UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

THE JAMES STREIBICH REVOCABLE 

TRUST OF 2002, et al.,

Plaintiffs,

v.

BROCK H. FLAGSTAD, et al.,

Defendants.

No. 20 CV 2242

Judge Manish S. Shah

MEMORANDUM OPINION AND ORDER

Brock Flagstad persuaded the James Streibich Revocable Trust to invest in his

crypto-currency and securities trading company, Folding Light, LLC. Flagstad 

assured the Trust that its funds would be used only for trading purposes—to help 

develop Folding Light’s cutting-edge financial technology and to attract more 

investors. The pitch was a ruse, according to the Trust; in fact, Flagstad and a web of 

LLCs under his control fraudulently schemed to funnel the Trust’s investment into 

Flagstad’s own pockets. The Trust, individually and derivatively on behalf of Folding 

Light, sues Flagstad and the LLCs (Oxford Marketing Partners, Oxford Media, 

Oxford Tax Partners, Oxford FG, Oxford GP, Financial Freedom Advisors, and 

Cloverpoint Partners). Plaintiffs bring claims under the Racketeer Influenced and 

Corrupt Organizations Act, 18 U.S.C. § 1962(c)–(d), and Illinois law. Defendants 

move to dismiss the amended complaint under Federal Rule of Civil 

Procedure 12(b)(6). The motion is granted.

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I. Legal Standards

A complaint must contain a short and plain statement that plausibly suggests 

a right to relief. Fed. R. Civ. P. 8(a)(2); Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009). 

To survive a motion to dismiss, a plaintiff must allege facts that “raise a right to relief 

above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). 

I accept all factual allegations as true and draw all reasonable inferences in plaintiffs’

favor, but I disregard legal conclusions or “threadbare recitals” supported by only 

“conclusory statements.” Iqbal, 556 U.S. at 678. Plaintiffs must provide “more than 

labels” or “a formulaic recitation of a cause of action’s elements,” Twombly, 550 U.S. 

at 555, and the complaint must “contain either direct or inferential allegations 

respecting all the material elements necessary to sustain recovery under some viable 

legal theory.” Id. at 562.

Plaintiffs alleging fraud must do so with particularity. Fed. R. Civ. P. 9(b). 

When, as here, “predicate acts of racketeering involve fraud, the complaint must 

describe the ‘who, what, when, where, and how’ of the fraudulent activity to meet the 

heightened pleading standard demanded by Rule 9(b).” Muskegan Hotels, LLC v. 

Patel, 986 F.3d 692, 698 (7th Cir. 2021) (quoting Menzies v. Seyfarth Shaw LLP, 943 

F.3d 328, 338 (7th Cir. 2019)). When a plaintiff brings RICO claims against multiple 

defendants, “Rule 9(b) requires a RICO plaintiff to plead sufficient facts to notify each 

defendant of his alleged participation in the scheme.” Goren v. New Vision 

International, Inc., 156 F.3d 721, 726 (7th Cir. 1998). 

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II. Background

Brock Flagstad is the dominant member and controls the finances of many 

limited liability companies; the companies generally share the same accountant, law 

firm, address, and business model. [42] ¶¶ 14–16.1 The corporate defendants are all

Flagstad-controlled LLCs with the same downtown-Chicago address. Id. ¶¶ 5–11.

Around May 2018, Flagstad approached James Streibich (the Trust’s trustee)

to solicit investment in Folding Light. Id. ¶ 17. Flagstad was a member of Folding 

Light and its lead manager. Id. ¶ 4. Flagstad told Streibich that Folding Light had 

developed an innovative proprietary trading platform for securities, bitcoin, and other 

crypto-based currencies. Id. ¶ 17. Flagstad also said that the platform was unique in 

the financial-technology industry, that “back testing” had already shown significant 

returns, and that the Trust’s capital would help Folding Light demonstrate actual

returns, attract other investors, and leverage the trading investment at multiple 

times its value. Id. 

Flagstad told Streibich that in exchange for a $2,000,000 investment, the Trust 

would gain a preferred interest in Folding Light. Id. ¶ 18. He promised that the 

Trust’s funds would be used only for trading purposes. Id. When Streibich told 

Flagstad that he was interested in investing, Flagstad again affirmed that the Trust’s 

investment would be used solely for trading purposes. Id. ¶ 19. In reliance on 

 1 Bracketed numbers refer to entries on the district court docket. Referenced page numbers 

are taken from the CM/ECF header placed at the top of filings. Facts are taken from the first 

amended complaint, [42], and plaintiffs’ opposition to the motion to dismiss, [51].

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Flagstad’s representations, the Trust invested the $2,000,000 and received a 

preferred-capital membership interest in Folding Light. Id.

A few weeks later—at Flagstad’s direction—Folding Light began transferring 

funds to Flagstad and Financial Freedom Advisors (a Flagstad company). Id. ¶ 20.

