10-3040-cv

MLSMK Investment Co. v. JP Morgan Chase & Co.

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3 August Term, 2010

4 (Argued: May 25, 2011 Final Submission: June 10, 2011

5 Decided: July 7, 2011)

6 Docket No. 10-3040-cv

7 -------------------------------------

8 MLSMK INVESTMENT COMPANY, 

9 Plaintiff-Appellant,

10 - v -

11 JP MORGAN CHASE & CO., JP MORGAN CHASE BANK, NA,

12 Defendants-Appellees.

13 -------------------------------------

14 Before: McLAUGHLIN, POOLER, and SACK, Circuit Judges.

15 Appeal from a judgment of the United States District

16 Court for the Southern District of New York (Barbara S. Jones,

17 Judge) dismissing the plaintiff's complaint in its entirety

18 pursuant to Rule 12(b)(6) of the Federal Rules of Civil

19 Procedure. By summary order dated June 6, 2011, we affirmed the

20 dismissal of the plaintiff's New York state-law claims. We did

21 not, however, resolve the plaintiff's appeal from the dismissal

22 of its remaining, federal claim that the defendants had conspired

23 with Bernard L. Madoff in violation of the Racketeer Influenced

24 and Corrupt Organizations Act, 18 U.S.C. §§ 1962(d) and 1964(c),

25 thereby injuring the plaintiff. We now conclude that the

26 heretofore unresolved claim is precluded by section 107 of the
1

 A "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

1 Private Securities Litigation Reform Act, 18 U.S.C. § 1964(c). 

2 We therefore affirm the district court's dismissal of that claim.

3 AFFIRMED. 

4 HOWARD KLEINHENDLER, Wachtel & Masyr,

5 LLP (Julian D. Schreibman, Sara G.

6 Spiegelman, of counsel), New York, NY,

7 for Plaintiff-Appellant.

8 PATRICIA M. HYNES, Allen & Overy LLP

9 (Andrew Rhys Davies, Laura R. Hall, of

10 counsel), New York, NY, for Defendants11 Appellees.

12 SACK, Circuit Judge:

13 This case arises out of the massive and now infamous

Ponzi scheme1 14 perpetrated by Bernard L. Madoff, which culminated

15 abruptly with his arrest in December 2008 but whose aftershocks

16 continue.

17 Between October and December 2008, the plaintiff, MLSMK

18 Investment Company ("MLSMK"), invested $12.8 million with

19 Madoff's investment company, Bernard L. Madoff Investment

20 Securities ("BMIS"). The defendants, JP Morgan Chase & Co.

21 ("JPMC") and JP Morgan Chase Bank, N.A. ("Chase Bank"), were,

22 respectively, a trading partner for Madoff's apparently

23 legitimate market-making business and the bank with which Madoff

24 maintained the account for BMIS. MLSMK lost its $12.8 million
3

1 investment when, on December 11, 2008, Madoff was arrested and

2 his assets seized. 

3 MLSMK subsequently filed this lawsuit in the United

4 States District Court for the Southern District of New York

5 alleging several New York state-law claims against the

6 defendants. It also asserted a federal claim contending that the

7 defendants had conspired with Madoff to "fleece" his victims, in

8 violation of the Racketeer Influenced and Corrupt Organizations

9 Act ("RICO"), 18 U.S.C. §§ 1962(d) and 1964(c). In that

10 connection, MLSMK alleges that by late summer 2008, the

11 defendants became suspicious of Madoff's business activities and

12 therefore undertook a "due diligence" investigation into Madoff's

13 activities, and that the investigation revealed to the defendants

14 that Madoff's investment business was a thoroughly fraudulent

15 enterprise. Nevertheless, MLSMK asserts, the defendants -- eager

16 to continue receiving the substantial fees they derived from

17 Madoff's market-making and banking activity -- continued to trade

18 with and provide banking services to him. MLSMK asserts that by

19 failing to freeze Madoff's accounts, the defendants became liable

20 for conspiracy to violate RICO by aiding and abetting Madoff's

21 breach of fiduciary duty, commercial bad faith, and negligence. 

22 The district court (Barbara S. Jones, Judge) dismissed

23 the plaintiff's complaint in its entirety, concluding that the

24 complaint did not adequately plead any of the claims purportedly

25 contained therein. We have affirmed that court's dismissal of
4

1 the plaintiff's state-law claims for aiding and abetting breach

2 of fiduciary duty, commercial bad faith, and negligence. See

3 MLSMK Inv. Co. v. JP Morgan Chase & Co. ("MLSMK I"), No. 10-3040-

4 cv, 2011 WL 2176152, 2011 U.S. App. LEXIS 11425 (2d Cir. June 6,

5 2011) (summary order). With regard to the remaining claim

6 brought under RICO, addressing an issue of first impression in

7 this Court, we conclude that the claim also must be dismissed,

8 because it is barred by section 107 of the Private Securities

9 Litigation Reform Act (the "PSLRA"), 18 U.S.C. § 1964(c). We

10 therefore affirm that portion of the district court's judgment

11 that remains on appeal. 

