. 7 PATRICIA M. HYNES, Allen & Overy LLP 8 (Andrew Rhys Davies, Laura R. Hall, of 9 counsel), New York, NY, forDefendants10 Appellees

. 11 SACK, Circuit Judge : 12 This case arises out of the massive and now infamous 13 Ponzi scheme 1perpetrated by Bernard L. Madoff, which culminated 14 abruptly with his arrest in December 2008 but whose aftershocks 15 continue. 16 Between October and December 2008, the plaintiff, MLSMK 17 Investment Company ("MLSMK"), invested $12.8 million with 18 Madoff's investment company, Bernard L. Madoff Investment 19 Securities ("BMIS"). The defendants, JP Morgan Chase & Co. 20 ("JPMC") and JP Morgan Chase Bank, N.A. ("Chase Bank"), were, 21 respectively, a trading partner for Madoff's apparently 22 legitimate market-making business and the bank with which Madoff 23 maintained the account for BMIS. MLSMK lost its $12.8 million 243 investment when, on December 11, 2008, Madoff was arrested and 1 his assets seized. 2 MLSMK subsequently filed this lawsuit in the United 3 States District Court for the Southern District of New York 4 alleging several New York state-law claims against the 5 defendants. It also asserted a federal claim contending that the 6 defendants had conspired with Madoff to "fleece" his victims, in 7 violation of the Racketeer Influenced and Corrupt Organizations 8 Act ("RICO"), 18 U.S.C. §§ 1962(d) and 1964(c). In that 9 connection, MLSMK alleges that by late summer 2008, the 10 defendants became suspicious of Madoff's business activities and 11 therefore undertook a "due diligence" investigation into Madoff's 12 activities, and that the investigation revealed to the defendants 13 that Madoff's investment business was a thoroughly fraudulent 14 enterprise. Nevertheless, MLSMK asserts, the defendants -- eager 15 to continue receiving the substantial fees they derived from 16 Madoff's market-making and banking activity -- continued to trade 17 with and provide banking services to him. MLSMK asserts that by 18 failing to freeze Madoff's accounts, the defendants became liable 19 for conspiracy to violate RICO by aiding and abetting Madoff's 20 breach of fiduciary duty, commercial bad faith, and negligence. 21 The district court (Barbara S. Jones, Judge ) dismissed 22 the plaintiff's complaint in its entirety, concluding that the 23 complaint did not adequately plead any of the claims purportedly 24 contained therein. We have affirmed that court's dismissal of 254 the plaintiff's state-law claims for aiding and abetting breach 1 of fiduciary duty, commercial bad faith, and negligence. See 2 MLSMK Inv. Co. v. JP Morgan Chase & Co. ("MLSMK I "), No. 10-3040- 3 cv, 2011 WL 2176152, 2011 U.S. App. LEXIS 11425 (2d Cir. June 6, 4 2011) (summary order). With regard to the remaining claim 5 brought under RICO, addressing an issue of first impression in 6 this Court, we conclude that the claim also must be dismissed, 7 because it is barred by section 107 of the Private Securities 8 Litigation Reform Act (the "PSLRA"), 18 U.S.C. § 1964(c). We 9 therefore affirm that portion of the district court's judgment 10 that remains on appeal. 11

**BACKGROUND** 12 The following statement of facts is drawn from the 13 plaintiff's complaint. As is required on appeal from a 14 successful motion to dismiss in the district court, we accept as 15 true all well-pleaded factual allegations in the complaint and 16 draw all inferences in the plaintiff's favor. SeeMortimer Off 17 Shore Servs., Ltd. v. Fed. Republic of Ger. , 615 F.3d 97, 114 (2d 18 Cir. 2010), cert. denied , 131 S. Ct. 1502 (2011); see alsoHarris 19 v. Mills , 572 F.3d 66, 71–72 (2d Cir. 2009) (reciting the Supreme 20 Court's guidance in Bell Atl. Corp. v. Twombly , 550 U.S. 544 21 (2007), and Ashcroft v. Iqbal , 129 S. Ct. 1937 (2009), that we 22 need not credit legal conclusions couched as factual statements 23 or "threadbare recitals of the elements of a cause of action, 242The subject matter jurisdiction of the district court was premised on "both federal question and diversity jurisdiction," pursuant to 28 U.S.C. §§ 1331 and 1332(a)(1). J.A. 7 (Compl. ¶ 9).

3According to the complaint, Bear Stearns was among Madoff's chief market-making trading partners until JPMC purchased the investment house in March 2008. MLSMK asserts that JPMC thereafter kept in place Bear Stearns's system, which "automatically defaulted to BMIS as the market maker." J.A. 9

5 supported by mere conclusory statements" (alterations and 1 internal quotation marks omitted)). 2 This suit arises out of Bernard L. Madoff's infamous 3 and long-running Ponzi scheme. MLSMK Investment Company is a 4 Florida partnership, all of whose partners are citizens of that 5 state. JPMC is a global financial services firm providing a 6 panoply of investment banking and financial services to 7 businesses and individuals; Chase Bank, a U.S.-based commercial 8 bank, is a wholly owned subsidiary of JPMC. Both are Delaware 9 corporations with their principal places of business in New York 10 City. 2 11 The general contours of Bernard L. Madoff's businesses 12 and transgressions are notorious. For about forty years 13 preceding his December 2008 arrest, he owned and operated BMIS, a 14 broker-dealer business based in Manhattan. BMIS operated three 15 separate entities providing distinct services: investment16 advisory services, market-making services, and proprietary 17 trading. BMIS's market-making business, of which the defendant 18 JPMC was a trading partner, is generally thought (and is conceded 19 by MLSMK) to have been legitimate, 3but BMIS's investment- 20(Compl. ¶ 16). The plaintiff contends on information and belief that "[t]his was an unusual accommodation" for which Madoff paid Bear Stearns (and later JPMC) "substantial fees." Id.