Over the next two months, Flagstad and FFA received hundreds of thousands of 

dollars in transfers from Folding Light. Id. Later that fall, Folding Light’s trading 

team left to start a competing company. The split was not amicable: Folding Light 

and the former trading team members “blamed each other for absconding with ... 

funds.” [51] at 8. Litigation followed, where the traders alleged that Flagstad had 

converted over $340,000 from Folding Light to FFA. [42] ¶ 20. The Trust asked

Flagstad about the alleged conversion, but he denied it. Id. ¶ 21. 

With Folding Light’s trading operations at a standstill following the team’s 

departure, Flagstad approached Streibich about establishing a revolving credit line 

with Folding Light. Id. Streibich agreed to loan $200,000 to Oxford Marketing

(another Flagstad Company), with interest payable monthly to Folding Light. Oxford

Marketing made the first four monthly interest payments to Folding Light and then 

stopped. Id.

By summer of 2019, Folding Light had halted operations and Flagstad moved 

from Chicago to Sea Island, Georgia. Id. ¶ 22. Flagstad retained complete control over 

Folding Light’s books, yet he repeatedly ignored the Trust’s requests to share the 

company’s financial information. Id. ¶¶ 22, 27, 76. When Flagstad continued to 

stonewall the Trust, Streibich sought and obtained partial account information from 

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one of Folding Light’s banks. Id. ¶ 28. The records showed that, from June 2019 until 

February 2020, Flagstad made nineteen cash wire transfers—totaling just over 

$849,000—from Folding Light into two bank accounts. Id. ¶¶ 28–29. Flagstad did not 

notify Folding Light’s members or management committee of the transfers, and he 

did not seek the Trust’s consent to a related-party transaction (as he had with the 

revolving credit line). Id. ¶ 28. Plaintiffs allege that defendants created phony 

invoices and expense records to substantiate cash transfers from Folding Light to 

Oxford Media, FFA, and other defendants. Id. ¶¶ 26, 76. 

The facts above were in the original complaint, but the amended complaint

offers some new allegations. First, from January 2019 until at least August 2020, the 

corporate defendants paid $5,290,780.72 to American Express for Flagstad-incurred 

charges. Id. ¶¶ 30, 106, 111. Second, Channel Clarity, LLC (another Flagstad 

company but not a defendant here), paid $625,762.87 to American Express for 

Flagstad-incurred charges. Id. ¶ 30. These American Express expenses “in whole or 

in part, [were] not legitimate business expenses.” Id. The complaint adds that 

Flagstad paid over $5 million in American Express bills “with cash proceeds from the 

Enterprise.” Id. ¶ 78. Third, plaintiffs assert that in April 2020, Oxford Marketing 

and Oxford Tax fraudulently obtained over $640,000 in forgivable, governmentbacked loans through Wintrust Financial (via the Small Business Administration’s

Paycheck Protection Program). Id. ¶¶ 42–73. Flagstad signed the PPP-loan

applications as the authorized representative of Oxford Marketing and Oxford Tax. 

Id. ¶¶ 52, 67. The applications inflated employee and payroll information to obtain 

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the loans, and then used the loan proceeds “in furtherance of the Enterprise’s goal to

enrich Flagstad.” Id. ¶¶ 50, 56, 65, 71. According to plaintiffs, the American Express 

charges and the loan applications show that Flagstad “is continuing to engage in mail 

fraud, wire fraud, and bank fraud in order to obtain money for the Enterprise.” Id. 

¶ 78. Finally, plaintiffs allege, upon information and belief, that Flagstad and 

Cloverpoint engaged in offshore banking “to secrete fraudulently obtained funds from 

the Trust.” Id. ¶¶ 79, 110. In total, Flagstad received at least $1.5 million in cash 

payments from January 2019 to August 2020. Id. ¶ 25.

The amended complaint posits that Flagstad and the corporate defendants 

collectively agreed to commit, and subsequently committed, a pattern of racketeering 

activity to defraud plaintiffs, banks, the government, and other victims. Plaintiffs

bring RICO and RICO-conspiracy claims, 18 U.S.C. § 1962(c)–(d) (Counts I & II), 

along with five state law claims: common law fraud (Count III), conversion/theft 

(Count IV), breach of fiduciary duty (Count V), breach of contract (Count VI), civil 

conspiracy (Count VII), and a demand for an accounting (Count VIII).

This is plaintiffs’ second attempt to state a RICO claim. I dismissed the original 

complaint without prejudice because plaintiffs had failed to adequately allege the 

elements of a substantive RICO claim or a RICO conspiracy. See [40] at 5–14. The

question now is whether the new facts about American Express payments, federal 

PPP loans, and offshore banking push the complaint’s RICO claims over the 

plausibility line.

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III. Analysis

A. Racketeer Influenced & Corrupt Organizations Act

RICO makes it “unlawful for any person employed by or associated with any 

enterprise ... to conduct or participate, directly or indirectly, in the conduct of such 

enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c).

To state a § 1962(c) claim, a plaintiff must show “(1) conduct (2) of an enterprise 

(3) through a pattern (4) of racketeering activity.” Menzies, 943 F.3d at 336 (quoting

Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496–97 (1985)). A plaintiff must do more 

than allege the above elements in a “boilerplate fashion;” a plaintiff must “allege 

sufficient facts to support each element.” Goren, 156 F.3d at 727. 