12 BACKGROUND

13 The following statement of facts is drawn from the

14 plaintiff's complaint. As is required on appeal from a

15 successful motion to dismiss in the district court, we accept as

16 true all well-pleaded factual allegations in the complaint and

17 draw all inferences in the plaintiff's favor. See Mortimer Off

18 Shore Servs., Ltd. v. Fed. Republic of Ger., 615 F.3d 97, 114 (2d

19 Cir. 2010), cert. denied, 131 S. Ct. 1502 (2011); see also Harris

20 v. Mills, 572 F.3d 66, 71–72 (2d Cir. 2009) (reciting the Supreme

21 Court's guidance in Bell Atl. Corp. v. Twombly, 550 U.S. 544

22 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), that we

23 need not credit legal conclusions couched as factual statements

24 or "threadbare recitals of the elements of a cause of action,
2

 The 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).

3 According 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

1 supported by mere conclusory statements" (alterations and

2 internal quotation marks omitted)). 

3 This suit arises out of Bernard L. Madoff's infamous

4 and long-running Ponzi scheme. MLSMK Investment Company is a

5 Florida partnership, all of whose partners are citizens of that

6 state. JPMC is a global financial services firm providing a

7 panoply of investment banking and financial services to

8 businesses and individuals; Chase Bank, a U.S.-based commercial

9 bank, is a wholly owned subsidiary of JPMC. Both are Delaware

10 corporations with their principal places of business in New York

City.2 11 

12 The general contours of Bernard L. Madoff's businesses

13 and transgressions are notorious. For about forty years

14 preceding his December 2008 arrest, he owned and operated BMIS, a

15 broker-dealer business based in Manhattan. BMIS operated three

16 separate entities providing distinct services: investment17 advisory services, market-making services, and proprietary

18 trading. BMIS's market-making business, of which the defendant

19 JPMC was a trading partner, is generally thought (and is conceded

by MLSMK) to have been legitimate,3 20 but BMIS's investment-
(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. 

4 On 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

1 advisory business, according to MLSMK, was "entirely fictional"

2 and central to Madoff's criminal enterprise. J.A. 10 (Compl.

3 ¶ 20). Madoff accepted funds from individual and corporate

4 clients promising to invest them in the investment-advisory

5 entity through which the clients would earn returns of "up to 10-

6 12% a year." Id. at 11 (Compl. ¶ 22). Madoff never made those

7 investments. Instead, he used later-invested money to pay

8 "returns" to other investors and to fund his lavish lifestyle: a

classic Ponzi scheme.4 9

10 Having received monthly statements from BMIS for June

11 through September of 2008 indicating a 10 to 12 percent

12 annualized return on previously made investments, MLSMK "caused

13 $12.8 million to be transferred to BMIS by wiring the funds to

14 BMIS'[s] account at Chase Bank in New York" between October 6,

15 2008, and December 5, 2008. Id. at 7 (Compl. ¶ 5). 

16 MLSMK alleges that all of the money Madoff received "in

17 the [fraudulent] investment advisory business [was] deposited

18 into accounts he held at [defendant] Chase Bank," id. at 11

19 (Compl. ¶ 24), and that, because the investor's account number

20 was required to be written on the face of the check, Chase Bank
5 MLSMK 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.

6 The 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

1 knew that the funds were "not Madoff's or BMIS'[s] but rather

2 belonged to the victim and were being received by BMIS as a

3 fiduciary," id. at 12 (Compl. ¶ 25). MLSMK asserts that, for

4 many years prior to 2008, BMIS's Chase Bank account "had an

5 average balance of several billion dollars." Id. (Compl. ¶ 27). 

6 With the advent of the global financial crisis in September 2008,

7 however, the account balance "often dropped to near zero." Id. 

8 MLSMK alleges that JPMC, in addition to operating as a

9 market-making trading partner for BMIS, developed a derivative

10 product "specifically for use with Madoff-related investments." 

11 Id. at 14 (Compl. ¶ 33). JPMC's product, a note it offered

12 primarily to European investors, guaranteed a return of three

13 times the earnings of a fund offered by the Fairfield Greenwich

14 Group, one of Madoff's so-called "feeder fund[s]." Id. (Compl.

¶¶ 34-35) (internal quotation marks omitted).5 15 The Fairfield

16 Greenwich Group's fund, known as the "Sentry Fund," had assets

17 totaling $7.5 billion, 95 percent of which was invested with

BMIS.6 18 Id. at 14-15 (Compl. ¶ 35). According to the complaint,

19 JPMC hedged against the risk assumed by its derivative product by

20 depositing three times the face amount of the notes -- up to $250
7 The 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

1 million by the summer of 2008 -- directly into the Madoff-linked

2 Sentry Fund. Consequently, if the Sentry Fund did well -- as it

3 was expected to do, based on Madoff's consistent 10 to 12 percent

4 (bogus) returns -- JPMC's returns "would offset its obligations

5 on the notes." Id. at 15 (Compl. ¶ 35). According to the

6 plaintiff, this Madoff-invested fund continued to report gains of

7 five percent "due to the returns Madoff was showing on the money

8 invested with BMIS," even as the financial markets were crumbling

9 in the summer and early fall of 2008. Id. (Compl. ¶ 36). 