4On December 11, 2008, Madoff was arrested and charged with securities fraud. The SEC froze all of his and BMIS's assets. On March 12, 2009, Madoff pleaded guilty to an eleven-count criminal information and admitted that BMIS's investment-advisory business was a Ponzi scheme and that he had "never executed a single trade on behalf of any client" of that business. J.A. 18 (Compl. ¶¶ 45-46). 6 advisory business, according to MLSMK, was "entirely fictional" 1 and central to Madoff's criminal enterprise. J.A. 10 (Compl. 2 ¶ 20). Madoff accepted funds from individual and corporate 3 clients promising to invest them in the investment-advisory 4 entity through which the clients would earn returns of "up to 10- 5 12% a year." Id. at 11 (Compl. ¶ 22). Madoff never made those 6 investments. Instead, he used later-invested money to pay 7 "returns" to other investors and to fund his lavish lifestyle: a 8 classic Ponzi scheme. 4 9 Having received monthly statements from BMIS for June 10 through September of 2008 indicating a 10 to 12 percent 11 annualized return on previously made investments, MLSMK "caused 12 $12.8 million to be transferred to BMIS by wiring the funds to 13 BMIS'[s] account at Chase Bank in New York" between October 6, 14 2008, and December 5, 2008. Id. at 7 (Compl. ¶ 5). 15 MLSMK alleges that all of the money Madoff received "in 16 the [fraudulent] investment advisory business [was] deposited 17 into accounts he held at [defendant] Chase Bank," id. at 11 18 (Compl. ¶ 24), and that, because the investor's account number 19 was required to be written on the face of the check, Chase Bank 205MLSMK alleges that the Fairfield Greenwich Group "directed clients to Madoff's investment advisory business . . . and received hefty fees." J.A. 14 (Compl. ¶ 34). For example, "[i]n 2007, Fairfield reported $250 million in revenue, $160 million of which came from Madoff." Id.

6The Sentry Fund was made up of three smaller funds: the Fairfield Sentry fund, the Greenwich Sentry fund, and the Greenwich Sentry Partners fund. The complaint refers to these funds collectively as the "Sentry Fund." 7 knew that the funds were "not Madoff's or BMIS'[s] but rather 1 belonged to the victim and were being received by BMIS as a 2 fiduciary," id. at 12 (Compl. ¶ 25). MLSMK asserts that, for 3 many years prior to 2008, BMIS's Chase Bank account "had an 4 average balance of several billion dollars." Id. (Compl. ¶ 27). 5 With the advent of the global financial crisis in September 2008, 6 however, the account balance "often dropped to near zero." Id. 7 MLSMK alleges that JPMC, in addition to operating as a 8 market-making trading partner for BMIS, developed a derivative 9 product "specifically for use with Madoff-related investments." 10 Id. at 14 (Compl. ¶ 33). JPMC's product, a note it offered 11 primarily to European investors, guaranteed a return of three 12 times the earnings of a fund offered by the Fairfield Greenwich 13 Group, one of Madoff's so-called "feeder fund[s]." Id. (Compl. 14 ¶¶ 34-35) (internal quotation marks omitted). 5The Fairfield 15 Greenwich Group's fund, known as the "Sentry Fund," had assets 16 totaling $7.5 billion, 95 percent of which was invested with 17
BMIS. 6Id. at 14-15 (Compl. ¶ 35). According to the complaint, 18 JPMC hedged against the risk assumed by its derivative product by 19 depositing three times the face amount of the notes -- up to $250 207The complaint offers the details of the investigation on information and belief and based upon the plaintiff's understanding of "standard industry practice." J.A. 15 (Compl. ¶ 37). The complaint alleges that JPMC representatives "met with Madoff to discuss his operations" and "had access to" the former Bear Stearns trading desk, and employees within the company who regularly traded with BMIS. Id. (Compl. ¶¶ 37-38). MLSMK asserts that the investigative "team also had access to" and, "[u]pon information and belief, . . . accessed and reviewed . . . Madoff's Chase [Bank] account records," which "showed consistent huge cash positions until the middle of 2008." Id. at 16 (Compl. ¶ 39). MLSMK has provided neither the date nor the time of the alleged meeting with Madoff. Indeed, MLSMK acknowledges that it has no actual knowledge of whether the meeting or diligence investigation did in fact take place, let alone where or when. MLSMK alleges only that it consulted with certain unnamed experts who advised that such investigations were standard practice. 8 million by the summer of 2008 -- directly into the Madoff-linked 1 Sentry Fund. Consequently, if the Sentry Fund did well -- as it 2 was expected to do, based on Madoff's consistent 10 to 12 percent 3 (bogus) returns -- JPMC's returns "would offset its obligations 4 on the notes." Id. at 15 (Compl. ¶ 35). According to the 5 plaintiff, this Madoff-invested fund continued to report gains of 6 five percent "due to the returns Madoff was showing on the money 7 invested with BMIS," even as the financial markets were crumbling 8 in the summer and early fall of 2008. Id. (Compl. ¶ 36). 9 MLSMK alleges that the Sentry Fund's consistently 10 strong returns despite the market mayhem triggered JPMC's 11 suspicion about Madoff's results. The investment company 12 therefore "embarked on a due diligence investigation of Madoff's 13 operations." 