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Order on Motion to Dismiss, in Re: LIBOR-Based Financial Instruments Anti-Trust Litigation

Order on Motion to Dismiss, in Re: LIBOR-Based Financial Instruments Anti-Trust Litigation

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Published by darwinbondgraham
On March 29 Judge Naomi Reice Buchwald dismissed the major charges of conspiracy under the federal anti-trust laws, and RICO claims laws, against the banks that rigged the London Inter-Bank Offered Rate.
On March 29 Judge Naomi Reice Buchwald dismissed the major charges of conspiracy under the federal anti-trust laws, and RICO claims laws, against the banks that rigged the London Inter-Bank Offered Rate.

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Published by: darwinbondgraham on Mar 30, 2013
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03/30/2013

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pretenses, representations, or promises’ about LIBOR-based

financial instruments.” Schwab Bank Am. Compl. ¶ 225; see also

id. ¶ 5 (alleging that one of defendants’ “primary reasons” for

engaging in their fraudulent scheme was that “artificially

suppressing LIBOR allowed Defendants to pay lower interest rates

on LIBOR-based financial instruments that Defendants sold to

investors, including [plaintiffs], during the Relevant Period”).

Although defendants’ misrepresentations to the BBA may have

been intended in part to facilitate defendants’ sale of non-

security instruments, it remains the case, given that certain of

the LIBOR-based financial instruments that defendants sought to

sell to plaintiffs were securities, that a significant part of

the alleged reason for all of defendants’ misrepresentations to

the BBA was to defraud purchasers of securities. In short,

because defendants’ alleged misrepresentations to the BBA were

allegedly made for the purpose of profiting unfairly fromtheir

sale of securities to plaintiffs, defendants’ misrepresentations

Case 1:11-md-02262-NRB Document 286 Filed 03/29/13 Page 137 of 161

138

to the BBA were made “in connection with” the sale of

securities.

Therefore,

all

of

defendants’

alleged

misrepresentations to the BBA would be grounds for a securities

fraud action brought by the SEC.20

Plaintiffs argue that even if their RICO claimmay not rely

on predicate acts that would have been grounds for a securities

fraud suit, the claimshould survive to the extent it involves

predicate acts that would not have been actionable as securities

fraud. Schwab Opp’n 5-7. Such predicate acts might include

communications offering non-security financial instruments.

Plaintiffs’ argument is inconsistent with how courts have

consistently applied the RICO Amendment. Specifically, where

plaintiffs allege “a single scheme,” courts have held that “if

any predicate act is barred by the PSLRA it is fatal to the

entire RICO claim.” Ling v. Deutsche Bank, No. 04 CV 45662005,

2005 WL 1244689, at *4 (S.D.N.Y. May 26, 2005).

For example, in Gilmore v. Gilmore, No. 09 Civ. 6230, 2011

WL 3874880, at *4 (S.D.N.Y. Sept. 1, 2011), “[plaintiff]'s RICO

claims [were] based on his allegations that [defendant] and

20

It is of no avail to plaintiffs that they allege that they “do not base
their RICO claim[] on any conduct that would have been actionable as fraud in
the purchase or sale of securities.” Schwab Bank Am. Compl. ¶ 227. First,
this is a legal conclusion that we need not accept as true. Second,
regardless of whether plaintiffs are correct that they could not have brought
a private action for securities fraud based on the alleged RICO predicate
acts, those predicate acts could, as discussed above, have been the basis for
a securities fraud action brought by the SEC. This is sufficient for
plaintiffs’ RICO claimto be barred under the PSLRA’s RICO Amendment.

Case 1:11-md-02262-NRB Document 286 Filed 03/29/13 Page 138 of 161

139

[defendant’s outside financial and investment advisor] engaged

in a multi-year scheme to defraud himand his siblings by

looting the family companies through self-dealing, fraudulent

securities transactions, and overbilling.” Id. at *2. The

Court held that defendant’s alleged plots to loot the family

companies “count[ed] as a single scheme.” Id. at *6.

Therefore, “the securities aspects of the fraud [needed to] be

aggregated with the non-securities aspects.” Id. In other

words, having alleged that defendant’s acts “were part of a

single fraudulent scheme[,] the [plaintiff] [could not] divide

the scheme into its various component parts,” as “such surgical

presentation . . . would undermine the Congressional purpose”

behind the RICO Amendment. Id. (quoting Seippel v. Jenkens &

Gilchrest, P.C., 341 F. Supp. 2d 363, 373 (S.D.N.Y. 2004)).

Because there was “no genuine dispute that components of

Plaintiffs alleged action could have been brought under the

securities laws,” the Court dismissed plaintiff’s RICO claims.

Id.

Similarly, in Ling v. Deutsche Bank, 2005 WL 1244689, the

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