10 MLSMK alleges that the Sentry Fund's consistently

11 strong returns despite the market mayhem triggered JPMC's

12 suspicion about Madoff's results. The investment company

13 therefore "embarked on a due diligence investigation of Madoff's

operations."7 14 Id. The complaint alleges that "[a]s a result of

15 its investigation, in or about September 2008, [JPMC] quietly

16 liquidated" its investment in the Madoff-related fund, although
9

1 it remained liable on its own derivative product. Id. at 16

2 (Compl. ¶ 40). By that time, the defendants "had unequivocally

3 concluded that Madoff's reported returns were false and

4 illegitimate and that the only way to protect its own

5 capital . . . was to liquidate the entirety of its Madoff-related

6 investments." Id.; see also id. ("In short, by September 2008,

7 [JPMC] knew that Madoff's business was a fraud."). The plaintiff

8 asserts that "in January 2009, [JPMC] publicly admitted that the

9 withdrawal of its investment was based on concerns and questions

10 raised during the due diligence investigation of Madoff." Id. 

11 Finally, the complaint alleges that, despite the

12 defendants' actual knowledge that Madoff's investments were a

13 sham, and that Madoff was diverting customer funds, JPMC

14 "continued to trade with Madoff's market making business," and

15 Chase Bank "continued to provide Madoff with banking services." 

16 Id. at 16–17 (Compl. ¶ 41). According to the plaintiff, the

17 defendants continued these activities because Madoff's account

18 "was very lucrative, having provided Chase for years with

19 substantial earnings and fees from the large cash balances in the

20 account." Id. at 17 (Compl. ¶ 41). The plaintiff asserts that

21 "[r]ather than protect other victims of Madoff's fraud as it had

22 already protected itself, Chase chose not only to protect Madoff,

23 but [also] to partner with him in the fleecing of his victims[]

24 by providing exactly the same range of services, for substantial

25 fees, after learning of his criminal enterprise, as it had before

26 its investigation." Id. 
8 18 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

1 On April 23, 2009, MLSMK filed a complaint in the

2 United States District Court for the Southern District of New

3 York asserting five claims against JPMC and Chase Bank. Four of

4 the five causes of action -- aiding and abetting breach of

5 fiduciary duty, commercial bad faith, and two counts of

6 negligence -- were pleaded under New York law. The fifth --

7 denominated "Count One" in the complaint -- alleged that, from

8 about September 2008 to December 2008, the defendants conspired

to violate RICO, 18 U.S.C. §§ 1962(d) and 1964(c),8 9 by "knowingly

10 and purposely conspir[ing]" with Madoff to further Madoff's

11 racketeering enterprise by "providing Madoff with banking

12 services that were integral to the functioning of the
11

1 racketeering enterprise" and by engaging in various RICO

2 "predicate acts," including "numerous interstate wire

3 communications," for which the defendants were "paid substantial

4 fees . . . derived entirely from Madoff's racketeering

5 enterprise." Id. at 23 (Compl. ¶ 67). MLSMK seeks, inter alia,

6 an award of treble damages under RICO for this allegedly illegal

7 activity. 

8 On June 5, 2009, the defendants moved to dismiss the

9 complaint in its entirety pursuant to Rule 12(b)(6) of the

10 Federal Rules of Civil Procedure, arguing that the plaintiff did

11 not adequately plead the required elements of its claims, and, as

12 to the RICO conspiracy cause of action, that the claim is barred

13 by section 107 of the PSLRA. 

14 By order dated July 14, 2010, the district court

15 granted the defendants' motion and dismissed the complaint in its

16 entirety. The district court dismissed the RICO claim because,

17 the court concluded, MLSMK failed adequately to plead the

18 defendants' requisite state of mind. 

19 MLSMK now appeals. In a summary order dated June 6,

20 2011, we affirmed the dismissal of MLSMK's four state-law claims

21 for substantially the reasons relied upon by the district court;

22 however, we retained jurisdiction over the RICO claim. See MLSMK

23 I, 2011 WL 2176152, at *2-*3, 2011 U.S. App. LEXIS 11425, at *3-

24 *6. This opinion therefore addresses only the viability of

25 MLSMK's RICO conspiracy claim. 

26 DISCUSSION
12

1 "We review de novo the dismissal of a complaint under

2 Rule 12(b)(6), accepting all factual allegations as true and

3 drawing all reasonable inferences in favor of the plaintiff." 

4 Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 715 (2d Cir. 2011)

5 (internal quotation marks omitted). 

6 Chase Bank and JPMC argued before the district court,

7 and continue to assert on appeal, that MLSMK's RICO conspiracy

8 claim is precluded by section 107 of the PSLRA, 18 U.S.C.