7Id. The complaint alleges that "[a]s a result of 14 its investigation, in or about September 2008, [JPMC] quietly 15 liquidated" its investment in the Madoff-related fund, although 169 it remained liable on its own derivative product. Id. at 16 1 (Compl. ¶ 40). By that time, the defendants "had unequivocally 2 concluded that Madoff's reported returns were false and 3 illegitimate and that the only way to protect its own 4 capital . . . was to liquidate the entirety of its Madoff-related 5 investments." Id. ; see alsoid. ("In short, by September 2008, 6 [JPMC] knew that Madoff's business was a fraud."). The plaintiff 7 asserts that "in January 2009, [JPMC] publicly admitted that the 8 withdrawal of its investment was based on concerns and questions 9 raised during the due diligence investigation of Madoff." Id. 10 Finally, the complaint alleges that, despite the 11 defendants' actual knowledge that Madoff's investments were a 12 sham, and that Madoff was diverting customer funds, JPMC 13 "continued to trade with Madoff's market making business," and 14 Chase Bank "continued to provide Madoff with banking services." 15 Id. at 16–17 (Compl. ¶ 41). According to the plaintiff, the 16 defendants continued these activities because Madoff's account 17 "was very lucrative, having provided Chase for years with 18 substantial earnings and fees from the large cash balances in the 19 account." Id. at 17 (Compl. ¶ 41). The plaintiff asserts that 20 "[r]ather than protect other victims of Madoff's fraud as it had 21 already protected itself, Chase chose not only to protect Madoff, 22 but [also] to partner with him in the fleecing of his victims[] 23 by providing exactly the same range of services, for substantial 24 fees, after learning of his criminal enterprise, as it had before 25 its investigation." Id. 26818 U.S.C. § 1964(c) provides, in pertinent part, that "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains . . . ." In this case, the plaintiff asserts that the defendants violated section 1962(d), the criminal RICO statute. That section provides that "[i]t shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." Those subsections, in turn, outlaw
(a) the use of income "derived . . . from a pattern of racketeering activity" to acquire an interest in, establish, or operate an enterprise engaged in or affecting interstate commerce; (b) the acquisition of any interest in or control of such an enterprise "through a pattern of racketeering activity"; [and] (c) the conduct or participation in the conduct of such an enterprise's affairs "through a pattern of racketeering activity." GICC Capital Corp. v. Tech. Fin. Grp., Inc. , 67 F.3d 463, 465 (2d Cir. 1995) (quoting 18 U.S.C. § 1962(a)-(c)), cert. denied , 518 U.S. 1017 (1996). 10 On April 23, 2009, MLSMK filed a complaint in the 1 United States District Court for the Southern District of New 2 York asserting five claims against JPMC and Chase Bank. Four of 3 the five causes of action -- aiding and abetting breach of 4 fiduciary duty, commercial bad faith, and two counts of 5 negligence -- were pleaded under New York law. The fifth -- 6 denominated "Count One" in the complaint -- alleged that, from 7 about September 2008 to December 2008, the defendants conspired 8 to violate RICO, 18 U.S.C. §§ 1962(d) and 1964(c), 8by "knowingly 9 and purposely conspir[ing]" with Madoff to further Madoff's 10 racketeering enterprise by "providing Madoff with banking 11 services that were integral to the functioning of the 1211 racketeering enterprise" and by engaging in various RICO 1 "predicate acts," including "numerous interstate wire 2 communications," for which the defendants were "paid substantial 3 fees . . . derived entirely from Madoff's racketeering 4 enterprise." Id. at 23 (Compl. ¶ 67). MLSMK seeks, inter alia , 5 an award of treble damages under RICO for this allegedly illegal 6 activity. 7 On June 5, 2009, the defendants moved to dismiss the 8 complaint in its entirety pursuant to Rule 12(b)(6) of the 9 Federal Rules of Civil Procedure, arguing that the plaintiff did 10 not adequately plead the required elements of its claims, and, as 11 to the RICO conspiracy cause of action, that the claim is barred 12 by section 107 of the PSLRA. 13 By order dated July 14, 2010, the district court 14 granted the defendants' motion and dismissed the complaint in its 15 entirety. The district court dismissed the RICO claim because, 16 the court concluded, MLSMK failed adequately to plead the 17 defendants' requisite state of mind. 18 MLSMK now appeals. In a summary order dated June 6, 19 2011, we affirmed the dismissal of MLSMK's four state-law claims 20 for substantially the reasons relied upon by the district court; 21 however, we retained jurisdiction over the RICO claim. See MLSMK 22

I , 2011 WL 2176152, at *2-*3, 2011 U.S. App. LEXIS 11425, at *3- 23 *6. This opinion therefore addresses only the viability of 24 MLSMK's RICO conspiracy claim. 25