1. Enterprise

Without an enterprise, there can be no RICO claim. A RICO enterprise can be 

a formal legal entity (including any partnership, corporation, or association), or an 

informal “group of individuals associated in fact although not a legal entity.” 18 

U.S.C. § 1961(4). An association-in-fact enterprise must have an ascertainable 

structure, but it “need not have any structural features beyond ‘a purpose, 

relationships among those associated with the enterprise, and longevity sufficient to 

permit these associates to pursue the enterprise’s purpose.’” United States v. Brown, 

973 F.3d 667, 682 (7th Cir. 2020) (quoting Boyle v. United States, 556 U.S. 938, 946 

(2009)). “Despite the expansive nature of this definition, it is not limitless.” United 

Food & Commercial Workers Unions & Employers Midwest Health Benefits Fund v. 

Walgreen Co., 719 F.3d 849, 853 (7th Cir. 2013). The enterprise’s purpose must be “a 

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common purpose of engaging in a course of conduct,” United States v. Turkette, 452 

U.S. 576, 583 (1981), and “separate from the predicate acts themselves.” United 

States v. Masters, 924 F.2d 1362, 1367 (7th Cir. 1991). A RICO plaintiff must identify 

“a truly joint enterprise where each individual entity acts in concert with the others 

to pursue a common interest.” Bible v. United Student Aid Funds, Inc., 799 F.3d 633, 

656 (7th Cir. 2015). The enterprise element prevents “every conspiracy to commit 

fraud that requires more than one person to commit” it from becoming a RICO 

violation. Id. (quoting Stachon v. United Consumers Club, Inc., 229 F.3d 673, 676 (7th 

Cir. 2000)). 

Accordingly, a plaintiff must “identify a ‘person’—i.e., the defendant—that is 

distinct from the RICO enterprise.” United Food & Commercial Workers, 719 F.3d at 

853. A “person” may be a natural person or an entity “capable of holding a legal or 

beneficial interest in property.” 18 U.S.C. § 1961(3). A plaintiff must show that each 

RICO defendant “conducted or participated in the conduct of the ‘enterprise’s affairs,’ 

not just their own affairs.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993); see also 

Crichton v. Golden Rule Ins. Co., 576 F.3d 392, 399 (7th Cir. 2009) (“[A]n associationin-fact enterprise must be meaningfully distinct from the entities that comprise it 

such that the entity sought to be held liable can be said to have controlled and 

conducted the enterprise rather than merely its own affairs.”); Baker v. IBP, Inc., 357 

F.3d 685, 692 (7th Cir. 2004) (“Without a difference between the defendant and the 

‘enterprise’ there can be no violation of RICO.”). As such, an enterprise must be more 

than a group of associated businesses that operate in concert under one person’s 

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control, and “naming of a string of entities does not allege adequately an enterprise.” 

Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 646 (7th Cir. 1995).

Plaintiffs argue that Flagstad and the corporate defendants are distinct 

persons, and that together, they form an association-in-fact enterprise. See [42] 

¶¶ 115–116; [51] at 11. Flagstad did not act alone, plaintiffs say, but rather acted in 

concert with the corporate defendants. [51] at 11–12. The enterprise’s purpose, 

according to the amended complaint, is to “engage in financial fraud ... to enrich 

Flagstad.” [42] ¶ 116; see also id. ¶¶ 24, 32, 56, 71, 123. As for relationships among 

members, the complaint alleges that Flagstad controls each of the corporate 

defendants and that the defendants have communicated with one another to execute 

cash transfers and obtain loans with a shared goal: Flagstad’s enrichment. See id.

¶¶ 5–11, 123–124. Plaintiffs assert that the enterprise has been ongoing since May 

2018. [51] at 9. 

Like the original complaint, the amended complaint does not plausibly suggest 

the existence of an association-in-fact enterprise with a purpose separate from the 

predicate acts. Flagstad’s personal enrichment through fraud is not a purpose on 

behalf of an enterprise distinct from the individual defendants’ motives to commit 

predicate acts. Rather, it shows only that the defendants committed fraud together, 

but that is not enough to separate predicate acts from an enterprise. Plaintiffs say

that defendants acted in concert and performed certain assigned roles, but these 

conclusory allegations “do not allow a plausible inference that the defendants worked 

together for the same unlawful purpose.” Sheikh v. Wheeler, 790 Fed. App’x 793, 796 

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(7th Cir. 2019). Instead, while Flagstad is at the center of all of the amended 

complaint’s allegations, those allegations “contain different actors for each event” and

“do not indicate how the different actors are associated and do not suggest a group of 

persons acting together for a common purpose or course of conduct.” Rao v. BP 

Products North America, Inc., 589 F.3d 389, 400 (7th Cir. 2009). The mere fact that 

“that the defendants had a commercial relationship” due to Flagstad’s control over 

each entity does not imply that “that they had joined together to create a distinct 

entity for [RICO] purposes.” United Food & Commercial Workers, 719 F.3d at 855. In 

short, plaintiffs still fail to separate the enterprise from the predicate acts.