9 § 1964(c), presenting a question of first impression for this

10 Court. The district court judges in our Circuit that have

11 addressed it are divided. The district court in the instant case

12 avoided the issue altogether by dismissing MLSMK's RICO claim on

13 the ground that the plaintiff had not adequately pled scienter,

14 which is required when a plaintiff alleges a RICO claim based on

15 fraudulent predicate acts. See First Capital Asset Mgmt., Inc.

16 v. Satinwood, Inc., 385 F.3d 159, 178 (2d Cir. 2004) ("[A]ll

17 allegations of fraudulent predicate acts[] are subject to the

18 heightened pleading requirements of Federal Rule of Civil

19 Procedure 9(b)."); Baisch v. Gallina, 346 F.3d 366, 377 (2d Cir.

20 2003). In light of the possibility that the plaintiff might seek

21 in the district court to amend the complaint based on recently

22 discovered evidence and then successfully replead scienter, we

23 affirm the dismissal, instead, on the grounds that, in any event,

24 section 107 of the PSLRA bars the plaintiff's RICO conspiracy

25 claim. See In re Methyl Tertiary Butyl Ether Prods. Liab.

26 Litig., 488 F.3d 112, 134 (2d Cir. 2007) (stating that this Court
13

1 may "affirm a district court decision on any grounds for which

2 there is a record sufficient to permit conclusions of law, even

3 grounds not relied upon by the district court" (internal

4 quotation marks omitted)).

5 Section 107 of the PSLRA -- which was enacted as an

6 amendment to the RICO statute and accordingly is often referred

7 to as the "RICO Amendment" -- provides that "no person may rely

8 upon any conduct that would have been actionable as fraud in the

9 purchase or sale of securities to establish a violation of

10 section 1962." 18 U.S.C. § 1964(c). As explained by the United

11 States District Court for the Southern District of Texas,

12 "[b]efore the RICO Amendment, a plaintiff could allege a private

13 civil RICO claim for securities laws violations sounding in fraud

14 because 'fraud in the sale of securities' was listed as a

15 predicate offense." In re Enron Corp. Sec., Derivative & ERISA

16 Litig., 284 F. Supp. 2d 511, 618 (S.D. Tex. 2003) (citing Bald

17 Eagle Area Sch. Dist. v. Keystone Fin., Inc., 189 F.3d 321, 327

18 (3d Cir. 1999)). "Inasmuch as 'fraud in the sale of securities'

19 was [, before the 1995 RICO Amendment,] a predicate offense in

20 both criminal and civil RICO actions, plaintiffs regularly

21 elevated fraud to RICO violations because RICO offered the

22 potential bonanza of recovering treble damages." Bald Eagle Area

23 Sch. Dist., 189 F.3d at 327 (citation omitted). 

24 The RICO Amendment changed the use of that tactic by

25 barring civil RICO claims based on allegations of securities

26 fraud. See Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown,
14

1 Rowe & Maw LLP, 612 F. Supp. 2d 267, 281 (S.D.N.Y. 2009)

2 ("Section 107 of the PSLRA . . . bars private causes of action

3 under RICO for predicate acts that describe conduct that would

4 otherwise be actionable as securities fraud."); see also Bald

5 Eagle Area Sch. Dist., 189 F.3d at 327 ("The PSLRA amended RICO

6 by narrowing the kind of conduct that could qualify as a

7 predicate act."). As the plaintiff concedes, the purpose of the

8 bar "was to prevent litigants from using artful pleading to boot9 strap securities fraud cases into RICO cases, with their threat

10 of treble damages." Appellant's Reply Br. 19; accord Bald Eagle

11 Area Sch. Dist., 189 F.3d at 327-28 (quoting the legislative

12 history and explaining the purpose of the PSLRA). 

13 But the scope of the RICO Amendment's bar is unsettled

14 in this Circuit. The parties dispute whether it applies to all

15 civil RICO claims predicated upon securities fraud, or if there

16 is an exception where, as here, the plaintiff cannot bring a

17 securities fraud claim against the defendant because the

18 plaintiff alleges only an aiding and abetting claim, which cannot

19 serve as a basis for a private right of action, see Cent. Bank of

20 Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S.

21 164, 177 (1994) (concluding that section 10(b) of the Securities

22 Exchange Act of 1934, 15 U.S.C. § 78j(b), does not "impos[e]

23 private civil liability on aiders and abettors" of securities

24 fraud). The determinative question, then, is whether the RICO

25 Amendment bars all RICO claims "that would have been actionable

26 as fraud in the purchase or sale of securities," 18 U.S.C. §
9 The 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); see Bald

Eagle Area Sch. Dist., 189 F.3d at 327 (quoting H.R. Rep. No.

104-369, at 47 (1995) (Conf. Rep.), reprinted in 1995

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

1 1964(c), or only RICO claims in cases where that plaintiff could

2 have asserted a fraud claim against the named defendant. That

3 is, we must determine whether, as the defendants assert, the bar

4 applies to "claims based on conduct that could be actionable

5 under the securities laws even when the [particular] plaintiff .