**DISCUSSION** 2612 "We review de novo the dismissal of a complaint under 1 Rule 12(b)(6), accepting all factual allegations as true and 2 drawing all reasonable inferences in favor of the plaintiff." 3 Litwin v. Blackstone Grp., L.P. , 634 F.3d 706, 715 (2d Cir. 2011) 4 (internal quotation marks omitted). 5 Chase Bank and JPMC argued before the district court, 6 and continue to assert on appeal, that MLSMK's RICO conspiracy 7 claim is precluded by section 107 of the PSLRA, 18 U.S.C. 8 § 1964(c), presenting a question of first impression for this 9 Court. The district court judges in our Circuit that have 10 addressed it are divided. The district court in the instant case 11 avoided the issue altogether by dismissing MLSMK's RICO claim on 12 the ground that the plaintiff had not adequately pled scienter, 13 which is required when a plaintiff alleges a RICO claim based on 14 fraudulent predicate acts. SeeFirst Capital Asset Mgmt., Inc. 15 v. Satinwood, Inc. , 385 F.3d 159, 178 (2d Cir. 2004) ("[A]ll 16 allegations of fraudulent predicate acts[] are subject to the 17 heightened pleading requirements of Federal Rule of Civil 18 Procedure 9(b)."); Baisch v. Gallina , 346 F.3d 366, 377 (2d Cir. 19 2003). In light of the possibility that the plaintiff might seek 20 in the district court to amend the complaint based on recently 21 discovered evidence and then successfully replead scienter, we 22 affirm the dismissal, instead, on the grounds that, in any event, 23 section 107 of the PSLRA bars the plaintiff's RICO conspiracy 24 claim. SeeIn re Methyl Tertiary Butyl Ether Prods. Liab. 25 Litig. , 488 F.3d 112, 134 (2d Cir. 2007) (stating that this Court 2613 may "affirm a district court decision on any grounds for which 1 there is a record sufficient to permit conclusions of law, even 2 grounds not relied upon by the district court" (internal 3 quotation marks omitted)). 4 Section 107 of the PSLRA -- which was enacted as an 5 amendment to the RICO statute and accordingly is often referred 6 to as the "RICO Amendment" -- provides that "no person may rely 7 upon any conduct that would have been actionable as fraud in the 8 purchase or sale of securities to establish a violation of 9 section 1962." 18 U.S.C. § 1964(c). As explained by the United 10 States District Court for the Southern District of Texas, 11 "[b]efore the RICO Amendment, a plaintiff could allege a private 12 civil RICO claim for securities laws violations sounding in fraud 13 because 'fraud in the sale of securities' was listed as a 14 predicate offense." In re Enron Corp. Sec., Derivative & ERISA 15 Litig. , 284 F. Supp. 2d 511, 618 (S.D. Tex. 2003) (citing Bald 16 Eagle Area Sch. Dist. v. Keystone Fin., Inc. , 189 F.3d 321, 327 17 (3d Cir. 1999)). "Inasmuch as 'fraud in the sale of securities' 18 was [, before the 1995 RICO Amendment,] a predicate offense in 19 both criminal and civil RICO actions, plaintiffs regularly 20 elevated fraud to RICO violations because RICO offered the 21 potential bonanza of recovering treble damages." Bald Eagle Area 22 Sch. Dist. , 189 F.3d at 327 (citation omitted). 23 The RICO Amendment changed the use of that tactic by 24 barring civil RICO claims based on allegations of securities 25 fraud. SeeThomas H. Lee Equity Fund V, L.P. v. Mayer Brown, 2614 Rowe & Maw LLP , 612 F. Supp. 2d 267, 281 (S.D.N.Y. 2009) 1 ("Section 107 of the PSLRA . . . bars private causes of action 2 under RICO for predicate acts that describe conduct that would 3 otherwise be actionable as securities fraud."); see alsoBald 4 Eagle Area Sch. Dist. , 189 F.3d at 327 ("The PSLRA amended RICO 5 by narrowing the kind of conduct that could qualify as a 6 predicate act."). As the plaintiff concedes, the purpose of the 7 bar "was to prevent litigants from using artful pleading to boot8 strap securities fraud cases into RICO cases, with their threat 9 of treble damages." Appellant's Reply Br. 19; accordBald Eagle 10 Area Sch. Dist. , 189 F.3d at 327-28 (quoting the legislative 11 history and explaining the purpose of the PSLRA). 12 But the scope of the RICO Amendment's bar is unsettled 13 in this Circuit. The parties dispute whether it applies to all 14 civil RICO claims predicated upon securities fraud, or if there 15 is an exception where, as here, the plaintiff cannot bring a 16 securities fraud claim against the defendant because the 17 plaintiff alleges only an aiding and abetting claim, which cannot 18 serve as a basis for a private right of action, seeCent. Bank of 19 Denver, N.A. v. First Interstate Bank of Denver, N.A. , 511 U.S. 20 164, 177 (1994) (concluding that section 10(b) of the Securities 21 Exchange Act of 1934, 15 U.S.C. § 78j(b), does not "impos[e] 22 private civil liability on aiders and abettors" of securities 23 fraud). The determinative question, then, is whether the RICO 24 Amendment bars allRICO claims "that would have been actionable 25 as fraud in the purchase or sale of securities," 18 U.S.C. § 269The parties also appear to agree that the RICO Amendment applies to mail fraud and wire fraud, in addition to ordinary securities fraud, when such claims "are based on conduct that would have been actionable as securities fraud." OSRecovery, Inc. v. One Groupe Int'l, Inc. , 354 F. Supp. 2d 357, 368 (S.D.N.Y. 2005) (internal quotation marks omitted); seeBald Eagle Area Sch. Dist. , 189 F.3d at 327 (quoting H.R. Rep. No. 104-369, at 47 (1995) (Conf. Rep.), reprinted in1995 U.S.C.C.A.N. 730, 746); Jordan (Berm.) Inv. Co. v. Hunter Green Invs. Ltd. , 205 F. Supp. 2d 243, 248 (S.D.N.Y. 2002) ("In amending RICO, Congress was clear in stating that the PSLRA was meant to eliminate the possibility that litigants might frame their securities claims under a mail or wire fraud claim." (internal quotation marks omitted)). 15 1964(c), or only RICO claims in cases where that plaintiff could 1 have asserted a fraud claim against the named defendant. That 2 is, we must determine whether, as the defendants assert, the bar 3 applies to "claims based on conduct that could be actionable 4 under the securities laws even when the [particular] plaintiff . 