The alleged enterprise also is not distinguishable from the defendants. See id. 

at 853–54 (the enterprise must be distinct from the defendant). According to the 

amended complaint, Flagstad and the corporate defendants constitute a RICO 

enterprise because “[t]heir association encompassed an enterprise for the commission 

of at least two predicate acts of racketeering activity” with the purpose of engaging 

in “financial fraud ... to enrich Flagstad.” [42] ¶¶ 115–116. But like the original 

complaint, this conclusory allegation shows only that defendants wanted to commit 

crimes. It does not suggest an enterprise’s separate existence and fails to separate 

the enterprise from a person. Advancing Flagstad’s self-interest is not a purpose that 

gives separate existence to an enterprise and does nothing to separate Flagstad from 

the purported enterprise. Nothing in the amended complaint—including the 

allegations of illegitimate credit card payments, fraudulent bank loans, and offshore 

banking—reveals how “actions were undertaken on behalf of the enterprise” and not 

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by defendants’ “in their individual capacities, to advance their individual selfinterests.” United Food & Commercial Workers, 719 F.3d at 854. That is, the new 

allegations that Flagstad and some of the corporate defendants committed other 

crimes do not suggest that those crimes were committed on behalf of a distinct 

enterprise. The amended complaint contains ample allegations of Flagstad’s 

misconduct, but “it falls short of plausibly alleging the type of concerted activity 

undertaken on behalf of an identifiable enterprise necessary to a successful RICO 

claim.” Id. at 850–51.

While plaintiffs also claim that the alleged enterprise made it easier for 

defendants to commit the predicate acts, see Emery v. American General Finance, 

Inc., 134 F.3d 1321, 1324 (7th Cir. 1998), they do not explain how. The complaint 

describes conduct that might plausibly state a claim for fraud against Flagstad, but 

RICO does not penalize isolated criminal activity or garden-variety fraud. See 

Menzies, 943 F.3d at 337 (quoting Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 

1022 (7th Cir. 1992). Plaintiffs have failed to allege that any defendant used a distinct 

enterprise to engage in a pattern of racketeering activity. See Jay E. Hayden 

Foundation v. First Neighbor Bank, N.A., 610 F.3d 382, 389 (7th Cir. 2010) (RICO 

creates liability for “using an enterprise to engage in a pattern of racketeering 

activity”).

Finally, plaintiffs emphasize that the corporate defendants are legally distinct 

from Flagstad, and while that’s certainly true, it gets plaintiffs no closer to alleging

an association-in-fact enterprise. Plaintiffs rely on Cedric Kushner Promotions, Ltd. 

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v. King, 533 U.S. 158 (2001), which held that, under RICO, the president and sole

shareholder of a closely held corporation is distinct from the corporation itself (the 

enterprise) “even where the employee is the corporation’s sole owner.” Id. at 163. 

Cedric, however, addressed “a claim that a corporate employee is the ‘person’ and the

corporation is the ‘enterprise,’” which is “quite different” from “a claim that a 

corporation was the ‘person’ and the corporation, together with all its employees and 

agents, were the ‘enterprise.’” Id. at 164. In other words, when a corporation itself is 

the RICO enterprise, its sole owner is a person distinct from the enterprise. But

Cedric did not address plaintiffs’ theory here: whether a group of companies with 

their common owner constitute an association-in-fact RICO enterprise when they 

commit crimes at their owner’s direction. There is no dispute that Flagstad and the 

corporate defendants are distinct persons under RICO. See [55] at 9. But that fact—

and the fact that corporate defendants had other members and employees—does not 

suggest that the defendants together formed an association-in-fact enterprise with a 

distinct purpose, relationships, and longevity.

In sum, plaintiffs have not identified an enterprise with a common purpose 

separate from a person or the predicate acts.

2. Conduct (Operation or Management)

A RICO plaintiff must also show that each defendant “participated in the 

operation or management of the enterprise itself” and therefore played “some part in 

directing the enterprise’s affairs.” Reves, 507 U.S. at 179, 183. The “operation-ormanagement requirement does not necessarily limit the scope of liability to an 

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enterprise’s upper management,” but “simply performing services for an enterprise, 

even with knowledge of the enterprise’s illicit nature, is not enough to subject an 

individual to RICO liability under § 1962(c).” Patel, 986 F.3d at 698–99 (quoting 

Goren, 156 F.3d at 728); see also Crichton, 576 F.3d at 399 (“Allegations that a 

defendant had a business relationship with the putative RICO enterprise or that a 

defendant performed services for that enterprise do not suffice.”). Thus, RICO 

liability does not attach for mere association with an enterprise; one must “somehow 

operate or manage the enterprise.” Brouwer v. Raffensperger, Hughes & Co., 199 F.3d 

961, 966 (7th Cir. 2000). Here, plaintiffs argue that the corporate defendants 

conducted the affairs of an enterprise because they received unauthorized wire 

transfers and “implemented Flagstad’s decision to use unauthorized banking activity 

to defraud investors.” [51] at 14. Plaintiffs also claim that the new bank fraud 

allegations—connected to the PPP loans—show that Oxford Marketing and Oxford 

Tax assisted Flagstad in committing bank fraud. Id. at 14–15.