6 . . cannot bring a cause of action under the securities laws,"

7 Appellees' Br. 32 (quoting Thomas H. Lee, 612 F. Supp. 2d at 283)

8 (internal quotation marks omitted); see Appellees' Supp. Br. 3-4,

9 or whether, as MLSMK contends, the viability of a RICO claim

10 turns on the "claims available against a particular defendant,"

11 Appellant's Reply Br. 19; see Appellant's Supp. Br. 5 ("A court

12 must analyze whether the particular plaintiff has a cause of

13 action sounding in securities fraud against the named

defendant.").9 14

15 This Court has not weighed in on the question. The

16 answers proffered by the district courts in this Circuit diverge,

17 but at least three district court judges in this Circuit have

18 accepted the argument made by the defendants here. In Fezzani v.
16

1 Bear, Stearns & Co., No. 99 Civ. 0793, 2005 WL 500377, 2005 U.S.

2 Dist. LEXIS 3266 (S.D.N.Y. Mar. 2, 2005) (Richard C. Casey,

3 Judge), the plaintiffs, who had asserted section 10(b) claims and

4 RICO claims against several defendants, urged the court to

5 interpret the RICO Amendment to permit a civil RICO claim based

6 upon alleged predicate acts of aiding and abetting securities

7 fraud. The district court rejected the plaintiff's "particularly

8 narrow interpretation of the RICO [A]mendment," which would

9 "permit RICO liability against any defendant not individually

10 alleged to have committed securities fraud, despite [that

11 defendant's] extensive reliance on others' securities fraud." 

12 Fezzani, 2005 WL 500377, at *4, 2005 U.S. Dist. LEXIS 3266, at

13 *14. The court viewed this approach as "inconsistent with

14 Congress's purpose" in enacting the law. Id.; see also S. Rep.

15 104-98, at 19 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 698

16 (describing Congress's intent "to eliminate securities fraud as a

17 predicate act of racketeering in a civil RICO action"). The

18 court specifically rejected the contention -- also pressed by

19 MLSMK here -- that because securities fraud laws do not create a

20 private cause of action for aiding and abetting securities, mail,

21 or wire fraud, a plaintiff should be able to pursue a RICO claim

22 against an alleged aider and abetter of securities fraud. 

23 Fezzani, 2005 WL 500377, at *4, 2005 U.S. Dist. LEXIS 3266, at

24 *15. The court expressed concern that if it were to accept the

25 plaintiffs' interpretation, a plaintiff could too easily

26 manipulate a complaint to skirt the RICO Amendment's limitations: 
17

1 Armed with the knowledge that aiding and

2 abetting a manipulative or deceptive practice

3 is insufficient under Central Bank [of

4 Denver, 511 U.S. at 191], for example, a

5 plaintiff could deliberately plead facts that

6 established no more than that a particular

7 defendant aided and abetted another's

8 securities fraud. Such incentive is

9 particularly strong where, as here, a

10 plaintiff might rely on the securities fraud

11 of those with few assets to obtain treble

12 damages against deeper pockets.

13 Id. 

14 In Thomas H. Lee, then-district judge Gerard E. Lynch

15 reached the same conclusion. Thomas H. Lee, 612 F. Supp. 2d at

16 281-83. As in Fezzani, the plaintiffs in Thomas H. Lee alleged

17 that a defendant violated RICO by aiding and abetting another's

18 securities law violations. Id. at 281. Judge Lynch adopted the

19 reasoning of Fezzani, stating that the plaintiffs' proffered

20 interpretation of the PSLRA's RICO Amendment -- under which "so

21 long as [plaintiffs] are pursuing aiders and abettors[, ]they may

22 proceed under RICO" because their securities claims are not

23 actionable -- is "treacherous." Id. The court explained that

24 "[t]he language of the statute simply does not require that, for

25 a RICO claim to be barred, the plaintiff who sues under RICO must

26 be able to sue under securities laws, or that the conduct

27 'actionable as securities fraud' on which the plaintiff relies to

28 establish the RICO violation must be that of the defendant." Id.

29 at 281-82; see also id. at 282 ("The [plaintiffs'] argument to

30 the contrary is problematic for precisely the reasons discussed

31 in Fezzani." (citing Fezzani, 2005 WL 500377, at *4, 2005 U.S.

32 Dist. LEXIS 3266, at *14-*15)). Finally, the Thomas H. Lee court
18

1 noted that the plaintiffs' narrower interpretation of the RICO

2 Amendment would require the court to "overlook[] that the

3 amendment barring RICO claims was made in the same statute that

4 explicitly . . . authoriz[ed] only the SEC -- not private

5 parties -- to bring enforcement actions against aiders and

6 abettors." Id. The court concluded that

7 [i]t would be strange indeed if Congress, in

8 a statute that otherwise bars private causes

9 of action under RICO for predicate acts that

10 describe conduct actionable as securities

11 fraud, nevertheless chose to allow enhanced

12 RICO remedies -- treble damages and

13 attorneys' fees -- against only the very

14 parties that Congress simultaneously made

15 immune from private suit under the securities

16 laws. The better interpretation -- and the

17 one supported by the plain meaning of § 107

18 [of the PSLRA] -- is that the RICO Amendment

19 bars claims based on conduct that could be

20 actionable under the securities laws even

21 when the plaintiff, himself, cannot bring a

22 cause of action under the securities laws.