5 . . cannot bring a cause of action under the securities laws," 6 Appellees' Br. 32 (quoting Thomas H. Lee , 612 F. Supp. 2d at 283) 7 (internal quotation marks omitted); seeAppellees' Supp. Br. 3-4, 8 or whether, as MLSMK contends, the viability of a RICO claim 9 turns on the "claims available against a particular defendant," 10 Appellant's Reply Br. 19; seeAppellant's Supp. Br. 5 ("A court 11 must analyze whether the particular plaintiff has a cause of 12 action sounding in securities fraud against the named 13 defendant."). 9 14 This Court has not weighed in on the question. The 15 answers proffered by the district courts in this Circuit diverge, 16 but at least three district court judges in this Circuit have 17 accepted the argument made by the defendants here. In Fezzani v. 1816 Bear, Stearns & Co. , No. 99 Civ. 0793, 2005 WL 500377, 2005 U.S. 1 Dist. LEXIS 3266 (S.D.N.Y. Mar. 2, 2005) (Richard C. Casey, 2 Judge ), the plaintiffs, who had asserted section 10(b) claims and 3 RICO claims against several defendants, urged the court to 4 interpret the RICO Amendment to permit a civil RICO claim based 5 upon alleged predicate acts of aiding and abetting securities 6 fraud. The district court rejected the plaintiff's "particularly 7 narrow interpretation of the RICO [A]mendment," which would 8 "permit RICO liability against any defendant not individually 9 alleged to have committed securities fraud, despite [that 10 defendant's] extensive reliance on others' securities fraud." 11 Fezzani , 2005 WL 500377, at *4, 2005 U.S. Dist. LEXIS 3266, at 12 *14. The court viewed this approach as "inconsistent with 13 Congress's purpose" in enacting the law. Id. ; see alsoS. Rep. 14 104-98, at 19 (1995), reprinted in1995 U.S.C.C.A.N. 679, 698 15 (describing Congress's intent "to eliminate securities fraud as a 16 predicate act of racketeering in a civil RICO action"). The 17 court specifically rejected the contention -- also pressed by 18 MLSMK here -- that because securities fraud laws do not create a 19 private cause of action for aiding and abetting securities, mail, 20 or wire fraud, a plaintiff should be able to pursue a RICO claim 21 against an alleged aider and abetter of securities fraud. 22 Fezzani , 2005 WL 500377, at *4, 2005 U.S. Dist. LEXIS 3266, at 23 *15. The court expressed concern that if it were to accept the 24 plaintiffs' interpretation, a plaintiff could too easily 25 manipulate a complaint to skirt the RICO Amendment's limitations: 2617 Armed with the knowledge that aiding and 1 abetting a manipulative or deceptive practice 2 is insufficient under Central Bank[of 3 Denver , 511 U.S. at 191], for example, a 4 plaintiff could deliberately plead facts that 5 established no more than that a particular 6 defendant aided and abetted another's 7 securities fraud. Such incentive is 8 particularly strong where, as here, a 9 plaintiff might rely on the securities fraud 10 of those with few assets to obtain treble 11 damages against deeper pockets. 12 Id. 13 In Thomas H. Lee , then-district judge Gerard E. Lynch 14 reached the same conclusion. Thomas H. Lee , 612 F. Supp. 2d at 15 281-83. As in Fezzani , the plaintiffs in Thomas H. Leealleged 16 that a defendant violated RICO by aiding and abetting another's 17 securities law violations. Id. at 281. Judge Lynch adopted the 18 reasoning of Fezzani , stating that the plaintiffs' proffered 19 interpretation of the PSLRA's RICO Amendment -- under which "so 20 long as [plaintiffs] are pursuing aiders and abettors[, ]they may 21 proceed under RICO" because their securities claims are not 22 actionable -- is "treacherous." Id. The court explained that 23 "[t]he language of the statute simply does not require that, for 24 a RICO claim to be barred, the plaintiff who sues under RICO must 25 be able to sue under securities laws, or that the conduct 26 'actionable as securities fraud' on which the plaintiff relies to 27 establish the RICO violation must be that of the defendant." Id. 28 at 281-82; see alsoid. at 282 ("The [plaintiffs'] argument to 29 the contrary is problematic for precisely the reasons discussed 30 in Fezzani ." (citing Fezzani , 2005 WL 500377, at *4, 2005 U.S. 31 Dist. LEXIS 3266, at *14-*15)). Finally, the Thomas H. Leecourt 3218 noted that the plaintiffs' narrower interpretation of the RICO 1 Amendment would require the court to "overlook[] that the 2 amendment barring RICO claims was made in the same statute that 3 explicitly . . . authoriz[ed] only the SEC -- not private 4 parties -- to bring enforcement actions against aiders and 5 abettors." Id. The court concluded that 6 [i]t would be strange indeed if Congress, in 7 a statute that otherwise bars private causes 8 of action under RICO for predicate acts that 9 describe conduct actionable as securities 10 fraud, nevertheless chose to allow enhanced 11 RICO remedies -- treble damages and 12 attorneys' fees -- against onlythe very 13 parties that Congress simultaneously made 14 immune from private suit under the securities 15 laws. The better interpretation -- and the 16 one supported by the plain meaning of § 107 17 [of the PSLRA] -- is that the RICO Amendment 18 bars claims based on conduct that could be 19 actionable under the securities laws even 20 when the plaintiff, himself, cannot bring a 21 cause of action under the securities laws. 22 Id. at 282-83 (emphasis in original). 