But the amended complaint still does not allege facts showing that anyone 

other than Flagstad managed or operated anything. Plaintiffs level specific 

allegations against only Flagstad. Flagstad made false promises when he solicited 

the Trust’s investment, transferred the funds from Folding Light to himself and other 

defendants, and obtained a loan from the Trust on behalf of Oxford Marketing. 

Flagstad “directed” the defendants to “engage in a scheme to defraud investors, 

banks, and the government.” [42] ¶¶ 73–74. To feed his personal need for cash, 

Flagstad “orchestrated the theft of millions in funds ... to transfer cash between the 

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Defendants” to “maintain an image of financial success ... to continue to defraud other 

investors.” Id. ¶¶ 31, 75. “Flagstad continues to funnel cash from Folding Light 

through the Corporate Defendants [and] into his own pockets to feed his lavish 

lifestyle and maintain his image with private equity investors so he can continue 

obtaining a steady supply of trading capital.” [51] at 8.

When it comes to the corporate defendants, on the other hand, the amended 

complaint continues to recite the elements of the operation-or-management 

requirement in a conclusory fashion. Each corporate defendant “directed and 

participated, directly and indirectly, in the illegal activities of the Enterprise, 

including fraudulently obtaining funds from the Trust, as well as other investors.” 

[42] ¶¶ 89, 95, 98, 101, 104; see also id. ¶¶ 81, 108. And each corporate defendant 

“participated in facilitating and paying illegitimate business expenses in furtherance 

of the Enterprise through the electronic transfer of funds to each other or directly to 

American Express.” Id. ¶¶ 87, 93, 96, 99, 102, 106, 111. The complaint does not allege 

that the American Express payments, even if made for illegitimate business 

expenses, amount to racketeering activity or proximately caused plaintiffs’ injuries. 

See Hemi Group, LLC v. City of New York, N.Y., 559 U.S. 1, 17–18 (2010) (RICO’s 

“reach is limited by the ‘requirement of a direct causal connection’ between the 

predicate wrong and the harm”) (quoting Anza v. Ideal Steel Supply Corp., 547 U.S. 

451, 460 (2006))). But even setting those issues aside, plaintiffs’ conclusory 

allegations—bereft of any facts that would give rise to a reasonable inference of 

wrongdoing—“will not do.” See Patel, 986 F.3d at 700. “Absent particular allegations” 

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that the corporate defendants “participated in the operation or management” of the 

enterprise, none can be held liable under § 1962(c). Id.

The complaint’s most specific allegations against the corporate defendants are:

that Flagstad transferred $340,000 to FFA from Folding Light and that Oxford 

Marketing remains on the hook to Folding Light for most of the $200,000 loan (which 

Flagstad procured). [42] ¶¶ 20–21. But there is nothing to suggest that either FFA or 

Oxford Marketing were anything more than Flagstad’s pass-through vehicles to 

transfer funds to himself. The same goes for the allegations that Flagstad signed 

fraudulent loan-application documents on behalf of Oxford Marketing and Oxford 

Tax. Allegations of defrauding the government and financial institutions are serious, 

but again, plaintiffs have not shown how this conduct is related to their injury or how 

Oxford Marketing or Oxford Tax were managing or operating an enterprise. As for 

the remaining corporate defendants, the complaint contains no specific factual 

allegations of any conduct by Oxford Media, Oxford FG, Oxford GP, or Cloverpoint.2

In the end, plaintiffs’ amended complaint gets no closer to satisfying the 

operation-or-management requirement. So, even if plaintiffs had sufficiently alleged 

an enterprise, their RICO claim would fall short against all corporate defendants. See 

 2 Plaintiffs allege, “upon information and belief,” that Flagstad and Cloverpoint engaged in 

offshore banking “to secrete fraudulently obtained funds from the Trust.” [42] ¶¶ 79, 110. 

Plaintiffs appear to base this allegation on the fact that Flagstad “obtained letters of 

reference from a bank officer at a federally insured institution and an attorney in order to 

establish offshore bank accounts.” Id. ¶ 79. But there is no allegation of RICO predicate acts 

stemming from this conduct. And even if Flagstad took steps to establish an offshore bank 

account to further a fraud scheme, there are no factual allegations that raise a reasonable 

inference that Cloverpoint had any involvement, let alone managed or operated an 

enterprise. 

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Patel, 986 F.3d at 699 (RICO “does not penalize tangential involvement in an 

enterprise”) (quoting Crichton, 576 F.3d at 399)). 

3. Pattern of Racketeering Activity

A “pattern of racketeering activity” requires “at least two acts of racketeering 

activity” within a ten-year period. 18 U.S.C. § 1961(5). RICO predicate offenses

include mail, wire, and bank fraud (18 U.S.C. §§ 1341, 1343, 1344), and the interstate 

transportation of stolen property (18 U.S.C. § 2314). See 18 U.S.C. § 1961(1)(B).3 The 

pattern pleading requirement is “designed ‘to forestall RICO’s use against isolated or 

sporadic criminal activity, and to prevent RICO from becoming a surrogate for 

garden-variety fraud actions properly brought under state law.’” Menzies, 943 F.3d at 

337 (quoting Midwest Grinding, 976 F.2d at 1022).