23 Id. at 282-83 (emphasis in original).

24 At least one other district court has accepted the

25 interpretation adopted in Thomas H. Lee and Fezzani: Cohain v.

26 Klimley, Nos. 08 Civ. 5047, 09 Civ. 4527, 09 Civ. 10584, 2010 WL

27 3701362, at *8-*9, 2010 U.S. Dist. LEXIS 98870, at *27-*28

28 (S.D.N.Y. Sept. 20, 2010) (Paul G. Gardephe, Judge) (adopting the

29 Thomas H. Lee court's interpretation of section 107 of the PSLRA

30 and noting that "most courts to address the subject have held

31 that 'any conduct that would have been actionable as fraud in the

32 purchase or sale of securities' -- including aiding and abetting

33 securities fraud -- may not be relied upon to establish a RICO
10 After 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. See Order, MLSMK Inv. Co. v. JP

Morgan Chase & Co., No. 10-3040-cv (2d Cir. May 31, 2011), ECF

No. 63. 

19

1 violation"); see id. at *8, 2010 U.S. Dist. LEXIS 98870, at *27

2 (collecting cases).

3 As the Thomas H. Lee court noted, 612 F. Supp. 2d at

4 281 -- and as the plaintiff points out in its opening brief on

appeal and in its supplemental briefing10 5 -- at least two other

6 district courts in this Circuit have interpreted the RICO

7 Amendment bar more narrowly. See Seippel v. Sidley, Austin,

8 Brown & Wood, LLP, 399 F. Supp. 2d 283, 292 n.47 (S.D.N.Y. 2005)

9 (Shira A. Scheindlin, Judge) (noting the split among courts in

10 the Southern District of New York on the issue of the breadth of

11 the RICO Amendment's bar). In OSRecovery, Inc. v. One Groupe

12 Int'l Inc., 354 F. Supp. 2d 357 (S.D.N.Y. 2005), the plaintiffs

13 asserted a RICO claim based on the defendant's alleged aiding and

14 abetting of another's securities law violations. The defendant

15 foreign bank moved to dismiss the RICO claim, arguing that it was

16 precluded by the RICO Amendment. Id. at 364, 368. The district

17 court (Lewis A. Kaplan, Judge) denied the defendant's motion,

18 interpreting the RICO Amendment to bar only RICO claims based on

19 predicate acts of securities fraud that the plaintiffs could have

20 pursued as securities claims against the named defendant. See

21 id. at 369-70. That is, the court in OSRecovery thought the

22 relevant question under the PSLRA to be whether "the [specific
20

1 defendant's] alleged conduct is actionable under [the securities]

2 laws." Id. at 369. The district court concluded that, because

3 "there is no private right of action for aiding and abetting

4 under Section 10(b) of the [Securities] Exchange Act," id., and

5 the plaintiffs therefore could not have sought to vindicate their

6 rights by filing a securities claim, the RICO Amendment did not

7 bar the plaintiffs' RICO claim. 

8 In Renner v. Chase Manhattan Bank, No. 98 Civ. 926,

9 1999 WL 47239, 1999 U.S. Dist. LEXIS 978 (S.D.N.Y. Feb. 3, 1999)

10 (Charles S. Haight, Jr., Judge), the district court determined

11 that the RICO Amendment did not preclude the plaintiff's RICO

12 claim. Id. at *6–*7, 1999 U.S. Dist. LEXIS 978, at *20. Judge

13 Haight reasoned that, because the plaintiff's claim against Chase

14 Manhattan Bank (a predecessor to the defendants in the case now

15 before us) alleged only that the bank aided and abetted the fraud

16 of another, the allegations did not provide a "valid basis for a

17 securities fraud claim." Id. at *6, 1999 U.S. Dist. LEXIS 978,

18 at *18. The court continued that the claim therefore "would not

19 have been 'actionable' against Chase under the securities law,"

20 and accordingly was not prohibited by the PSLRA's RICO Amendment. 

21 Id. at *7, 1999 U.S. Dist. LEXIS 978, at *20; see also id. at *6,

22 1999 U.S. Dist. LEXIS 978, at *17-*18 ("[T]he application of the

23 Reform Act turns upon whether Chase's alleged conduct is

24 'actionable' under the securities laws.").