23 At least one other district court has accepted the 24 interpretation adopted in Thomas H. Leeand Fezzani : Cohain v. 25 Klimley , Nos. 08 Civ. 5047, 09 Civ. 4527, 09 Civ. 10584, 2010 WL 26 3701362, at *8-*9, 2010 U.S. Dist. LEXIS 98870, at *27-*28 27 (S.D.N.Y. Sept. 20, 2010) (Paul G. Gardephe, Judge ) (adopting the 28 Thomas H. Leecourt's interpretation of section 107 of the PSLRA 29 and noting that "most courts to address the subject have held 30 that 'any conduct that would have been actionable as fraud in the 31 purchase or sale of securities' -- including aiding and abetting 32 securities fraud -- may not be relied upon to establish a RICO 3310After oral argument, but before the publication of MLSMK I , we issued an order directing the parties to submit supplemental briefing limited to the issue of PSLRA preclusion of the plaintiff's RICO claim. SeeOrder, MLSMK Inv. Co. v. JP Morgan Chase & Co. , No. 10-3040-cv (2d Cir. May 31, 2011), ECF No. 63. 19 violation"); seeid. at *8, 2010 U.S. Dist. LEXIS 98870, at *27 1 (collecting cases). 2 As the Thomas H. Leecourt noted, 612 F. Supp. 2d at 3 281 -- and as the plaintiff points out in its opening brief on 4 appeal and in its supplemental briefing 10-- at least two other 5 district courts in this Circuit have interpreted the RICO 6 Amendment bar more narrowly. SeeSeippel v. Sidley, Austin, 7 Brown & Wood, LLP , 399 F. Supp. 2d 283, 292 n.47 (S.D.N.Y. 2005) 8 (Shira A. Scheindlin, Judge ) (noting the split among courts in 9 the Southern District of New York on the issue of the breadth of 10 the RICO Amendment's bar). In OSRecovery, Inc. v. One Groupe 11 Int'l Inc. , 354 F. Supp. 2d 357 (S.D.N.Y. 2005), the plaintiffs 12 asserted a RICO claim based on the defendant's alleged aiding and 13 abetting of another's securities law violations. The defendant 14 foreign bank moved to dismiss the RICO claim, arguing that it was 15 precluded by the RICO Amendment. Id. at 364, 368. The district 16 court (Lewis A. Kaplan, Judge ) denied the defendant's motion, 17 interpreting the RICO Amendment to bar only RICO claims based on 18 predicate acts of securities fraud that the plaintiffs could have 19 pursued as securities claims against the named defendant. See 20 id. at 369-70. That is, the court in OSRecoverythought the 21 relevant question under the PSLRA to be whether "the [specific 2220 defendant's] alleged conduct is actionable under [the securities] 1 laws." Id. at 369. The district court concluded that, because 2 "there is no private right of action for aiding and abetting 3 under Section 10(b) of the [Securities] Exchange Act," id. , and 4 the plaintiffs therefore could not have sought to vindicate their 5 rights by filing a securities claim, the RICO Amendment did not 6 bar the plaintiffs' RICO claim. 7 In Renner v. Chase Manhattan Bank , No. 98 Civ. 926, 8 1999 WL 47239, 1999 U.S. Dist. LEXIS 978 (S.D.N.Y. Feb. 3, 1999) 9 (Charles S. Haight, Jr., Judge ), the district court determined 10 that the RICO Amendment did not preclude the plaintiff's RICO 11 claim. Id. at *6–*7, 1999 U.S. Dist. LEXIS 978, at *20. Judge 12 Haight reasoned that, because the plaintiff's claim against Chase 13 Manhattan Bank (a predecessor to the defendants in the case now 14 before us) alleged only that the bank aided and abetted the fraud 15 of another, the allegations did not provide a "valid basis for a 16 securities fraud claim." Id. at *6, 1999 U.S. Dist. LEXIS 978, 17 at *18. The court continued that the claim therefore "would not 18 have been 'actionable' against Chase under the securities law," 19 and accordingly was not prohibited by the PSLRA's RICO Amendment. 20 Id. at *7, 1999 U.S. Dist. LEXIS 978, at *20; see alsoid. at *6, 21 1999 U.S. Dist. LEXIS 978, at *17-*18 ("[T]he application of the 22 Reform Act turns upon whether Chase's alleged conduct is 23 'actionable' under the securities laws."). 24 MLSMK asserts that the district judges accepting the 25 defense of RICO Amendment preclusion were "concerned 2611MLSMK argues for the first time in its supplemental brief that the defendants' conduct is not "actionable securities fraud" because the "the predicate acts alleged in this case could 21 predominantly with the policy implications of a plaintiff 1 electing between causes of action to evade the restrictions of 2 the PSLRA," Appellant's Reply Br. 21,issues that the plaintiff 3 contends are not present here, seeid. ("The court [in Fezzani ] 4 specifically feared that a plaintiff who might legitimately have 5 a securities fraud claim against a defendant would nevertheless 6 instead plead only aiding and abetting conduct in order to bring 7 the case under RICO."). The defendants, by contrast, urge us to 8 accept the view adopted in the Fezzani line of cases, citing the 9 court's statement in Thomas H. Leethat the "minority" approach 10 endorsed in OSRecovery"is both unpersuasive and against the 11 great weight of precedent." Thomas H. Lee , 612 F. Supp. 2d at 12 281; seeCohain , 2010 WL 3701362, at *8, 2010 U.S. Dist. LEXIS 13 98870, at *27 ("OSRecoveryhas not been relied on for [the] 14 proposition [that the RICO Amendment 'does not bar RICO claims 15 premised on conduct that constitutes aiding and abetting 16 securities fraud'], however, and several courts have explicitly 17 rejected its reasoning."). 18 We agree with the defendants that the reasoning of the 19 district courts in Fezzaniand Thomas H. Leeis persuasive. We 20 conclude that section 107 of the PSLRA bars civil RICO claims 21 alleging predicate acts of securities fraud, even where a 22 plaintiff cannot itself pursue a securities fraud action against 23 the defendant. 