To establish a pattern of racketeering activity, a plaintiff must show a 

“continuity plus relationship,” meaning “a relationship between the predicate acts as 

well as a threat of continuing activity.” Menzies, 943 F.3d at 337 (quoting DeGuelle v. 

Camilli, 664 F.3d 192, 199 (7th Cir. 2011)). The relationship element “is satisfied by 

acts of criminal conduct close in time and character, undertaken for similar purposes, 

or involving the same or similar victims, participants, or means of commission.” 

Menzies, 943 F.3d at 337. A plaintiff can establish continuity either by 

“(1) demonstrating a close-ended series of conduct that existed for such an extended 

period of time that a threat of future harm is implicit, or (2) an open-ended series of 

 3 Plaintiffs also allege that Flagstad, Oxford Marketing, and Oxford Tax violated 18 U.S.C. 

§ 1001 and 18 U.S.C. § 1014 by making false statements on the PPP loan applications. See

[42] ¶ 121. But these are not predicate acts under RICO.

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conduct that, while short-lived, shows clear signs of threatening to continue into the 

future.” Roger Whitmore’s Auto. Servs., Inc. v. Lake Cty., Illinois, 424 F.3d 659, 673 

(7th Cir. 2005).

Here, plaintiffs assert an open-ended pattern of continuity. [42] ¶ 32. To 

determine whether such a pattern exists, courts focus “not on what acts occurred in 

the past but on whether a concrete threat remains for the conduct to continue moving 

forward.” Menzies 943 F.3d at 337. A plaintiff may establish open-ended continuity 

by showing that “a defendant’s actions pose a specific threat of repetition; that the 

predicate acts form part of the defendant’s ongoing and regular way of doing business; 

or that the defendant operates a long-term association for criminal purposes.” Id. 

Moreover, when alleging predicate acts of fraud, “Rule 9(b) requires a plaintiff to 

provide ‘precision and some measure of substantiation’ to each fraud allegation.” Id.

at 338 (quoting United States ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836 

F.3d 770, 776 (7th Cir. 2016)). Rule 9(b) applies when a RICO plaintiff alleges 

predicate acts of mail fraud, wire fraud, and interstate transportation of stolen 

property (when the funds at issue are alleged to have been procured by fraud). See 

Menzies, 943 F.3d at 338; Perlman v. Zell, 938 F.Supp. 1327, 1349 (N.D. Ill. 1996). 

Plaintiffs say that the amended complaint includes specific allegations against

each defendant, that financial records show specific dates and amounts of fraudulent 

wire transfers, and that this fraudulent conduct is open-ended and constitutes 

defendants’ regular way of conducting business. Plaintiffs argue that defendants 

“engaged in unauthorized electronic transfers of Trust funds dozens of times over a 

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three-year period” and that “[a]side from the U.S. Government, there were likely 

numerous other ‘investor’ victims, some of whom have already filed suit in federal 

court.” [51] at 16.

As with the original complaint, the amended complaint adequately alleges only 

that Flagstad committed predicate acts. Plaintiffs claim that in May 2018, Flagstad 

falsely told Streibich that the Trust’s investment in Folding Light would be used for

trading purposes only. [42] ¶¶ 17–19. Plaintiffs allege that despite Flagstad’s 

repeated assurances, he began transferring funds from Folding Light to himself and 

FFA just weeks after securing the Trust’s investment. Id. ¶¶ 20–21. The complaint

provides partial banking records—from mid-2019 to early 2020—showing over 

$849,000 in unauthorized transfers that Flagstad made, from Folding Light, into two 

accounts. Id. ¶¶ 28–29. These allegations are sufficiently specific at the pleading 

stage—even under Rule 9(b)’s heightened requirements—to allege that Flagstad

used interstate wire transfers to further a scheme to defraud plaintiffs and to 

transport stolen property.

But plaintiffs still have not sufficiently alleged the corporate defendants’ 

liability for a predicate act. A RICO plaintiff alleging predicate acts of fraud must 

“plead sufficient facts to notify each defendant of his alleged participation” in the 

fraudulent scheme. Goren, 156 F.3d at 726 (emphasis added); see also Vicom, Inc. v. 

Harbridge Merchant Services, Inc., 20 F.3d 771, 77–78 (7th Cir. 1994). With respect 

to the corporate defendants here, the plaintiffs allege that the “mails and wires were 

used on numerous occasions in furtherance of” defendants’ scheme and that

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defendants communicated with one another and financial institutions through the 

use of “electronic mail and/or telephone” and “internet banking platforms” to 

fraudulently apply for and obtain bank loans, execute cash transfers, and create 

fraudulent loans between defendants. [42] ¶¶ 122–124; see also id. ¶ 119.

