US “Domestic” RICO Violation Alleged Where Scheme “Directed to or from the US”

Dennis v. JPMorgan Chase & Co., US District Court for the Southern District of New York, November 28, 2018

Investors who traded in financial instruments in the US based on the “BBSW” benchmark sued many banks and brokerages claiming to have been injured because the benchmark was set through collusion and the defendants otherwise manipulated the market. They brought suit under the antitrust laws, the securities laws, and RICO.

As relevant here, the Court observed that RICO applies extraterritorially to the extent a violation can be made out based on the alleged violation of RICO “predicate” offenses that themselves operate extraterritorially. Because the relevant RICO violations of the Wire Fraud statute do not apply extraterritorially, the plaintiffs were required to show a US domestic violation. Whether they had done so presented a “close question,” because the US Court of Appeals for the Second Circuit had not definitively described how to characterize geographically cross-border conduct that would violate the statute if “domestic.” Considering the “focus” of the RICO statute to be the alleged “racketeering activity,” the Court concluded that a US domestic violation would exist—and the statute thus be applicable—where the alleged scheme “was directed to or from the United States.” It found the complaint plausibly alleged that the defendants had targeted the US given the large size of the US market, and thus permitted the RICO claim to proceed.

[Editor’s note: The Dennis case is also addressed in the Antitrust/Foreign Trade Antitrust Improvements Act (FTAIA), Securities Law/Commodities Exchange Act (CEA), and Personal Jurisdiction/Forum non Conveniens sections of this report.]

Alleged Conspiracy Centered Outside the US to Increase Profits Globally Does Not State RICO Violation Even Where Certain Trades Were US Domestic

Frontpoint Asian Event Driven Fund, L.P. v. Citibank, N.A., US District Court for the Southern District of New York, October 4, 2018

Two funds brought a putative class action against 46 banking defendants representing 20 international banking institutions alleging that they manipulated two Singaporean interest rate benchmarks used in the pricing of derivatives, violating the US antitrust laws and RICO. This decision addressed defense motions to dismiss on various grounds and came after an initial complaint was dismissed and certain preliminary issues were resolved.

With respect to the RICO claim, the Court observed that the US Supreme Court’s 2016 decision in the RJR Nabisco case held that RICO’s private right of action did not apply extraterritorially, and so required that a US domestic violation be alleged. It found that the complaint failed to do so, concluding that “the alleged conspiracy and manipulations occurred almost entirely abroad.” The Court discounted that certain trades were made in the US, finding that they were merely part of an alleged conspiracy to generate profits globally.

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