11 24not possibly have induced MLSMK to purchase or sell securities." It contends that the claim therefore does not satisfy the requirements of section 10(b) of the Securities Exchange Act. CompareAppellant's Supp. Br. 6, withAppellees' Supp. Br. 7-8. Even were we not to consider this argument waived because of the lateness of the hour in which it was asserted, we would nonetheless decline to address it because we conclude that the effect of the RICO Amendment does not turn on whether MLSMK would be able to state a valid claim against JPMC and Chase Bank under section 10(b). To the extent that MLSMK argues that the defendants' alleged conduct does not qualify as securities fraud because it was not "integrally related to the purchase and sale of securities," Appellant's Supp. Br. 6, we conclude that the contention is without merit. In Bald Eagle Area School District , the Third Circuit considered a plaintiff's allegation that a defendant bank had assisted in "a massive Ponzi scheme . . . perpetrated through the purchase and sale of [securities] in violation of securities laws including § 10(b) of the Securities Exchange Act of 1934," and determined that the alleged scheme was "at the heart of th[e plaintiff's] RICO action." Id. , 189 F.3d at 328. The court concluded that "[a] Ponzi scheme . . . continues only so long as new investors can be lured into it so that the early investors can be paid a return on their 'investment.' Consequently, conduct undertaken to keep a securities fraud Ponzi scheme alive is conduct undertaken in connection with the purchase and sale of securities." Id. at 330; cf. Sell v. Zions First Nat'l Bank , No. CV-05-0684, 2006 WL 322469, at *10, 2006 U.S. Dist. LEXIS 6558, at *33-*34 (D. Ariz. Feb. 9, 2006) (stating that "the question is not whether a plaintiff can state a claim under a non-securities-related predicate act, but whether the allegations that form the basis of that predicate act occur 'in connection with' securities fraud," and concluding that, in a Ponzi scheme, a bank's "disbursement[s] of money from more recent investors to older investors" are actions "in connection with" securities fraud). 22 Crucially, the plain language of the statute "does not 1 require that the same plaintiff who sues under RICO must be the 2 one who can sue under securities laws; its wording . . . does not 3 make such a connection." In re Enron , 284 F. Supp. 2d at 620; 4

see18 U.S.C. § 1964(c) ("[N]o personmay rely upon any conduct 5 that would have been actionable as fraud in the purchase or sale 623 of securities to establish a violation of section 1962." 1 (emphases added)). As another district court has explained, 2 when Congress stated that "no person" could 3 bring a civil RICO action alleging conduct 4 that would have been actionable as securities 5 fraud, it meant just that. It did not mean 6 "no person except one who has no other 7 actionable securities fraud claim." It did 8 not specify that the conduct had to be 9 actionable as securities fraud by a 10 particular person to serve as a bar to a RICO 11 claim by that same person. 12 Hemispherx Biopharma, Inc. v. Asensio , No. Civ. A. 98-5204, 1999 13 WL 144109, at *4, 1999 U.S. Dist. LEXIS 2849, at *13-*14 14 (E.D. Pa. Mar. 15, 1999), quoted inIn re Enron Corp. , 284 F. 15 Supp. 2d at 620. We agree that the RICO Amendment is worded 16 broadly and does not indicate that Congress intended that it be 17 applied in the limited manner that MLSMK urges. Cf. Cent. Bank 18 of Denver , 511 U.S. at 177 (quoting Blue Chip Stamps v. Manor 19 Drug Stores , 421 U.S. 723, 734 (1975) ("When Congress wished to 20 provide a remedy to those who neither purchase nor sell 21 securities, it had little trouble in doing so expressly.")). 22 This language seems to us to be unambiguous. But it is 23 worth noting in any event that our reading of it also is 24 supported by the PSLRA's legislative history. Cf. Allard K. 25 Lowenstein Int'l Hum. Rights Project v. Dep't of Homeland Sec. , 26 626 F.3d 678, 681 (2d Cir. 2010) ("Any potential ambiguity in the 27 statute's plain meaning is removed, moreover, by the history of 28 the statute's amendments."); id. ("Where we find ambiguity we may 29 delve into other sources, including the legislative history, to 3024 discern Congress's meaning." (brackets and internal quotation 1 marks omitted)). 2 The Conference Committee Report for section 107 states 3 that Congress "intend[ed]" that the section would "eliminate 4 securities fraud as a predicate offense in a civil RICO action," 5 and would bar a plaintiff from "plead[ing] other specified 6 offenses, such as mail or wire fraud, as predicate acts under 7 civil RICO if such offenses are based on conduct that would have 8 been actionable as securities fraud." H.R. Rep. 104-369, at 47 9 (1995)(Conf. Rep.), reprinted in1995 U.S.C.C.A.N. 730, 746. The 10 committee explained that the RICO Amendment's purpose was to 11 "remove [as a predicate act of racketeering] any conductthat 12 would have been actionable as fraud in the purchase or sale of 13 securities as racketeering activity under civil RICO." Id. 14 (emphasis added); accordS. Rep. 104-98, at 19, 1995 U.S.C.C.A.N. 15 at 698 (repeating the same explanation for the amendment). 16 Congress did not say that it was removing "any claimthat would 17 have been actionable." Its focus was on the behavior alleged to 18 satisfy RICO's predicate-act requirement. 