25 MLSMK asserts that the district judges accepting the

26 defense of RICO Amendment preclusion were "concerned
11 MLSMK 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

1 predominantly with the policy implications of a plaintiff

2 electing between causes of action to evade the restrictions of

3 the PSLRA," Appellant's Reply Br. 21,issues that the plaintiff

4 contends are not present here, see id. ("The court [in Fezzani]

5 specifically feared that a plaintiff who might legitimately have

6 a securities fraud claim against a defendant would nevertheless

7 instead plead only aiding and abetting conduct in order to bring

8 the case under RICO."). The defendants, by contrast, urge us to

9 accept the view adopted in the Fezzani line of cases, citing the

10 court's statement in Thomas H. Lee that the "minority" approach

11 endorsed in OSRecovery "is both unpersuasive and against the

12 great weight of precedent." Thomas H. Lee, 612 F. Supp. 2d at

13 281; see Cohain, 2010 WL 3701362, at *8, 2010 U.S. Dist. LEXIS

14 98870, at *27 ("OSRecovery has not been relied on for [the]

15 proposition [that the RICO Amendment 'does not bar RICO claims

16 premised on conduct that constitutes aiding and abetting

17 securities fraud'], however, and several courts have explicitly

18 rejected its reasoning.").

19 We agree with the defendants that the reasoning of the

20 district courts in Fezzani and Thomas H. Lee is persuasive. We

21 conclude that section 107 of the PSLRA bars civil RICO claims

22 alleging predicate acts of securities fraud, even where a

23 plaintiff cannot itself pursue a securities fraud action against

the defendant.11 24
not 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. 

Compare Appellant's Supp. Br. 6, with Appellees' 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

1 Crucially, the plain language of the statute "does not

2 require that the same plaintiff who sues under RICO must be the

3 one who can sue under securities laws; its wording . . . does not

4 make such a connection." In re Enron, 284 F. Supp. 2d at 620;

5 see 18 U.S.C. § 1964(c) ("[N]o person may rely upon any conduct

6 that would have been actionable as fraud in the purchase or sale
23

1 of securities to establish a violation of section 1962."

2 (emphases added)). As another district court has explained,

3 when Congress stated that "no person" could

4 bring a civil RICO action alleging conduct

5 that would have been actionable as securities

6 fraud, it meant just that. It did not mean

7 "no person except one who has no other

8 actionable securities fraud claim." It did

9 not specify that the conduct had to be

10 actionable as securities fraud by a

11 particular person to serve as a bar to a RICO

12 claim by that same person.

13 Hemispherx Biopharma, Inc. v. Asensio, No. Civ. A. 98-5204, 1999

14 WL 144109, at *4, 1999 U.S. Dist. LEXIS 2849, at *13-*14

15 (E.D. Pa. Mar. 15, 1999), quoted in In re Enron Corp., 284 F.

16 Supp. 2d at 620. We agree that the RICO Amendment is worded

17 broadly and does not indicate that Congress intended that it be

18 applied in the limited manner that MLSMK urges. Cf. Cent. Bank

19 of Denver, 511 U.S. at 177 (quoting Blue Chip Stamps v. Manor

20 Drug Stores, 421 U.S. 723, 734 (1975) ("When Congress wished to

21 provide a remedy to those who neither purchase nor sell

22 securities, it had little trouble in doing so expressly.")). 

23 This language seems to us to be unambiguous. But it is

24 worth noting in any event that our reading of it also is

25 supported by the PSLRA's legislative history. Cf. Allard K.

26 Lowenstein Int'l Hum. Rights Project v. Dep't of Homeland Sec.,

27 626 F.3d 678, 681 (2d Cir. 2010) ("Any potential ambiguity in the

28 statute's plain meaning is removed, moreover, by the history of

29 the statute's amendments."); id. ("Where we find ambiguity we may

30 delve into other sources, including the legislative history, to
24

1 discern Congress's meaning." (brackets and internal quotation

2 marks omitted)). 

3 The Conference Committee Report for section 107 states

4 that Congress "intend[ed]" that the section would "eliminate

5 securities fraud as a predicate offense in a civil RICO action,"

6 and would bar a plaintiff from "plead[ing] other specified

7 offenses, such as mail or wire fraud, as predicate acts under

8 civil RICO if such offenses are based on conduct that would have

9 been actionable as securities fraud." H.R. Rep. 104-369, at 47

10 (1995)(Conf. Rep.), reprinted in 1995 U.S.C.C.A.N. 730, 746. The

11 committee explained that the RICO Amendment's purpose was to

12 "remove [as a predicate act of racketeering] any conduct that

13 would have been actionable as fraud in the purchase or sale of

14 securities as racketeering activity under civil RICO." Id.

15 (emphasis added); accord S. Rep. 104-98, at 19, 1995 U.S.C.C.A.N.

16 at 698 (repeating the same explanation for the amendment). 

17 Congress did not say that it was removing "any claim that would

18 have been actionable." Its focus was on the behavior alleged to

19 satisfy RICO's predicate-act requirement. 