When RICO claims are based on predicate acts of mail and wire fraud,

however, a plaintiff must “do more than allege fraud generally” and courts “do not 

look favorably on many instances of mail and wire fraud to form a pattern.” Menzies, 

943 F.3d at 338 (quoting Midwest Grinding, 976 F.2d at 1025); see also Jennings v. 

Auto Meter Products, Inc., 495 F.3d 466, 475 (7th Cir. 2007) (“We have repeatedly 

rejected RICO claims that rely so heavily on mail and wire fraud allegations to 

establish a pattern.”). And that is what we have here. Plaintiffs conclusory allegations

of mail and wire fraud “fail to specify the time, place and content” of any 

misrepresentations or action by the corporate defendants and “therefore fall short of 

the particularity demanded by Rule 9(b).” Goren, 156 F.3d at 730. Plaintiffs cannot 

simply treat “all the defendants as one; such ‘lumping together’ of defendants is 

clearly insufficient to state a RICO claim under § 1962(c).” Id. In the absence of 

particular facts to put each corporate defendant on notice for its alleged involvement 

in the predicate acts, plaintiffs’ allegations are insufficient to satisfy Rule 9(b)’s 

requirements.

Further, the amended complaint once again fails to plausibly allege an openended pattern of continuity. Plaintiffs have not shown a threat of repetition or that 

the scheme alleged here was defendants’ ordinary way of doing business. Plaintiffs 

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argue that defendants’ fraudulent conduct—obtaining funds through the guise of 

legitimate companies and diverting those funds to advance defendants’ and the 

enterprise’s interests—is open-ended and constitutes their regular way of doing 

business. [51] at 16; [42] ¶ 32. But a plaintiff’s “conclusory allegations that 

‘defendants’ also defrauded unidentified ‘others’ are not enough to plead the requisite 

pattern of fraud.” Goren, 156 F.3d at 729. And that is all the amended complaint says 

about other investors. 

Plaintiffs have likewise not pleaded how the corporate defendants’ payment of

Flagstad’s illegitimate business expenses were tied to predicate acts of racketeering.

Moreover, the allegations that Flagstad, Oxford Marketing, and Oxford Tax 

defrauded Wintrust and the government do not plausibly suggest a specific 

continuing pattern of racketeering activity based on related conduct. Rao, 589 F.3d 

at 400 (plaintiff must “set forth a pattern of related acts in connection with an 

enterprise’s conduct”). The false statements that plaintiffs identify are not RICO 

predicate acts, and the alleged bank fraud to secure PPP loans does not create a 

pattern. Although similar in the sense that the crimes were for Flagstad’s benefit, the 

new allegations are not similar to the defalcation or embezzlement of the Trust’s 

investment and involve a different kind of victim. They are not part of the same 

pattern. And the amended complaint’s failure to adequately allege that any corporate 

defendant committed another predicate act further shows the absence of a pattern.

Failure to allege a pattern of racketeering activity provides a third independent 

ground for dismissal of the RICO claim.

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One final note on plaintiffs’ substantive RICO claims. A common theme of 

plaintiffs’ brief is that they need more discovery because defendants exclusively 

possess the details needed to state a RICO claim. [51] at 6, 9–10. Generally, Rule 9(b) 

is satisfied “by a showing that further particulars of the alleged fraud could not have 

been obtained without discovery.” Emery, 134 F.3d at 1323. To make such a showing, 

a RICO plaintiff must demonstrate that “(1) the facts constituting the fraud are not 

accessible to the plaintiff and (2) the plaintiff provides ‘the grounds for his 

suspicions.’” U.S. ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772 F.3d 1102, 

1108 (7th Cir. 2014) (quoting Pirelli Armstrong Tire Corp. Retiree Medical Benefits 

Trust v. Walgreen Co., 631 F.3d 436, 443 (7th Cir. 2011)). Plaintiffs allege that 

Flagstad wholly controls Folding Light’s financial information and that information 

relating to additional victims of defendants’ conduct is exclusively within the 

defendants’ control. [42] ¶¶ 27, 76, 123–124. 

Plaintiffs had the opportunity to engage in limited discovery to trace financial 

transactions after dismissal of the original complaint, yet they still cannot plead facts 

that establish the corporate defendants’ involvement in the predicate acts. Further,

plaintiffs’ assertions do not establish an inability to access the details necessary to 

state a claim. There is no reason to think that defendants somehow exclusively 

control access to other investors who might have been injured by defendants’ conduct. 

Nor have plaintiffs shown plausible grounds to suspect that the corporate defendants 

played a culpable role in the alleged mail and wire fraud. See Pirelli, 631 F.3d at 443 

(“The grounds for the plaintiff’s suspicions must make the allegations plausible, even 

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as courts remain sensitive to information asymmetries that may prevent a plaintiff 

from offering more detail.”).

The RICO claim is dismissed.

B. RICO Conspiracy

RICO makes it unlawful to conspire to violate any of the substantive provisions 

of the statute (subsections (a), (b), or (c)). See 18 U.S.C. § 1962(d). To state a claim for

RICO conspiracy, a plaintiff must show that: “(1) the defendant agreed to maintain 

an interest in or control of an enterprise or to participate in the affairs of an enterprise 

through a pattern of racketeering activity, and (2) the defendant further agreed that 

someone would commit at least two predicate acts to accomplish those goals.”