19 Moreover, it is clear from the Senate Report that 20 Congress was aware that the RICO Amendment would place some 21 claims -- such as those for aiding and abetting securities laws 22 violations -- outside the reach of private civil RICO suits. But 23 the Senate appears to have been satisfied that the securities 24 laws "generally provide adequate remedies for those injured by 25 securities fraud." S. Rep. 104-98, at 19, 1995 U.S.C.C.A.N. at 2625 698; seeid. ("The Committee considered testimony endorsing the 1 result in Central Bankand testimony seeking to overturn th[at] 2 decision. The Committee believes that amending the 1934 3 [Securities Exchange] Act to provide explicitly for private 4 aiding and abetting liability actions under Section 10(b) would 5 be contrary to [the RICO Amendment's] goal of reducing meritless 6 securities litigation. The Committee does, however, grant the 7
SECexpress authority to bring actions seeking injunctive relief 8 or money damages against persons who knowingly aid and abet 9 primary violators of the securities laws." (emphasis added)). 10 We are not persuaded by the plaintiff's attempts to 11 distinguish the decisions in Thomas H. Leeand Fezzani . It is 12 true that, in those cases, the plaintiffs pled fraud and RICO 13 claims in the alternative, whereas in this case, the plaintiff 14 pleads only a civil RICO claim without asserting that the 15 defendants are liable for frauds or securities violations of 16 their own. But the district courts' determinations in Thomas H. 17

Leeand Fezzaniwere not limited to concerns about "gamesmanship" 18 in pleadings. Appellant's Reply Br. 22. Rather, they focused on 19 whether the complaints "relie[d] extensively on [allegations of] 20 fraud to establish . . . liability under RICO," and, where the 21 complaints did so rely, concluded that the RICO claims "fall[] 22 squarely within the scope of the PSLRA bar." Thomas H. Lee , 612 23 F. Supp. 2d at 281 (internal quotation marks omitted). They 24 analyzed the meaning of the statutory language independently from 25 the specific facts of the cases before them. See generallyid. 2612The OSRecoverycourt did not, of course, have the benefit of the analysis in Fezzani , which was decided two months later. 26 at 281-83; Fezzani , 2005 WL 500377, at *4-*6, 2005 U.S. Dist. 1 LEXIS 3266, at *10-*18. 2 Nor do we think that the cases relied upon by the 3 plaintiff compel a different conclusion. In OSRecovery , on which 4 MLSMK places great weight, the district court appears to have 5 assumed that the dispositive issue was whether the relevant 6 defendant's conduct was "actionable under the securities laws." 7 Id. , 354 F. Supp. 2d at 369. It did not seem to consider the 8 interpretation of the statute pressed by the defendants here or 9 accepted by the courts in Fezzaniand Thomas H. Lee-- that it 10 was Congress's intention that the applicability of the RICO 11 amendment to a plaintiff's civil RICO claim would not depend on 12 the plaintiff's ability to bring a private securities law action 13 against a particular defendant. 12 14 Finally, the interpretation we adopt today finds 15 support in the decisions of several of our sister circuits. See 16 Affco Invs. 2001, L.L.C. v. Proskauer Rose, L.L.P. , 625 F.3d 185, 17 189-91, 191 n.5 (5th Cir. 2010) (affirming the district court's 18 dismissal of a RICO claim as barred by the PSLRA in spite of the 19 fact that, by doing so, the plaintiff was left without an avenue 20 for relief because it could not assert a section 10(b) securities 21 claim against the relevant defendant); Bixler v. Foster , 596 F.3d 22 751, 759-60 (10th Cir. 2010) (applying the RICO Amendment to mail 23 and wire fraud, which "cannot support a civil RICO claim after 2427 enactment of the PSLRA" if the frauds are "undertaken in 1 connection with the purchase of a security" (internal quotation 2 marks omitted)); Howard v. Am. Online Inc. , 208 F.3d 741, 749 3 (9th Cir.) (holding that the RICO Amendment bar applies even 4 where the plaintiff does not have standing to sue under 5 securities laws because the plaintiff did not buy or sell 6 securities), cert. denied , 531 U.S. 828 (2000); Bald Eagle Area 7 Sch. Dist. , 189 F.3d at 330 (Third Circuit decision expressing 8 reasoning similar to that in Fezzani and Thomas H. Leeand 9 concluding that the PSLRA precludes a RICO claim based on a Ponzi 10 scheme that was accomplished by the purchase and sale of 11 securities). While none of these cases addresses the precise 12 question presented here, they do deal with other circumstances in 13 which -- for various reasons -- the plaintiff could not make out 14 a private securities claim against the defendant. Despite the 15 fact that this result left the plaintiffs in those cases, like 16 the plaintiff here, without recourse to a private cause of action 17 under the securities laws, our sister courts nonetheless 18 concluded that the plaintiffs' RICO claims were barred by the 19 RICO Amendment. 20

**CONCLUSION** 21 For the foregoing reasons, we conclude that the PSLRA's 22 RICO Amendment, 18 U.S.C. § 1964(c), bars a plaintiff from 23 asserting a civil RICO claim premised upon predicate acts of 24 securities fraud, including mail or wire fraud, even where the 25 plaintiff could not bring a private securities law claim against 2628 the same defendant. We therefore affirm the judgment of the 1 district court dismissing MLSMK's RICO claim (Count One) against 2 the defendants JPMC and Chase Bank on that ground. 3