Opinion ID: 545190
Heading Depth: 2
Heading Rank: 1

Heading: Purchaser-Seller Standing Limitation

Text: 13 The SIPC argues that it need not have been a purchaser or seller of securities to have standing to bring a RICO claim based on predicate acts of securities fraud. 5 The SIPC urges us not to apply to its RICO claim the purchaser-seller standing limitation applicable to a Rule 10b-5 claim. See Birnbaum v. Newport Steel Corp., 193 F.2d 461, 463-64 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952). 14 In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975), a 10b-5 case, the Supreme Court adopted the Birnbaum rule. It held that, to bring a Rule 10b-5 private damages action, a plaintiff must be a purchaser or seller of securities. Blue Chip Stamps, 421 U.S. at 754-55, 95 S.Ct. at 1334-35. In a previous appeal in this litigation, we held that the SIPC has standing to assert Rule 10b-5 claims to the extent it can show FSSC and Sebag used customer assets without authorization to purchase or sell securities. Securities Investor Protection Corp. v. Vigman, 803 F.2d at 1519. 15 To determine whether the purchaser-seller standing limitation of a 10b-5 claim also applies to a RICO claim when the RICO claim is based on acts of securities fraud, we first look to RICO's text (see United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981)) and compare that text to Rule 10b-5. Section 1962(a) of RICO provides: 16 It shall be unlawful for any person who has received any income derived ... from a pattern of racketeering activity ... to use or invest ... any part of such income ... in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. 17 18 U.S.C. Sec. 1962(a). Racketeering activity includes acts of fraud in the sale of securities and of mail fraud and wire fraud. 18 U.S.C. Sec. 1961(1). Section 1964 provides: 18 Any person injured in his business or property by reason of a violation of section 1962 ... may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains.... 19 18 U.S.C. Sec. 1964(c). 20 On its face, the RICO statute has no purchaser-seller standing requirement. Any plaintiff who is injured by reason of fraud in the sale of securities may sue. See Warner v. Alexander Grant & Co., 828 F.2d 1528, 1530 (11th Cir.1987). Thus, even though the predicate acts of a RICO claim may be based on allegations of fraud in the sale of securities, the RICO text does not require a plaintiff to be a purchaser or seller, so long as the plaintiff suffered injury by reason of the alleged fraud. In contrast, for conduct to be unlawful under Rule 10b-5, it must have occurred in connection with the purchase or sale of any security. Rule 10b-5, 17 C.F.R. Sec. 240.10b-5. 21 In addition to this textual difference between RICO and Rule 10b-5, the source of the civil remedy for violations of the two are different. RICO contains its own express civil action remedy. Neither section 10(b) of the Securities Exchange Act of 1934 nor Rule 10b-5 contains an express civil remedy for a securities fraud violation. That remedy has been implied by the courts. See Blue Chip Stamps, 421 U.S. at 730, 95 S.Ct. at 1922 (citing Superintendent of Ins. v. Bankers Life & Cas. Co., 404 U.S. 6, 13 n. 9, 92 S.Ct. 165, 169 n. 9, 30 L.Ed.2d 128 (1971), and Affiliated Ute Citizens v. United States, 406 U.S. 128, 150-54, 92 S.Ct. 1456, 1470-72, 31 L.Ed.2d 741 (1972)). The remedy of a private civil action under Rule 10b-5 having been court created, the Court has not been reluctant to limit the class of plaintiffs who may bring such a private action. Blue Chip Stamps, 421 U.S. at 749, 95 S.Ct. at 1931. And it has limited that class to purchasers or sellers of securities. Id. at 730-31, 95 S.Ct. at 1922-23. 22 With regard to the RICO statute, however, the private civil action for violation of it was not created by the courts, but by Congress in enacting the statute. The RICO statute contains no limitation that a plaintiff must be a purchaser or seller of a security, and it is not appropriate for this court to impose such a limitation. Cf. Blue Chip Stamps, 421 U.S. at 748-49, 95 S.Ct. at 1930-31 ([I]f Congress had legislated the elements of a private cause of action for damages, the duty of the Judicial Branch would be to administer the law which Congress enacted; the Judiciary may not circumscribe a right which Congress has conferred because of any disagreement it might have with Congress about the wisdom of creating so expansive a liability.). And, as the Supreme Court has stated, 23 RICO is to be read broadly. This is the lesson not only of Congress' self-consciously expansive language and overall approach, but also of its express admonition that RICO is to be liberally construed to effectuate its remedial purposes. 24 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497-98, 105 S.Ct. 3275, 3285-86, 87 L.Ed.2d 346 (1985) (citation omitted) (quoting RICO, Pub.L. No. 91-452, Sec. 904(a), 84 Stat. 947). 25 We hold that the purchaser or seller standing limitation that applies to 10b-5 actions does not apply to RICO claims based upon predicate acts that are alleged to be securities fraud under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Accordingly, the SIPC has standing to assert its RICO claim. We now consider the district court's ruling on causation.