20 Moreover, it is clear from the Senate Report that

21 Congress was aware that the RICO Amendment would place some

22 claims -- such as those for aiding and abetting securities laws

23 violations -- outside the reach of private civil RICO suits. But

24 the Senate appears to have been satisfied that the securities

25 laws "generally provide adequate remedies for those injured by

26 securities fraud." S. Rep. 104-98, at 19, 1995 U.S.C.C.A.N. at
25

1 698; see id. ("The Committee considered testimony endorsing the

2 result in Central Bank and testimony seeking to overturn th[at]

3 decision. The Committee believes that amending the 1934

4 [Securities Exchange] Act to provide explicitly for private

5 aiding and abetting liability actions under Section 10(b) would

6 be contrary to [the RICO Amendment's] goal of reducing meritless

7 securities litigation. The Committee does, however, grant the

8 SEC express authority to bring actions seeking injunctive relief

9 or money damages against persons who knowingly aid and abet

10 primary violators of the securities laws." (emphasis added)).

11 We are not persuaded by the plaintiff's attempts to

12 distinguish the decisions in Thomas H. Lee and Fezzani. It is

13 true that, in those cases, the plaintiffs pled fraud and RICO

14 claims in the alternative, whereas in this case, the plaintiff

15 pleads only a civil RICO claim without asserting that the

16 defendants are liable for frauds or securities violations of

17 their own. But the district courts' determinations in Thomas H.

18 Lee and Fezzani were not limited to concerns about "gamesmanship"

19 in pleadings. Appellant's Reply Br. 22. Rather, they focused on

20 whether the complaints "relie[d] extensively on [allegations of]

21 fraud to establish . . . liability under RICO," and, where the

22 complaints did so rely, concluded that the RICO claims "fall[]

23 squarely within the scope of the PSLRA bar." Thomas H. Lee, 612

24 F. Supp. 2d at 281 (internal quotation marks omitted). They

25 analyzed the meaning of the statutory language independently from

26 the specific facts of the cases before them. See generally id.
12 The OSRecovery court did not, of course, have the

benefit of the analysis in Fezzani, which was decided two months

later. 

26

1 at 281-83; Fezzani, 2005 WL 500377, at *4-*6, 2005 U.S. Dist.

2 LEXIS 3266, at *10-*18.

3 Nor do we think that the cases relied upon by the

4 plaintiff compel a different conclusion. In OSRecovery, on which

5 MLSMK places great weight, the district court appears to have

6 assumed that the dispositive issue was whether the relevant

7 defendant's conduct was "actionable under the securities laws." 

8 Id., 354 F. Supp. 2d at 369. It did not seem to consider the

9 interpretation of the statute pressed by the defendants here or

10 accepted by the courts in Fezzani and Thomas H. Lee -- that it

11 was Congress's intention that the applicability of the RICO

12 amendment to a plaintiff's civil RICO claim would not depend on

13 the plaintiff's ability to bring a private securities law action

against a particular defendant.12 14

15 Finally, the interpretation we adopt today finds

16 support in the decisions of several of our sister circuits. See

17 Affco Invs. 2001, L.L.C. v. Proskauer Rose, L.L.P., 625 F.3d 185,

18 189-91, 191 n.5 (5th Cir. 2010) (affirming the district court's

19 dismissal of a RICO claim as barred by the PSLRA in spite of the

20 fact that, by doing so, the plaintiff was left without an avenue

21 for relief because it could not assert a section 10(b) securities

22 claim against the relevant defendant); Bixler v. Foster, 596 F.3d

23 751, 759-60 (10th Cir. 2010) (applying the RICO Amendment to mail

24 and wire fraud, which "cannot support a civil RICO claim after
27

1 enactment of the PSLRA" if the frauds are "undertaken in

2 connection with the purchase of a security" (internal quotation

3 marks omitted)); Howard v. Am. Online Inc., 208 F.3d 741, 749

4 (9th Cir.) (holding that the RICO Amendment bar applies even

5 where the plaintiff does not have standing to sue under

6 securities laws because the plaintiff did not buy or sell

7 securities), cert. denied, 531 U.S. 828 (2000); Bald Eagle Area

8 Sch. Dist., 189 F.3d at 330 (Third Circuit decision expressing

9 reasoning similar to that in Fezzani and Thomas H. Lee and

10 concluding that the PSLRA precludes a RICO claim based on a Ponzi

11 scheme that was accomplished by the purchase and sale of

12 securities). While none of these cases addresses the precise

13 question presented here, they do deal with other circumstances in

14 which -- for various reasons -- the plaintiff could not make out

15 a private securities claim against the defendant. Despite the

16 fact that this result left the plaintiffs in those cases, like

17 the plaintiff here, without recourse to a private cause of action

18 under the securities laws, our sister courts nonetheless

19 concluded that the plaintiffs' RICO claims were barred by the

20 RICO Amendment.

21 CONCLUSION 

22 For the foregoing reasons, we conclude that the PSLRA's

23 RICO Amendment, 18 U.S.C. § 1964(c), bars a plaintiff from

24 asserting a civil RICO claim premised upon predicate acts of

25 securities fraud, including mail or wire fraud, even where the

26 plaintiff could not bring a private securities law claim against
28

1 the same defendant. We therefore affirm the judgment of the

2 district court dismissing MLSMK's RICO claim (Count One) against

3 the defendants JPMC and Chase Bank on that ground.