An attempt by investors to recoup losses from their investments in Bernard Madoff's massive Ponzi scheme by suing JPMorgan Chase under the Racketeer Influenced and Corrupt Organizations Act has been rebuffed by the U.S. Court of Appeals for the Second Circuit.
MLSMK Investment Co., which lost $12.8 million in the scandal, claimed that JPMorgan Chase had suspicions about Mr. Madoff's activities but failed to freeze his bank accounts because it wanted to continue receiving substantial fees from his market making and banking activity.
Yesterday, in deciding an issue of first impression, the Second Circuit held that MLSMK's RICO claim was precluded by §107 of the Private Securities Litigation Reform Act, 18 U.S.C. §1964, as the court adopted a restrictive analysis on the bar against RICO actions in securities cases.
Judges Joseph M. McLaughlin, Rosemary S. Pooler and Robert D. Sack made that ruling in MLSMK Investment Co. v. JPMorgan Chase & Co., 10-3040-cv, after hearing oral arguments on May 25. Judge Sack wrote for the panel.
MSLMK, a Florida-based partnership, invested the money with Mr. Madoff between October and December 2008, making it among the last investors in the multi-billion dollar, long-running scheme that was revealed when Mr. Madoff was arrested on Dec. 11, 2008.
The partnership sued in the Southern District in 2009, accusing JPMorgan Chase of a conspiracy with Mr. Madoff to violate RICO by aiding and abetting his breach of fiduciary duty, commercial bad faith and negligence.
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