DeGuelle, 664 F.3d at 204 (quoting Slaney v. Int’l Amateur Athletic Fed’n, 244 F.3d 

580, 600 (7th Cir. 2001)). Plaintiffs argue that they have sufficiently pleaded an 

enterprise and that the amended complaint contains facts that raise a reasonable 

inference that defendants had an agreement to participate in the enterprise.

Plaintiffs’ failure to sufficiently allege that defendants “conducted the affairs 

of an enterprise is also fatal to [the] RICO conspiracy claim.” United Food & 

Commercial, 719 F.3d at 856. In other words, plaintiffs have not alleged the existence 

of “an agreement to participate in an endeavor which, if completed, would constitute 

a violation of the substantive [RICO] statute.” Goren, 156 F.3d at 732. Nor does the 

amended complaint raise a reasonable inference of an agreement between 

defendants. Plaintiffs have not alleged that defendants “with knowledge of a 

conspiracy to violate the RICO statute, agreed to conduct or participate in the affairs 

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of an enterprise through a pattern of racketeering and agreed to the commission of 

two predicate acts of racketeering.” Patel, 986 F.3d at 699. That is, neither the 

corporate defendants’ use as pass-through vehicles, nor the conclusory allegation that 

each defendant communicated with one another, plausibly suggest that any 

defendant entered a conspiracy. The central allegation remains that Flagstad 

defrauded the Trust. There is no allegation that some meeting of the minds occurred 

to create an enterprise and engage in a pattern of racketeering to achieve Flagstad’s 

goals.

The RICO conspiracy claim is dismissed.

C. State Law Claims

The presumption is that when “the federal claims drop out before trial, the 

district court should relinquish jurisdiction over the state-law claims.” Williams 

Electronics Games, Inc. v. Garrity, 479 F.3d 904, 907 (7th Cir. 2007); see also 28 U.S.C. 

§ 1367(c)(3); Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006). There is no federal 

interest in the remaining state-law dispute, so the remaining claims are dismissed 

without prejudice.

D. Leave to Amend

Plaintiffs request leave to amend the complaint a second time. [51] at 18–20. 

Under Federal Rule of Civil Procedure 15(a)(2), a court should freely give leave to 

amend when justice so requires. See Runnion ex rel. Runnion v. Girl Scouts of Greater 

Chi. & Nw. Ind., 786 F.3d 510, 519–20 (7th Cir. 2015). But the rule does “not mandate 

that leave be granted in every case.” Park v. City of Chicago, 297 F.3d 606, 612 (7th 

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Cir. 2002). I have discretion to deny leave after “repeated failure to cure deficiencies”

or when “amendment would be futile.” Huon v. Denton, 841 F.3d 733, 745 (7th Cir. 

2016) (quoting Arreola v. Godinez, 546 F.3d 788, 796 (7th Cir. 2008)).

The amended RICO claim suffers from the same deficiencies as the first. It 

identifies no enterprise, operation or management, pattern, or conspiracy, and thus 

fails to allege plausible RICO claims against any of the defendants. Plaintiffs’ second 

attempt to state a claim repeats the principal allegations of the first and gets no closer 

to identifying an enterprise. Although plaintiffs have added new allegations, these

new facts do not move plaintiffs’ RICO claims across the plausibility threshold. As 

such, further amendment would be futile and the RICO claims are dismissed with 

prejudice. 

One issue remains. After defendants filed the present motion to dismiss, 

plaintiffs sought leave to file a second amended complaint to add a new plaintiff—

Channel Holdings, LLC—and a new claim against Flagstad under the Computer 

Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. [49]. Because the proposed complaint 

did not address the arguments raised in the motion to dismiss, I denied the motion 

without prejudice. [50]. “A new claim is futile if it would not withstand a motion to 

dismiss.” Divane v. Northwestern University, 953 F.3d 980, 993 (7th Cir. 2020) 

(quoting Vargas-Harrison v. Racine Unified School Dist., 272 F.3d 964, 974 (7th Cir. 

2001)). The proposed CFAA claim asserts that Flagstad exceeded his authority on

Channel Clarity and Folding Light’s computers to access confidential financial 

information, which he used to steal company assets. See [49-1] ¶¶ 114–123. The court 

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would benefit from briefing on the viability of the proposed amendment. Plaintiffs 

may renew their motion for leave to file a second amended complaint, now without 

any RICO claim, to add Channel Clarity and the CFAA claim against Flagstad.

IV. Conclusion

Defendants’ motion to dismiss, [44], is granted. The RICO claims are dismissed 

with prejudice; the state-law claims are dismissed without prejudice. Plaintiffs may 

move for leave to file a second amended complaint to add Channel Clarity, LLC as a 

plaintiff and to add the proposed Computer Fraud and Abuse Act claim against 

Flagstad by May 4, 2021. If no motion is filed, the clerk will enter a final judgment 

dismissing the RICO claims with prejudice and the state-law claims without 

prejudice and terminating this case. The court will set a briefing schedule on any 

motion to file an amended complaint after the motion is docketed. The motion to 

withdraw as attorney, [58], is granted. The clerk shall terminate Matthew J. 

Schmidt’s appearance on behalf of the defendants.

ENTER:

___________________________

Manish S. Shah

United States District Judge

Date: April 20, 2021

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